Many business owners fear recession and the challenges that come with it.
Recessions are a difficult time for everyone, but it can be particularly challenging for business owners. They have to try to reduce costs to manage a slower economic climate. During a recession, outsourcing is a logical alternative which can help entrepreneurs survive. If business owners master this smart business move, they can soldier through a recession and come out unscathed when the economy finally recovers.
Recession and its Impact
“The Great Recession” as they call it, is one of the things the US will always remember. The economy peaked in December 2007 and weakened so much, reaching its climax during the fall of 2008. The country’s GDP fell by 4.3%, and the unemployment rate more than doubled, skyrocketing from less than 5% to 10%. And while the economy bottomed out mid-2009, there was a very slow recovery in the following years.
What is a recession? It is basically a period of economic decline or downturn, which can last for a few months to a few years depending on many factors. It impacts businesses through many aspects, from manufacturing slowdown to employment loss, partly influenced by lesser spending of consumers. Here are some of the significant impacts that companies can experience during an economic recession:
1. Reduction of Profits
Everybody, from business owners to consumers, becomes more careful with their spending. Naturally this will impact sales, which is the lifeline to finance the different areas of your business. As a result, you’ll need to slash a lot of costs–products in the pipeline, employees, and other expenses have to be reconsidered to save money.
2. Loans will be harder to access
Together with consumers and competitors, lenders will have to increase their interest rates. Lending requirements also become more stringent, which means making loans to help a business stay afloat also becomes more challenging.
3. Cash flow reduction
Naturally, as consumers tighten their belts, there will be reduced profit for a business. A reduction in cash flow may mean more loans and delayed payments to suppliers, which will eventually reflect on their financial statements. Organizations may have to rethink and restrategize in order to lessen costs and maximize profits.
4. Poorer product quality
Companies will find it more difficult to afford their usual production costs, which will ultimately affect their product. When these costs (and even manpower costs) are reduced, it will negatively affect either the service they provide, or the product they sell. To make matters worse, this can even turn off some customers which can affect brand loyalty.
Benefits of Outsourcing During a Recession
As scary as recession may sound, companies can find a solution in outsourcing. Many organizations outsourced their employees especially in IT during the aforementioned 2008 US recession. Outsourcing business operations to countries with lower labor rates saved them a lot of money, and the funds they saved were redirected to marketing.
There are numerous benefits that outsourcing offers during a recession, listed below:
1. Your remaining employees will thank you.
As painful as it may sound, layoffs and job cuts are inevitable during a recession. This is not only a disadvantage to the ones who lose their jobs, but also to the remaining employees who have to shoulder added responsibility. Outsourcing can allow you to hire additional workers at a lower rate. At the same time, it also eases the burden from your remaining in-house team.
2. Accomplish short-term goals without hiring long-term employees.
There are some duties that don’t warrant a full-time job and the employer obligations that come with it. However, these said tasks are still essential, but your in-house workforce may be loaded because of layoffs. Outsourcing provides a solution for this dilemma. Your new outsourced employees will serve as a huge assistance to still keep your business running during a recession.
3. Cut on costs, but not on benefits.
You can outsource your admin staff (HR, accounting, customer service, etc.) and other employees without incurring the additional employee benefits, and still be able to retain your in-house team’s benefits to boost their morale. With this setup, both your outsourced employees and your regular employees reap the compensation they have agreed upon, and make sure that your operations will not be crippled.
A recession is not the end for a business. Outsourcing offers a solution!
Some Companies that Outsourced During a Recession
There are many businesses that struggle during a recession, and definitely, some of them have to shut down because they cannot keep up. However, there are also resilient organizations that took advantage of outsourcing to fight against difficult times. These 5 titans are very recognizable, and their ingenuity kept them at the top for a reason:
1. Whatsapp
Did you know that Whatsapp, the most downloaded messaging app in the word, was actually founded during the recession of 2007-2009? Its humble beginnings started out as a small firm in Mountain View, with only 30 employees.
However, their success did not just depend on these 30 in-house employees. Thanks to outsourcing, they were able to tap a team of developers from a country not commonly associated with outsourced employees. Instead of China, India, or the Philippines, they outsourced their development team from Russia!
As the company found success, they flew and relocated their Russian developers to the USA. Today, WhatsApp has become one of the most popular applications worldwide. Facebook then purchased it for $19 billion two years after its launch.
2. Alibaba
Founded in 1999, Alibaba has faced and survived numerous recessions and is still standing strong until now.
Despite it being a Chinese company, one of the world’s largest online marketplaces outsourced their web development from a US firm. In their early days, there were not enough web developers in China, and skilled US web developers were available at affordable prices because of the recession.
Moreover, according to former executive chairman Jack Ma, he had to find ways around the internet restrictions imposed by China. His approach persisted to the present, and Alibaba still relies on outsourced IT services. This also proves that outsourcing can actually prove to be a good alternative when your current location has some challenges supporting your business.
