SMEs Increasing Overseas Outsourcing, Research Shows

Large Jump Seen In Use Of Overseas Services


Fergal Dowling, Partner | +44 (0)121 214 5476

SMEs are increasingly using outsourced services offered by companies in Asia to carry out some of their work, new research has shown.

The study by the Freelancer website found there has been a 35 per cent jump in the number of firms using such skills as they seek to expand. The most common destinations have been in India, Pakistan and the Philippines, while there was also a 20 per cent increase in the number sending work to China.

Freelancer also found that the trend is likely to continue on an upward curve in the year ahead, with 43 per cent of firms intending to outsource work overseas in 2015.

The survey suggested firms in the IT sector were most likely to use international services, but marketing and manufacturing were also sectors with significant outsourcing levels.

European director at Freelancer Bill Little explained that firms using outsourcing often do so on cost grounds, but also because they do not have the resources in-house to meet customer demand.

He explained: "Small firms in the UK are looking to send work overseas to cut costs but also to increase their own capacity. Rather than turning away contracts for work, they are taking it on and outsourcing it for less abroad to boost profits.

"A majority of small businesses have realised that rather than ignore work that they can't do themselves they can outsource it."

The use of outsourcing by smaller firms may therefore provide a further indicator that they are enjoying the fruits of a growing economy as demand for their goods and services continues to rise.

However, some may also be facing some challenges, such as a lack of skilled candidates to enable them to recruit the extra employees required to meet their customers' needs using UK-based staff. 

Issues of cost may be linked not only to the lower wages in the Far East, but also to the emergence of rising wages in the UK.

Pay rates in Britain have lagged behind inflation during the economic crisis, but a recent study by the Institute of Directors indicated that the majority of SME employers are planning to raise pay for their staff at or above the inflation rate in the coming year.

Expert Opinion
Following the improvements seen in the economy in recent months, it is unsurprising that many smaller businesses are considering how they can develop their offerings and also expand their services. Outsourcing overseas can offer a cost-effective option in terms of resourcing, allowing organisations to ensure demand is met and opportunities for growth are not missed.

"However, as with any strategy or approach to growth, it is vital that small businesses recognise and identify potential growing pains which can emerge.

"In these circumstances, they may need to have policies in place as to how third-party organisations should engage or manage customers or clients. Alternatively, there could be the need for advice regarding the contracts in place between an SME and the third party. For all of these issues, it is vital to ensure lawyers are the first port of call for guidance."
Fergal Dowling, Partner