What Are the Economic Benefits and Drawbacks of Outsourcing or Offshoring?

By Greg Grzesiak Greg Grzesiak has been verified by Muck Rack's editorial team
Published on April 13, 2023

From paying attention to the potential impacts on company culture to seeking beneficial foreign currency exchange rates, here are 12 answers to the question, “What are the economic benefits and drawbacks of outsourcing or offshoring your startup’s needs?”

  • Possible Imbalance in Company Culture
  • Access to Innovative Technology You Can’t Build In-house
  • Reduction in Time to Market
  • Losing Control of the Process
  • Potential Loss of Jobs
  • Less Price Typically Means Less Quality
  • Negotiating Better Contract Terms
  • Cost Savings 
  • Flexibility With Growth and Funds
  • Draws New Ideas from Other Markets
  • Strengthens International Ties
  • Leverages Favorable Exchange Rates

Possible Imbalance in Company Cultural

There are economic and talent acquisition benefits to offshoring, i.e., scaling faster and finding talented workers in all parts of the world, but one drawback that has become more apparent since the pandemic is the impact of dispersed workforces on company culture and employee morale.

It’s harder to build a shared culture and values-oriented workforce when hiring is taking place all over the world, and it can cause employees to feel very disconnected from one another. That negative culture can decrease productivity and increase employee turnover, which would then nullify the benefits. 

So, it becomes about how well you balance offshoring and centralizing. And focusing on helping dispersed workers to get to know one another better can remove those boundaries and make a dispersed company function better.

Scott Hitchins, CMO, Interact Software

Access to Innovative Tech You Can’t Build In-house

Outsourcing allows startups to tap into the latest technological innovations in their space, which they may not have the capacity to develop in-house. 

Outsourcing to specialized service providers allows startups to access cutting-edge services in very streamlined departments, which may slow down the startup if they were to build such infrastructure within the company. 

Being able to outsource means you can rapidly deploy those groundbreaking innovations. This is because these specialized service providers have, over the years, built comprehensive teams of seasoned specialists with neatly streamlined work processes optimized for maximum efficiency and the shortest execution time.

On the darker side, outsourcing as a startup comes at the risk of losing customization in your solutions. This is particularly true when you outsource to service providers who deploy large-scale templated service delivery not extensively tailored to your particularities.

Lotus Felix, CEO, Lotus Brains Studio

Reduction in Time to Market

Speed can make or break a startup’s chances in today’s market. While it’s important to build a high-quality product, startups must also prioritize getting their MVP (minimum viable product) to market quickly, gathering feedback, and iterating to improve it.

Outsourcing can be a valuable strategy to reduce time-to-market. Developing a new product can be a complex and time-consuming process, particularly for startups with limited resources and expertise. Startups can leverage specialized service providers or offshore teams to speed up their roadmap and get the product to market faster to validate assumptions and gain valuable feedback from customers that will inform future product iterations. 

A technical partner can also help startups identify the key technical requirements for their product, suggest cost-effective solutions, and assist with developing a solid go-to-market plan.

David Stellini, Co-founder, All Front

Losing Control of the Process

The potential drawback of outsourcing or offshoring for a startup is the risk of losing control of the process. When a startup sends certain tasks or services to an outside provider, they lose control over the quality of the work and might suffer from increased delays and miscommunication.

Additionally, there may be language or cultural barriers that can make communication with the vendor difficult.

Jaya Iyer, Marketing Assistant, Teranga Digital Marketing

Potential Loss of Jobs

One of the economic drawbacks of outsourcing or offshoring is the potential loss of jobs in the home country. When jobs are outsourced or offshored, it can have a negative impact on the local economy, particularly in industries that are heavily affected. 

Additionally, outsourcing or offshoring can lead to lower quality control, communication difficulties, and other potential issues that may ultimately end up costing the company more in the long run.

Jason Moss, President and Co-founder, Moss Technologies

Less Price Typically Means Less Quality

Several drawbacks may cause entrepreneurs to reconsider this approach. 

First, communication barriers can arise because of differences in time zones, language, and cultural nuances. This can lead to misinterpretations or delays, impacting the overall project timeline and quality. And the risk of losing control over critical aspects of your business increases as your reliance on external partners grows.

