Outsourcing — Hype and Hoopla?

by Nitin Aggarwal

Outsourcing seems to have become a medicine for all ills. There is this massive upsurge in the ‘passive income’ tribe, which seems to suggest that you can simply outsource everything and then enjoy a grand holiday on some exotic pacific island without bothering about your bank balance. This dream is being sold to thousands of ready customers who are ready to believe anything. The recent downturn in economy has converted many desperate jobseekers into believers of this cult. Is outsourcing only hype and hoopla or is it something more substantial?

Where outsourcing works?

This is where the principle of value comes in. Businesses are successful because they give value to customers. More the value better is the profitability. Going a step ahead, you can say that higher you are in value chain, more the profitability or money. For example, say John Grope has invented a unique battery which is powered by solar energy. He now needs someone to manufacture this product. He has also tied up with a marketing agency to sell this battery. You will notice that John has actually outsourced all physical activities while he only holds a patent for the battery. This is his intellectual capital which makes money for you. In this case outsourcing actually works. This is because John has invested time and money into creating a product. He has added value to it. Even the manufacturers of battery will make money out of it –they have put it all together. But since the value add is lesser, they would make less profit out of it. Everyone in the value chain makes money according to the amount of value they have added to the product.

Where outsourcing doesn’t work?

Now imagine that John never invented anything. He simply wants some else to think up of an idea. For this he is ready to spend $500. He thinks that this amount would be sufficient to get someone else to ideate for him. I am sure John would get hundreds of proposals promising the moon. But frankly, do you think a person who can invent a battery would give away his intellectual property for a paltry $500? It is here that we must differentiate between what can be outsourced and what can’t be. Manufacturing can be outsourced but creating intellectual property cannot.

Passive income is a misnomer

You just can’t get something for nothing. The only way you can make money is to add value somewhere in the value chain. Passive income, in the context of outsourcing is a misnomer. You just can’t outsource all your work and then holiday in Java island. I am not talking about earning an income from property or stocks. This would be passive income in the right sense.

Conclusion

Outsourcing is a powerful tool in creating wealth. But it should not be confused with being lazy. As you go up the value chain, like creating intellectual property, it becomes much more difficult to outsource. Physical labor, repetitive activity like manufacturing and routine jobs can be outsourced easily.

Nitin Aggarwal is the owner of the company Offshore Ally and has a team of higly skilled virtual assistant and SEO link builders. He enjoys blogging and reading about new techniques of Internet marketing. Connect with him via Twitter.