The Ethics of Outsourcing: Ensuring You’re Outsourcing to the Right Vendor

According to a Market.us report, by 2032, the global business process outsourcing market will hit $544.8 billion, growing at an 8.5% compound annual growth rate (CAGR) beginning this 2023. 

Precedence Research predicts that the global information technology (IT) services outsourcing market is expanding at an 8.06% CAGR and should be worth $1.06 trillion by 20230.

Even if the above projections are overly optimistic, it’s clear that the global outsourcing market will continue to expand, and an increasing number of organizations worldwide will rely on outsourced talent in the coming years.

Reasons Companies Outsource

Outsourcing business processes and IT services is a good business strategy, enabling companies to enhance their competitive advantage. The Deloitte Global Outsourcing Survey 2022 identifies the following as the primary drivers of third-party service delivery models like traditional outsourcing, managed services, and operate services:

  1. Cost Reduction

This is the top reason organizations outsource using the traditional outsourcing business model. Businesses outsource specific functions to a third party instead of hiring staff in-house to do these functions to save on recruitment, salary, capital, and operating costs.

Note: Traditional outsourcing refers to outsourcing specific business processes to a third-party service provider. Outsourced payroll solutions are an example, as traditional outsourcing works best with discrete tasks such as payroll administration. Outsourcing network administration, customer service, technical support, and other narrowly defined business services are straightforward through the traditional outsourcing model.

  1. Technology Modernization and Digital Transformation

The increasing pace of technology and digital transformation is the primary driver of managed services outsourcing. Technology is advancing in leaps and bounds—faster than organizations can fully utilize. To keep up, businesses outsource cybersecurity, IT infrastructure, and cloud management, among other crucial tech-related business functions.

Note: Managed-services outsourcing is a third-party outsourcing model that works for complex and multifaceted processes. The relationship between the client and the vendor goes beyond the transactional, with pricing tied not only to the number of seats the vendor fills for the client but also to metrics like service level agreements, volume consumption, and outcomes. The vendor essentially shares with and helps mitigate risks for the client.

  1. Capability Building

The business landscape is constantly evolving, mainly due to technological developments that fuel operating model shifts. Organizations must continually build their capabilities, acquiring skills and technologies that can ensure efficiency and compliance. To accomplish this, they enter into operations services agreements with third-party providers.

Note: Operations services outsourcing refers to a third-party service model that goes beyond outsourcing simple or complex business processes. In operations services, the vendor has deep domain knowledge, enabling it to advise and offer valuable business insights to clients. The vendor provides clients with hard-to-source consultants on-demand, providing foundry, IT audit, data analysis, and other high-tech or expert services.

Ethical Considerations in Outsourcing and Choosing an Outsourcing Vendor

In outsourcing, organizations pay for the services, talent, and skills the outsourcing vendor provides. The vendor is a separate entity, although it may be highly integrated into the client’s operations depending on the outsourcing model.

That being said, businesses can’t and shouldn’t wash their hands of the responsibility of ensuring that their outsourcing partners are operating according to the standards they have set for themselves. If a company values the well-being of its employees, how can it work with an outsourcing vendor whose operations are fundamentally opposed to this principle?

Ethical outsourcing is not only the right thing to do. It’s also practical and makes business sense.

Working with an ethical outsourcing partner ensures productivity and high service quality. Additionally, it reduces the risk of your brand being canceled because of involvement with unethical suppliers.

You’ve probably heard of big apparel brands that the public has boycotted because of their suppliers’ unethical practices. When the public learned these brands worked with suppliers using child labor or with discriminatory practices and inhumane working conditions, people stopped using their products and campaigned against them.

The following are some of the factors you need to consider to ensure ethical outsourcing:

  1. Confidentiality and Data Security

Make sure your outsourcing partner has enterprise-grade security systems and processes to ensure your data will remain private.

Your customers have trusted you with their information, and it’s your obligation to safeguard that. You cannot work with a third-party vendor that cannot guarantee the confidentiality of your customers’ data.

  1. Service Quality

Your clients and customers rely on you for quality services.

Suppose you are an accounting firm. As such, you are expected to help your clients save money on taxes while remaining legally compliant. Even if you outsource your accounting functions to a third-party provider offshore, you (not the third-party vendor) remain ultimately accountable for the quality of the service your clients receive.

Therefore, outsource only to a provider that can deliver the level and quality of service you’ve promised your clients. Find a provider that hires people with relevant training and credentials, trains employees to improve their competencies, and takes responsibility for its service quality.

  1. Employment Practices

You want a third-party provider that pays its people right and employs fair labor practices. It’s ill-advised to just go with the one offering the lowest personnel cost, especially when outsourcing to offshore locations where salaries are significantly lower than onshore rates.

When it comes to employment practices, assess your vendor against the following criteria:

  • Pays more than the market average
  • Does not earn from staff salaries; in other words, employees get paid what it says on your invoice rather than just a percentage of that amount
  • Conforms with all government employment requirements
  • Complies with all legally mandated benefits
  • Has an HR department to take care of employee salaries and benefits
  • Offers learning and development programs for employees
  • Includes wellness activities as a benefit to ensure the well-being of employees
  • Provides modern and comfortable workspaces to employees
  1. Compliance

Make sure your outsourcing partner complies with all international operational standards

Singapore accounting services outsourcing providers, for instance, need to adhere to generally accepted accounting principles. Individual accountants in outsourced teams should also abide by ethical standards such as the international code of ethics for professional accountants.

Ethical Outsourcing: Possible and Necessary

Outsourcing is an effective business strategy that can help you reduce operational and capital costs, manage risks, and build your capabilities. 

However, you must do so ethically by outsourcing only to providers that can protect your data, maintain a high quality of service, enforce fair employment practices, and comply with professional and ethical standards.