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The aim of this initiative was to decide the difference between a start-up business and a freelancer. Outsourcing resources to freelancers are becoming more common among start-up businesses as they aim to cut costs and maximize resource usage. Outsourcing services to freelancers has advantages and disadvantages. The drawbacks include cultural differences between the client and the freelancer, a lack of supervision, and an inability to predict whether the freelancer would be entirely committed to the job. Outsourcing has advantages such as cost savings and no obligation on the freelancer until the job is completed. A freelancer is an individual who is remunerated for services rendered remotely. Freelancers are rewarded based on the number of hours spent working on a project (Godin, 2017). Freelancers provide an array of services ranging from tax consultancy, research, design, advisory, article, and blog writing among others. It is easier to work as a freelancer in comparison to managing a start-up company mainly because a freelancer is not encumbered with the requirements of start-ups such as renting out office space and hiring new staff.
A start-up company is an enterprise in the initial stages of growth and operation. A large number of start-ups are funded their founders or angel investors. A start-up focuses on developing a service or a product whose demand has been established. However, due to high operating costs and revenue constraints, a majority of start-ups cannot sustain their operations without extra funding from investors (Meier, 2016). The need to streamline operations in the face of lean financial resources necessitates start-up companies to outsource their services to freelancers.
Benefits of Outsourcing
A large number of freelancers are based on emerging and developing countries in regions such as South East Asia, Latin America, and Africa. The labor costs in these continents are relatively low in comparison to the developed countries. A case in point, enterprises in the United States, prefer to hire overseas freelancers to US based ones (Koonce, 2017) largely because of labor costs. Therefore, delegating work to freelancers offers better cost savings for start-ups based in developed countries. The savings derived from outsourcing may be employed in other activities such as advertising and marketing.
Another benefit of outsourcing to freelancers is the fact that a start-up company is not committed to the freelancer after the completion of the work (Koonce, 2017). This is in contrast to contractual employment in which the company is committed to the employee for the long term. If the company terminates the contract, it will incur additional expenses in compensation and recruitment of new staff. The use of freelancers provides start-ups with flexibility in human resources because they only pay for the skills required at any given time.
Challenges Associated With Outsourcing
Nonetheless, subcontracting work to freelancers does not always lead to labor savings because a start-up company has to use extra time resources in managing and guiding freelancers throughout the project. In addition, other opportunity costs make it difficult to compare labor costs among in-house employees and freelancers. Research findings from the Lieberman survey indicated that a large number of information technology contracts undertaken by freelancers have resulted in more costs than initially anticipated (Flinders, 2011).
The language barrier resulting from contracting freelancers based in different countries may hinder the realization of the benefits associated with outsourcing (Hong & Pavlou, 2013). The language barrier may complicate information sharing and communication, which is vital in managing outsourced services. The language barriers may lead to misunderstandings and result in conflicts, which may be difficult to settle (Vagadia, 2012). Another challenge associated with freelancing is the cultural barrier. Cultural differences cause people to give different interpretations of instructions in light of their traditions, values, beliefs, and cultures. The net effect is that the outsourcing objectives may not be achieved as anticipated (Vagadia, 2012). In addition, the variations in time zones between the location of the start-up and the freelancer affect service delivery.
The global economic recession that occurred between 2007 and 2011 (Elliott, 2011) and subsequent depressed national growth rates have contributed to the higher demand for outsourcing and freelance services. It is projected that in 2020, approximately 50% of American residents will be freelancers (Kaufman, 2014). Established enterprises and start-ups are constantly modifying their business structures and models to survive and thrive in a competitive economy. Presently, outsourcing is regarded as a key strategy for business transformation. Nonetheless, the increased preference for outsourcing to nurturing in-house human resources and capabilities may result in more operational challenges (Vagadia, 2012).