This lack of direct oversight could cause subpar work or even the exposure of sensitive information. While offshoring may provide short-term financial benefits, it may stifle the organic growth and development of your in-house team, ultimately hindering the long-term success of your startup.

In conclusion, outsourcing and offshoring can provide immediate advantages, but entrepreneurs should carefully weigh the potential drawbacks to ensure the best outcome for their startup’s needs.

Michael Lazar, Executive, ReadyCloud

Negotiating Better Contract Terms

An often overlooked benefit of outsourcing is the savings on tools and software passed on to startups. Setup, licensing, and subscription fees can cost tens of thousands of dollars a year, ebbing the cash flow and shrinking the profit margins of new businesses. 

Outsourced agencies have the purchasing power to negotiate more favorable contract terms with some of the most advanced platforms in the market. Not only does this help outsourced teams provide the most cost-effective services, but it also helps them provide the most efficient outcome for the startups they serve.

Vito Vishnepolsky, Founder and Director, Martal Group

Cost Savings

One of the economic benefits of outsourcing or offshoring your startup’s needs is cost savings. By outsourcing or offshoring non-core functions such as IT, customer service, or accounting to third-party providers in countries with lower labor costs, startups can save money on salaries, benefits, and other overhead expenses.

This can be beneficial for startups with limited resources or funding, as it allows them to focus their resources on core business functions, such as product development, marketing, and sales.

In addition, outsourcing or offshoring can also provide startups with access to specialized skills and expertise that may not be available locally. For example, a startup in the United States may hire highly skilled software developers from countries such as India or Ukraine at a lower cost than hiring locally.

Harsh Verma, SEO Head, Codedesign

Flexibility With Growth and Funds

For startups that may need to scale up or down at a moment’s notice as they work on establishing a consistent customer base, outsourcing can be the perfect solution. Besides the obvious reasons like not having to recruit, hire, train, offer benefits, and then lay off employees as funds fluctuate, outsourcing gives startups a chance to bring on highly specialized employees for specific projects. 

When a startup is in the lean and mean phase of growth, outsourcing lets the startup apply employees exactly at the right spot to accelerate growth.

Vlad Dzhidzhiyeshvili, CEO, Ventive

Draws New Ideas from Other Markets

The most obvious economic benefit of offshoring is that it saves money. But one of the more important and often overlooked benefits is that it increases the diversity of ideas within the company.

I run a small company, which means we’re limited by our own life experiences and training. Bringing in offshore talent helps to foster new ideas that can improve our product offerings and services, which, in turn, can really help us grow revenue.

Temmo Kinoshita, Co-founder, Lindenwood Marketing

Strengthens International Ties

One of the economic benefits of outsourcing or offshoring your startup’s needs is that it can strengthen international ties. By partnering with companies in other countries, you can build valuable relationships and gain access to new markets and resources. This can lead to increased sales, improved efficiency, and lower costs. 

Additionally, outsourcing can help you tap into specialized skills and expertise that may not be available locally. By building a global network of partners and suppliers, you can create a more diversified and resilient business that is better equipped to compete in the global marketplace.

Ryan Flannagan, CEO and Founder, Nuanced Media

Leverages Favorable Exchange Rates

We are a borderless company in the truest sense of the word, so I have a lot to say about this topic. Our full-time employees are all over the world, and we also outsource much of our consulting and marketing work to incredible suppliers and talent in countries such as South Africa and the Philippines. 

The most compelling advantage is obviously leveraging favorable exchange rates, enjoying the gritty and brilliant work ethics among those suppliers, and knowing that when you log off for the day, someone is logging on to work for your business. You also bring so many different perspectives from around the world, watching trends we share with each other from across the Atlantic Ocean.

If you don’t want to break your budget in the early days, offshore to trustworthy talent.

Eran Mizrahi, CEO and Founder, Ingredient Brothers

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By Greg Grzesiak Greg Grzesiak has been verified by Muck Rack's editorial team

Greg Grzesiak is an Entrepreneur-In-Residence and Columnist at Grit Daily. As CEO of Grzesiak Growth LLC, Greg dedicates his time to helping CEOs influencers and entrepreneurs make the appearances that will grow their following in their reach globally. Over the years he has built strong partnerships with high profile educators and influencers in Youtube and traditional finance space. Greg is a University of Florida graduate with years of experience in marketing and journalism.

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