The Real Reason Why Most Small Businesses Do NOT Outsource to India

By Shaunvir Singh Feb 15, 2023
The Real Reason Why Most Small Businesses Do NOT Outsource to India

We all know that pretty much every large MNC (multinational corporation) you can think of outsources overseas. For instance, 50% of all Fortune 500 companies outsource IT-related work to India.

But what about SMBs (small to medium sized businesses)? Well, firstly it is worth noting that small businesses are increasingly outsourcing office-based roles/projects to countries like India and the Philippines.

But proportionally, the percentage of small businesses outsourcing offshore is significantly lower than their multinational counterparts.

The question is: Why is it so?

And secondly, is this question even important?

I will answer the second question first. Yes, I do believe that this is an important question to ask because only when we better understand why we don’t do something, can we gain a better perspective on whether our decision is a good one or not.

Should small businesses outsource? Not necessarily. But should they at least consider the merits of outsourcing? I think so. It is something I advocated in more detail in another blog post: ‘What Not to Do if You Think Outsourcing Abroad Won’t Work ’.

By getting to the real reason – that most small businesses are not prepared to earnestly consider the merits of outsourcing – we can better assess whether our course of action is prudent.

There are several reasons why most small businesses do not outsource (or, at least, even comprehensively assess the case for/against outsourcing). But the key reason, I believe, is down to one of psychology. In the book, Unconscious Branding: How Neuroscience Can Empower (and Inspire) Marketing, Douglas Van Praet writes, “No amount of reasoning will change how you feel, because feelings weigh in before, and irrespective of logic and conscious choice.”

He cites the example of a chocolate dessert to explain the point he’s making. We all know that chocolate cake is bad for us. The logic for (or against) eating a chocolate cake points in only one direction. But when we see a chocolate cake, it evokes a whole series of memories, emotions and feelings. Because the feelings we have for chocolate cakes are so strong, we succumb to eating them, even though we know rationally that it is not good for us. In this battle between feelings and logic, how we feel about something is what ultimately holds sway.

So to understand why most small businesses don’t outsource, a good starting point is to ask a very simple question, ‘How do you feel about outsourcing?’ The answer to that is – if we are honest about it, it is unlikely to be a positive feeling. Here are 5 reasons why:

1. Giving Up Control: For any decision maker, the thought of collaborating with another company is always fraught with some worry. Giving up control is generally not a strong point for small businesses. Hence, from a psychological perspective, outsourcing is a painful process, even if it’s about outsourcing to a local company. The thought of partnering with a company half way around the world, one whom you have never met, only amplifies those negative feelings, irrespective of how advantageous the benefits may be.“Outsourcing is a traumatic thing to think about ,” Ray Peck, CEO of Vxp Pharma, who outsourced research to India


2. Local Job Losses: We often associate outsourcing with local job losses, and no CEO wants that. Naturally, we are patriotic and want our local economy/country to flourish. That you are the cause of a fellow countryman losing a job doesn’t evoke the most positive of sentiments in us. Unfortunately, there is a lack of awareness around the economics of outsourcing and how it actually benefits an economy. That outsourcing enables Western businesses to leverage the competitive advantage of another nation’s talent pool is simply never appreciated. In the global marketplace where small businesses are increasingly selling their products/services offshore, this factor cannot be underestimated (nor should several other economic arguments that I haven’t mentioned here, which also demonstrate how outsourcing benefits an economy).

3. Call Centers: When most of us think of outsourcing to India, the first thing that comes to mind is – call centers. It is unlikely that you had a great experience whenever you’ve had to call one up. Not only this, call centers give a poor reflection of the true talent available in a country like India. Many small businesses have the opinion that offshore staff simply wouldn’t have the skills necessary to work for them. But what we invariably forget is the immense contribution that highly-educated Indian professionals have made to our local hospitals, universities, Sillicon Valley and NASA .

4. A Boring Subject: Practically, outsourcing is not exactly the most ‘sexy’ of assignments. You probably don’t want to spend time learning and researching about outsourcing. Outsourcing can be boring – it doesn’t quite give us plenty of motivation.

5. Old Habits Die Hard: Habits are difficult to change. We are not in the habit of working with remote staff based overseas. Changing a habit, even if it is good for us (as we know from the chocolate dessert example), is painful. We humans innately find the unknown scary, even if there is no reason for us to be actually scared. The ‘unknown’ can trigger negative sentiments.

Due to these five reasons, we often believe outsourcing cannot work, even when we haven’t given it a fair assessment. We often do not see the value in outsourcing, even when, objectively speaking, it is blatant.

In fact, even this is not the whole truth. How you feel about something, even we ourselves do not know, because we do not know the realms of our own subconscious. Despite this, asking ‘how do you feel about outsourcing’ does give us some direction to the point that I am trying to make, namely, that often the reason why we do not outsource is due to emotional rather than logical reasons.

When you are at a networking event/conference, you invariably end up chatting with other CEOs about their upcoming projects. In the process, sometimes a decision maker will happen to share a staffing pain-point that is impeding the progress of their project. At such points, I will casually and softly mention (let’s face it, a hard sale would never work for an outsourcing service) that I could possibly help absolve them of their pain-points via our outsourcing services. More often than not, my suggestion would be immediately flat-batted.

One occasion that I won’t forget was when a small business owner was complaining about the $1,000 fee he had to pay a recruitment agency. Given his clear discontent, I thought it wouldn’t be inappropriate of me to mention that if he outsourced, he would be free of any such recruitment costs. The sheer disdain with which my suggestion was greeted is a sight I shall never forget. So strong was it that I deemed it wise to not even bother retorting to his objections. Surely such behaviour can only be attributed to one of feelings.

How we feel about outsourcing not only impacts whether we outsource or not, it also impacts how we assess the value of outsourcing. In my next blog post, I take a look at how our feelings impact how we estimate cost-saving when outsourcing.

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