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Outsourcing In Nigeria – The Pros And Cons Of Outsourcing

Outsourcing

Outsourcing should be an integral part of a business system. No sector or organization can be fully independent. It has to receive inputs at some point from an outside company or auxiliary service. Most businesses have come to the realization that owning everything required for doing business on their value chain is not an effective way of operating.

See Also: 35 Booming business ideas you can start now and make money.

It is just like a car manufacturing company that makes their cars and car parts themselves and from scratch; the business is in charge of making the tyres, the body parts of the cars, the engine, and all other components that a car is made up of.

Start Your Business in 30 Days Even If You Don't Have An Idea
Start Your Business in 30 Days Even If You Don’t Have An Idea

Imagine how expensive running all these sections would be.  Quite simply, the company could just easily employ or partner with companies that are experts in the various sections for less expenses and for even more quality. This is ‘outsourcing.’

Outsourcing is a practice to reduce costs by transferring certain portions of work to outside suppliers rather than completing them internally. It is simply a business model or strategy that involves the handing over of certain processes to a third party that specializes in those processes to perform them.

See Also: Reasons why you need a mentor to succeed as an entrepreneur.

Some of the common reasons companies choose to outsource are:

  • Insufficient resources available internally
  • Time and costs reduction
  • Gaining access to quality or world-class capabilities
  • Improving focus on the core capabilities of the company itself
  • Freeing internal resources for another purpose

Once a task is outsourced to a company or a particular service provider, they will assume the responsibility of carrying out the tasks. Outsourcing varies widely across industry sectors.

The common outsourcing activities include content development, IT outsourcing, operational outsourcing, legal outsourcing, web design and maintenance, human resource management, logistics, manufacturing, technical/customer support, research, supply chain management, marketing, engineering, and diagnostic services.

Before going into an outsourcing agreement (called a Service Level Agreement), you need to give careful thought to what should be outsourced. Your goals and expected benefits from this venture should be clearly defined, as well as performance measurement criteria. There should be detailed terms and conditions and the risks to your company or business should be evaluated.

Outsourcing is usually for a specific period of time and at a negotiated price depending on the user’s needs. These should be stated in the Service Level Agreement.

Although the main goal of outsourcing is usually to cut costs, it also leads to an increase in foreign investments.  Jobs are outsourced to Nigeria from around the world thereby increasing the nation’s Gross Domestic Product (GDP). Outsourcing allows you to focus on your strengths or core competencies as a company.

An example of this is Acer. The Taiwan-based computer maker chose to outsource everything it had a hard time with, like manufacturing, to focus on its strength – branding, and marketing. This led to Acer’s faster growth in sales.

When you outsource, you can foster partnerships that yield value to you and gain faster access to information. In a situation where you lack competent staff to handle a particular operation, rather than employing a whole new set of staff to meet your needs, which would cost more, you can get outsourced staff to help.  This can lead to the sharing of knowledge between the staff. Customers get good quality products at even lower prices as some business operations are moved to countries with low labor costs and/or tax incentives.

Irrespective of the huge advantages of outsourcing, some disadvantages and risks also lurk around the corner. The choice of the wrong partner springs up difficulties and problems with timely deliveries and quality of products and services. There is also the risk of exposing the company’s confidential information to a third party. A service provider may also be catering to the needs of several users and end up giving your company’s needs less than a 100% focus. These risks can be avoided by ensuring the company you partner with is credible, reliable and an expert in its supposed field.

Outsourcing is a relatively new and developing business in Nigeria, a market that is yet to reach its full potential. It does not have a particular date of inception in Nigeria but it has since been faced with a few challenges. It became really prominent in the banking industry when, in a bid to reduce cost, banks started outsourcing for staff.

The banks hired young graduates on a ‘contract basis’ to work mostly as tellers. There was so much corruption in these banking outsourcing activities that these graduates were paid a paltry 30% of the salary paid to full-time staff with about the same level of responsibilities irrespective that most of the graduates put in extra hours.

They were also not given benefits, pension, leave allowances, and health insurance, and could spend up to four years in the same position before being promoted to an executive trainee position. At the time, even the tax on contract staff was at a flat rate of 5%. Consequently, frauds in banks rose; contract staff became huge perpetrators due to frustration.

Go from idea to starting your business in 30 days
Go from idea to starting your business in 30 days

There is presently no strongly implemented legislation guiding the outsourcing industry, in spite of its budding recognition in the country. Any Tom, Dick, and Harry can incorporate a business and be a provider of outsourcing services. The lack of legislation, meaning a lack of penalties for misconduct, has led to the thriving of unprofessional outsourcing providers who provide low-quality services.

Usually, in an outsourcing business venture, there are three major parties: the service provider, the user, and the adviser. The advisers act as agents and are mostly lawyers and related professionals that acquire experience in the outsourcing business practice and help draw mutual beneficial agreements (Service Level Agreements) on behalf of the two parties.

The issue here, though, is that there are just about a few known advisory firms in the country, so most transactions end up with the user having the final say and service providers adhering to it with little or no complaints because of the eagerness to get the job.

In a bid to promote outsourcing in the country, some bodies have been established – the Association of Outsourcing Practitioners of Nigeria (AOPN), the Nigeria Association of Information Technology Enabled Outsourcing Companies (NATIEOC), the Outsourcing Development Initiative of Nigeria (ODIN) in conjunction with the World Bank and Interra Networks Limited, Assessment of Core Competencies for Employability in the Service Sector (ACCESS Nigeria) and through their activities, there has been considerable enlightenment on outsourcing.

However, more needs to be done in this area for it to reach its full potential. There should be proper legislation on outsourcing practice and protection of contract staff in the country from modern corporate slavery. Better infrastructure, electricity, telecommunications are also needed. The industry can do with more registered Advisors coming into play.

In conclusion, outsourcing is an integral part of the business system and it has come to stay! We can always refer to it as the beauty of the ‘other woman’.

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Photo Credit: Forbesimage

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4 thoughts on “Outsourcing In Nigeria – The Pros And Cons Of Outsourcing”

  1. Bamidele Ojo

    What is the treatment of VAT and WHT between an Outsourcing firm and FIRS/LIRS knowing fully that what would be collected would be use as salaries and the balance would serve as profit.
    Thank you.

  2. Agnus Schechinger

    You have simple and straight forward explanation and we are also benefiting from your ideas and looking to have the same discussion on to other related subjects specially to share with us your experience from Financial and business expansion point of view.

    1. Thank you Agnus for taking the time to read. Our content cuts across every aspect of knowledge that helps the entrepreneur to be more. We have information on the financial aspects of business on the investments category. Thank you.

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