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Have Automation and AI put an End to the Era of Outsourcing Services?

Nov 14, 2017

The developed parts of the world have enjoyed lowered production cost and higher profits by outsourcing services from various operations like production and customer service. With countries such as China, India, and Bangladesh being the major outsourcing services hubs due to lower labor rates, companies have been able to lower their cost base considerably. On a similar note, automation and artificial intelligence (AI) have also significantly saved large chunks of the cost for the companies. As a result, many analysts and experts have predicted that the days of outsourcing services will be outnumbered soon enough, with automation and AI eating up numerous jobs. So does the rise of automation and AI bring down the curtain on outsourcing? In this article, we have explained the reasons for this question. 

How Automation and AI Impact Outsourcing Services?

Increasing Cost of Outsourcing Services

Although traditionally companies preferred outsourcing to save on labor costs, today the BPO’s charge higher fee for their services and add markups making those services expensive. Additionally, governments across the world also discourage companies from their outsourcing services and promote employment and production in home country instead. For instance, under the Obama administration, a $200 billion in tax relief and incentives law was put in place, which encouraged American companies to make an investment in their business and create new jobs. Other laws allowed businesses to write off all costs in new investment in equipment in the US.

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Loss of Control

When businesses outsource their operations, they contract the work to other company, which means sharing company details, information, and data. The company will be at the mercy of the BPO. Also, quality and service delivery from the BPOs may vary widely.

Supply Chain and Logistics Efficiency

Outsourcing services of manufacturing and production operations may seem lucrative at the beginning with all those cost savings opportunities. However, businesses may incur unanticipated costs such as hidden fees, import and export duties, shipping costs, haulage, freight costs, legislative costs, and additional taxes. Additionally, due to the complicated logistics network, the time-to-market is also significantrequest proposally increased. Consequently, businesses are looking to manufacture in the home country whenever possible by carrying out make-or-buy decisions.

Automation and AI

The most prominent factor that could signal the end of outsourcing services is the rising popularity of automation and AI. The technology is so advanced that it can eliminate the majority of human errors, and provide a quality output at a faster rate. Automation in manufacturing has been around for a long time. However, AI is threatening to replace service facing operations. For instance, with machine learning and cognitive computing abilities, companies can use chat-bots to solve customer queries and automatically reply to e-mails from the customer.


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