Sunday, 12 January 2014

Online Businesses: Forget Outsourcing, Embrace the Cloud

Online start-ups used to realize higher profits by leveraging outsourced overseas workers (and the resulting lower wages) to get tasks done cheaper instead of hiring locally. With available cloud technology, outsourcing no longer shines as much as it used to – and online businesses need to rethink their hiring strategy.

Outsourcing vs. The Cloud

Outsourcing can be described as the practice of hiring overseas workers to access cheaper labor as opposed to hiring locally. In setting up an outsourcing arrangement for an online business, an Internet based platform is used to coordinate workers from different countries around the world.

[Related Article: 10 Reasons to Backup Your Data to the Cloud]

As the image above illustrates, outsourcing fails in at least three key areas: automation, overhead costs, and quality.

In recent times, cloud technology has proved to be the solution of choice for micro-scale businesses and start-ups looking to capitalize on lower fixed and operating costs as well as automated business processes to access better performance and higher profits.
The major difference between the outsourcing and cloud approaches for online businesses is the source of labor

It would seem, in the light of recent technology, that an approach involving a cloud-based work platform and local workers beats the outsourcing alternative in at least the following ways:

1. Automation

Let us describe automation as the degree to which work processes can be handled by software with visible benefits including reduced human involvement, lower task times, integrated working, streamlined processes, better tracking and reporting, and so on.
In a typical outsourcing arrangement, you are dealing with workers in different countries around the world – and consequently different levels of available technology. 

Certain cloud systems may not be available in certain countries, and Internet facilities in certain regions may not meet the minimum requirements for certain applications.

Also there may be varying rates of technology penetration, resulting in the varying availability of required devices such as laptops, tablets, smartphones, and so on.

All of these factors result in lower overall automation of work processes – meaning tasks are completed less quickly and far less efficiently. Compare this with a scenario in which local workers use the same cloud at its optimal technological profile.

What you have is a faster, more streamlined, more efficient, and fully automated work process. Cloud wins here, clearly.

2. Overhead Costs

Overhead costs are always significant in any outsourcing arrangement because everyone is not on the same level. An outsourced team is hardly ever homogenous, and certain modifications to your core business processes would inevitably have to be made in order to accommodate certain outsourced workers.

This adds complexity, as well as additional overhead costs, to your work process.

Let’s say you would like to use PayPal exclusively for settling your workers’ wages. PayPal is not available in every country, and it may just be that your key outsourced talent exists in a country that does not support your preferred payment option.

In this case, you would have to consider using other payment options, say Western Union, or bank wire, and incur extra charges or liability in the process. If you were dealing with local workers, something like this would almost never come up.

3. Quality

Perhaps the most important drawback of outsourcing is that the quality of your finished work may not always be 100% as required. This is because you are drawing talent from a mixed pool of professionals with widely varying training, experience, and skills.

Let’s say you own a web design company. Web design as taught in European colleges may be at a higher level when compared, say, with some colleges in Asia. In this case, outsourcing your web design positions to Asia may mean hiring lesser-skilled or lesser-experienced talent, than say, when hiring from Europe.

The same also applies in the case of a Copywriting company that hires writing talent from non-Native English speaking countries or territories. 100% quality cannot always be expected in such a situation.

Consistent quality is more achievable when utilizing local workers, except the required skill or talent is simply not available locally.


Outsourcing is no longer the ‘miracle solution’ it once was – thanks to cloud technology. With available cloud technology, certain major fails of outsourcing can be avoided – not least in the areas of automation, overhead costs, and quality.

It seems now, more than ever, that the use of highly skilled local workers under the same cloud platform approximates very closely to the ideal working arrangement for micro-scale businesses.

Thanks for reading. Feel free to weigh-in with your questions and comments.