Outsourcing may not be best option for businesses: Ernst & Young

Singapore: Outsourcing has been a global catch-phrase in recent years as one way for companies to reduce costs, and Singapore companies have also been quick to jump on that bandwagon.

Increasingly, they have been getting external parties to provide selected goods and services for their operations.

But Ernst & Young Associates, which advises businesses on restructuring in Singapore, says companies should consider carefully before heading down the outsourcing route.

In recent years, companies and employees have often heard the mantra — cut costs.

Many firms have chosen to manage costs by outsourcing some operations, like call centres among others, to external parties.

But Ernst & Young Associates believes this may not be the most cost-effective or efficient way of running an operation.

Mildred Tan, managing director at Ernst & Young, said, “When you look at best solutions, you actually have to look at the overall organisation strategy or objectives the organisation hopes to achieve.

“And with this comes the different criteria that one would set or put in place for a company to decide whether to outsource or in-source, and these criteria could look at retrieval of information, security aspects, risk aspects, management information; cost would certainly play a part in it.”

Enter a new practice called “best-sourcing”.

This means outsourcing is often not the best and only solution for cutting cost.

According to analysts, companies should also consider other options like in-sourcing, co-sourcing, shared services, or a combination of all of them.

This will help to keep some jobs in-house, and also go a long way towards boosting the firm's bottom line.

But companies here have still been slow to catch on.

“Looking at costs, it's on always been here, but looking at best sourcing and the different options, it's something that for companies in the private sector, they are still in the early stages with regards to such reviews,” Ms Tan said.

The reason for that, according to analysts, is that economic conditions are improving and companies are more focused on growing revenues at this stage.

But they believe local firms can take a leaf from government agencies.

Many of these have already started practicing best sourcing, since Deputy Prime Minister Lee Hsien Loong first mooted the idea in his Budget speech in February.

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