Outsourcing may be regarded as growth strategy or as a cost-reduction strategy depending on the objectives of the startup. The objectives may be to decrease costs or to increase revenues. However, a start-up may use outsourcing to achieve both strategies. Outsourcing with the purpose of cost reduction has been widely viewed as labor exploitation for freelancers living in emerging and developing countries. Research evidence has proven that outsourcing services are positively correlated with revenue; however, it has no significant effect on operational costs (Kotlarsky, Oshri, & Willcocks, 2016). Enterprises with less in-house innovation use outsourcing as a means of increasing revenues while enterprises with more in-house innovation (which is associated with higher research and development costs) use outsourcing to lower the operating expenses. Businesses operating in competitive industries use freelance services as a cost reduction strategy (Kotlarsky et al., 2016).
The virtualization of the association between enterprises and human resources has diminished the avenues for conflict resolution and increased the probability for moral hazard exposure. Despite the fact that businesses are bound by the terms of the contracts, the contracts do not prevent businesses from engaging in opportunistic activities when dealing with freelancers. Such actions may lead to a financial loss on the part of the freelancer. Companies are less likely to engage in an opportunistic behavior when engaging in-house human resources (Shevchuk & Strebkov, 2012). In addition, freelancers are more likely to have their payments, work requirements delayed, or scope altered in comparison to start-ups because engagements with business organizations are regarded to be more formal in comparison to engaging freelancers.
A survey will be conducted to determine the variables contributing to the gap between a startup company and a freelancer. Questionnaires will be used for data collection. The questionnaires will feature a number of questions based on business and freelance operations such as how frequently does the start-up outsource services to freelancers, the types of services outsourced to freelancers and the cost of freelancing vis-à-vis in-house hiring. The respondents will be randomly selected from a pool of freelancers and start-up enterprises. The data obtained from the survey will be analyzed using statistical software such as Statistical Package for Social Sciences (SPSS) to determine the correlation between the variables.
Significance and Conclusion
In light of the information derived from the literature cited in the introduction and literature review sections, it has been established that outsourcing a service is a practice that is deeply entrenched among established and emerging (start-up) businesses. Outsourcing services to freelancers have its merits and demerits; however, the benefits seem to outweigh the faults. The findings from the proposed survey are expected to contribute to the body of knowledge concerning social capital, and the impact of outsourcing on business operations and the labor market in general.
Elliott, L. (2011). Global financial crisis: five key stages 2007-2011. Retrieved on May 24, 2017, from https://www.theguardian.com/business/2011/aug/07/global-financial-crisis-key-stages
Flinders, K. (2011). Outsourcing contracts cost businesses more than expected, finds Lieberman survey. Retrieved on May 24, 2017, from http://www.computerweekly.com/news/1280095839/Outsourcing-contracts-cost-businesses-more-than-expected-finds-Lieberman-survey
Godin, S. (2017). The Difference Between a Freelancer and an Entrepreneur. Retrieved on May 24, 2017, from https://www.americanexpress.com/us/small-business/openforum/articles/the-difference-between-a-freelancer-and-an-entrepreneur-seth-godin/
Hong, K. Y., & Pavlou, P. A. (2013). Online Labor Markets: An Informal “Freelancer Economy.”
Kaufman, M. (2014). Five Reasons Half of You Will be Freelancers in 2020. Retrieved on May 24, 2017, from https://www.forbes.com/sites/michakaufman/2014/02/28/five-reasons-half-of-you-will-be-freelancers-in-2020/#4a54097a6d39
Koonce, R. (2017). Should You Hire an In-House Developer or Outsource Overseas? Retrieved May on 24, 2017, from https://blog.kissmetrics.com/in-house-or-outsource/
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Shevchuk, A., & Strebkov, D. (2012). Freelance Contracting In the Digital Age: Informality, Virtuality, and Social Ties. In Embeddedness and Beyond: Do Sociological Theories Meet Economic Realities? (pp. 1–30). Moscow: National Research University Higher School of Economics (HSE).
Vagadia, B. (2012). Strategic Outsourcing: The Alchemy to Business Transformation in a Globally Converged World (1st ed.). London: Springer-Verlag Berlin Heidelberg. https://doi.org/10.1007/978-3-642-22209-2
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