BUSINESS FEATURE

One of the biggest catalysts for change affecting business everywhere is globalization.

As Thomas Friedman says, The World is Flat. His book chronicles factors such as the collapse of communism opening economies in China, India, and Russia that combined with the explosion of global internet usage, common software like Microsoft® Windows™ and Office™, and logistics (think Wal-Mart® and FedEx®) to enable global supply-chains, offshoring, and outsorcing.

Outsourcing is a double-edged sword that cuts both corporate costs and American jobs. It seems like management everywhere wants to outsource everything to someplace else. And it’s tough to argue against cheaper resources available overseas. But should the decision to outsource be a purely economical decision? We say no—and offer some advice to consider when making these decisions.

When to outsource
There are many situations when outsourcing is the wrong move. Would Apple® be better off contracting its interface usability design to another firm? Of course not—that’s a critical and fundamental element in the success of their elegant consumer products. And no one does it as well as they do it internally.

But Apple knows it’s not the best at producing all of the 451 components that go into iPods, so it contracts that to Japanese firms like Toshiba®. Likewise, Toshiba knows it can’t assemble iPods as cost-effectively as possible in Japan, so they outsource that to companies in the Philippines and China.

This is a best-case scenario that embraces collaboration and delivers a product we all want more effectively thanks to outsourcing. Apple isn’t laying anyone off at home. Neither is Toshiba. And workers in emerging markets are gaining disposable income and entering the middle-class—so they consume Apple products like the rest of us.

When outsourcing doesn’t make sense
The takeaway from the iPod example is that Apple and Toshiba both do what they do best—and outsource what they don’t. Apple sticks to what they’re great at—and that’s why their stock is a Wall Street wunderkind.

Whatever widget you make, there are areas you should never outsource and areas you can. Here are some factors to consider:

Factor 1: What is your company’s core competency?
Let’s say your company’s core competency is producing IT products and services. If your company wants to beef up email marketing, are you better off hiring one person with email marketing experience to drive your initiative? Then, do you also hire a team of in-house web designers, copywriters, and developers?

While you need internal brand champions, a strong marketing team, and managers with content expertise, you don’t need the full-time headcount of all those resources along with the HR and management headaches that come along with them.

Outsourcing to an agency connects your organization to a network of specialized knowledge. You tap into their experience in executing email campaigns across multiple platforms and industries, an understanding of international laws and regulations you are required to follow, and know-how to test, track, and improve results.

Always stick to what you do best—like creating the ideas that make your product or service better than your competitors. And for what you don’t do best, find someone who does and engage them as a partner.

Factor 2: Is the resource need short-term or long-term?
If the capability in question is short-term or seasonal, it makes sense to outsource. You can easily—with no strings attached—scale the level of support up or down. If your need turns into something long-term, you can always bring it in-house later. Outsourcing gives you an opportunity to “try before you buy” and assess your need in a cost-effective fashion.

Also, it gives your organization an opportunity to learn from other experts about unique best practices without suffering through the difficult learning curve of organically growing a new department. If you can avoid a headache, why wouldn’t you?

Factor 3: Is there a cultural impact?
Contractors in the Philippines can assemble iPods just fine. But can they write your headlines? When marketing is involved, outsourcing to another country doesn’t make sense. Subtleties in language, dialect, and design are something that cannot be outsourced and are difficult to learn. Don’t let the cost savings override the importance of cultural relevance. If you do, you’ll see a decline in your marketing effectiveness.

Even if your target audience is in the same location as your outsourced vendor, do they intimately understand your company story, how to nurture your brand, and how best to sell your products? Effective marketing is built on big ideas—not cheap overseas prices.

Collaborate effectively and long-term
So whether you currently outsource, or are thinking of outsourcing, keep these factors in mind when making the decision. When it comes to marketing, a good agency will work with you as a business partner rather than a vendor. You can reap the all the benefits of outsourcing is a sustainable way that promotes long-term growth and profitability. The lessons of outsourcing shouldn’t be that things can get done more cheaply, but that things can get done more effectively with smart collaboration.