3. Google
The master of maneuvering a business amidst many recessions, Google has outsourced many IT services using remote teams for some time. Moreover, their philosophy as to why they outsource is not just because they can lower labor costs. They also hire people from all over the world because then they can harness global talent, and also cover for US employees’ leaves.
4. Apple
Did you know that Apple outsources one out of three of their engineers? This helped the tech titan survive the US 2008 recession, leading them to continue this practice up to this day. Currently, they outsource IT and manufacturing from China, where they can find skilled developers in as short as 15 days!
5. Skype
Thanks to outsourced Estonian app developers, Skype’s back-end development became possible, and now almost everybody knows Skype after its introduction in the mid-2000s. Similar to Whatsapp, they initially outsourced their developers and eventually brought them to the US as partners.
Just like any new endeavor, preparing to outsource your employees takes research and preparation.
How to Prepare for it
Just like any new endeavor, it takes some time to become acquainted to outsourcing. However, with the conveniences of the Internet, everything becomes easier. Here are a few tips to get started and find reliable outsourcing companies:
1. Research online
Knowledge is power! Get to know more about the nature of outsourcing. Know more about how it works with your country’s policies. Also, get acquainted with outsourcing companies that offer the services you need. With the popularity that outsourcing has gained over the years, finding information online is easier than you think.
2. Find mentors or referrals
Ask around if you know other business owners who have outsourced employees. They may save you from the research and the trial-and-error phase. They can even refer some reliable outsourced workers or outsourcing companies.
3. Go through the application/interview phase as if you’re hiring an in-house employee
Resumes can impress, but interviews determine if an employee is a good fit or not. Make sure to spend time interviewing your prospects. Get a feel of your dynamics, and make sure you are both transparent. This may be a tedious and time-consuming step for some, but it can save you from future problems of having a difficult working relationship with your outsourced employee.
I am a small business: Will it work for me?
If you are a small business or a startup, it’s understandable you want to minimize risks during a recession. Outsourcing for the first time may give you second thoughts as it is new to you.
However, outsourcing can actually help your small business or startup survive the recession! If you find a good outsourcing provider, they can even be the one to manage risks for you, as they anticipate changes in the economy and technology. You can then focus more on your business as you reduce the labor costs and the dilemma of managing too many in-house employees.
Frequently Asked Questions:
Being a neophyte in tapping outsourced workers is a new journey, and it’s normal to have questions. Here are some of the most common concerns and how they can be addressed:
1. Is outsourcing like a typical employer-employee relationship?
There may be differences, especially in employee benefits and labor costs. Nevertheless, it’s still an important partnership as your business depends on it. If you look at it as just a means for cost-cutting, your relationship with your outsourced employee may be short. It is better if your values, vision, and working styles are aligned to decrease turnover, and save you the hassle of hiring over and over again.
2. How much should we communicate with an outsourcing provider?
Given that some of your outsourced prospects may be from another country, it is expected that you communicate virtually. However, your management and communication style is of course something that you decide on as the business owner. It is important that you establish how much you would like to communicate and oversee your outsourced employees. Of course, it’s essential that they agree with this setup as well.
3. What should I consider first before I outsource?
Outsourcing is gaining popularity does not mean it’s just a means to reduce costs. While recession can cause a bit of panic on your end, try to evaluate the situation first. Do you need to free up some of your resources? Is your in-house team getting overwhelmed? What functions you can leave up to an outsourced employee? Answering these questions can help you decide if you really have to outsource someone. It also guides you in outlining the specific skills you would need them to have.
4. Should labor cost be my first consideration?
It is an important factor especially during a recession, but it should not be the sole determinant in hiring someone. Try to look at the services they provide, the skills they have, and how critical their role would be in your business. If labor cost would be your only consideration, you may rush into hiring unfit employees who charge for less. Your product quality may then suffer and outsourcing may do you more harm than good.
5. I’m not sure if I can provide them something long-term, or if they also want to fully commit. What should I do?
Some outsourced employees do want a long-term working relationship or only need short-term work. Thus, it is important to define your terms and duration during the hiring process. It’s totally okay to define your scope, especially if you only need them temporarily.
6. How much of my workforce should be outsourced?
Test the waters first, if outsourcing works for you. Know the services you need, and communicate with an outsourcing provider to arrive at a common ground. It is advised that you start small, as you are also still learning the ins and outs while managing your business. However, there are some outsourcing providers that can build a team of competent outsourced employees, like Process Ninjas.
Process Ninjas: A Reliable Outsourcing Company
Process Ninjas is an outsourcing company in the Philippines that offers a diverse set of services for your business. They are dedicated to helping entrepreneurs succeed by offering reliable outsourced services, and creating long-term partnerships to help them as their business grows.
They have a competent set of ninjas in the form of virtual assistants, customer support personnel, community managers, and content and game moderators. As mentioned earlier, they can also build a customized team for your unique needs. They can also guide you through the process of getting familiar with outsourcing.
Recession sounds scary, but outsourcing offers an alternative solution until times get better. For more information, visit https://processninjas.com.