Contracting in simple terms is sub letting a part of your work to another company which has an expertise in that field and paying them for the work done. Contracting is primarily done for two reasons. First and foremost for saving costs and secondly because sometimes a talent or service is not available in-house so companies go for another firm. Like call center services or helpdesk management services.
Contracting may or may not be offshored. However, right now almost 70% of the world’sContracting work is being offshored to Indian firms especially in the IT and IT enabled services sector. Contracting has many advantages but at the same time it has some disadvantages that cannot be ignored.
Pros and Cons of Contracting:
The advantage lies in the fact that it helps companies cut costs and stay ahead in the competition.
Contracting helps US, UK companies and multinationals to get high quality products and services at a much cheaper rate with better customer services because these countries have higher wage rates.
Contracting of back office processes or even inbound and outbound calls to India greatly reduces the cost because employing an Indian is a whole lot cheaper than employing any one in U.K or U.S for the same kind of work and timings.
In the west, technical talent costs you a lot but in India, professional talent comes cheap. With the jostle for jobs amidst this high population ratio; firms can get the best that money can get!
With India’s wide pool of highly-skilled professionals, educated unemployed young work force and low costs of infrastructure, outsourcing the job saves 8 times the money that would have been spent on that process in US.
It makes business sense because:
- Companies cut their operating costs by half through this approach
- Get access to more efficient and skilled labor.
- Saves on training cost of employees.
- Allows access to better technologies at a much lower rate
- It increases productivity.
- Allows the firm to concentrate on its core competencies
Downside of Contracting
A downside of contracting is that a break in infrastructure due to internet failure or any other technical glitch can cost the company dearly and create delays and losses.
In case, the vendor firm goes bankrupt, or has a breakdown in management or bungling of funds (like in the Satyam Case) then the customers are left high and dry!
It may also may lead to the company losing control over its process and the in-house staff being unable to handle it in case of an emergency.
Sometimes the firm is handling sensitive data and the security measures are not so stringent, then it could lead to information breach which could be crucial in banking and financial outsourcing.
At times the current employees in the company may feel threatened due to contracting and may not allow it to happen.
But the benefits of outsourcing far outweigh the cons and if companies adopt a planned approach to contracting then it can give a great boost up in the profit sheets of any organization.