Outsourcing is the same as a delegation. The company transfers part of its non-core business processes to external specialists — for example, accounting or personnel accounting, while it focuses on key tasks and development. This is a good technology to optimize work and not to waste efforts on routine processes that contractors will cope with faster and better. Brokerage companies, like any other, want to develop, and development is impossible without delegation. Brokers and brokerage firms often outsource part of their work for faster development. It often happens that brokers and brokerage companies fixate on everyday actions, leaving no space for more thoughtful brokerage decisions. By transferring everyday work processes under the control of outsourcing, the team has new prospects.
In the article, we analyze the advantages of this approach and dispel the myths about outsourcing.
Give and forget
Research by McKinsey and Yankelovich Partners shows that outsourcing reduces company costs by up to 21% in 1-3 years and affects all aspects of business: optimizes business model and processes, improves the quality of services and increases competitiveness.
Let’s figure out why this is happening:
Outsourcing reduces business costs
The benefit may not be immediately obvious — it seems to involve a third-party team if it is cheaper to hire a specialist in the state. But it’s important to look at the big picture. By outsourcing the (technological) part of the processes, you (brokers) reduce costs: you don’t need to pay for advanced training or internal training, job maintenance or IT technology. Large brokerage companies always need new brokers, which increases staff costs. That is why brokerage agents should think about switching to outsourcing.
You can attract the best specialists
You get the knowledge of not just one broker or a group of brokerage agents, but the experience of a company that regularly solves similar tasks and has honed processes on hundreds of projects — calculations will be accurate, deadlines are met, and documents are error-free. It is easier and cheaper than finding or growing an ideal broker in the team who will cope with the work at the same level as brokerage outsourcing.
In addition, there are specific tasks — for example, maintaining broker accounting in the company. Some of our clients are willing to pay a fine rather than find an employee (broker) who will study the legislation, understand the requirements of dozens of different rules and help pass the check. It is easier to entrust the task to a brokerage outsourcing company that already has developed technology for solving this issue than to understand it yourself.
The company does not depend on staff turnover and employee workload
A broker in the state can quit, take a vacation, get sick or go to work for a competitive brokerage company, of which there are many in this industry. There is no guarantee that this will not happen at the most crucial moment – on the eve of verification or submission of reports. In the case of broker outsourcing technology, there is no such problem — you sign a contract, and the partner company signs the result. Thanks to this technology, there will always be a team that knows about your project and is ready to take part in it.
The company can focus on business development
Routine tasks, such as working with brokerage documents or calculating brokers’ salaries, take a lot of time from the manager. It is more profitable to invest it in strategically important brokerage tasks — employee development or product improvement. Brokerage outsourcing frees up your head and hands. In cases with outsourcing technology, you do not need to dive into the intricacies of legislation and constantly monitor changes or be nervous before checking the tax inspectorate in this industry.
Why don’t all companies use outsourcing?
Outsourcing means losing control over business processes
It may seem that outsourcers will take over the management of the company’s affairs, but in fact, this is not the case. We recommend the best solutions, but we do not get into the client’s business. It is possible to request a report on actions and make the final decision.
For example, if we undertake a payroll check, we prepare a document with the errors found and warn about the risks. The client decides how to proceed and what risks are significant for the company. We are always on his side.
Outsourcing can lead to information leakage
It seems risky to let an outsider into the holy of holies – the company’s reporting. But we guarantee security and confidentiality. And to make it even calmer, we fix our responsibility in the non-disclosure agreement.
Full involvement in outsourcing is not possible
There is a stereotype that if a person is not on staff, he/she will not be able to fully immerse himself in the business model and process. This is solved simply — the team can come to the client’s office several times a week or work on its territory all the time.
Outsourcing is expensive
In order to define the advantages of brokerage outsourcing, it is not enough to compare the salary of an employee in the state and the cost of outsourcing technology services. For an internal specialist, you pay contributions to the fund, provide him with a workplace, and spend time and money on development in this industry. At the same time, there is no guarantee that due to the human factor or low qualifications, an employee will not make mistakes that will lead to a fine or a marketing mistake. And the most you can do in this case is to fire him.
The outsourcing company is responsible for the quality of service. You insure risks, get a job well done and free up resources within the organization. Outsourcing can bring significant benefits.
Problems when choosing the wrong outsourcing
Wrong choice of supplier
Choosing the right supplier (agent) is the key to successful brokerage outsourcing technology. There are many criteria for the successful selection of such companies in the literature. It is necessary to distinguish between hard and soft requirements. The first of them is quite tangible, and it is not difficult to check them if desired. Strict requirements reflect the ability of brokerage providers to provide low-cost, technically advanced solutions, which is very important in the brokerage industry. Business experience and financial stability are also important selection criteria. Soft criteria are subjective. They cannot be verified, and they may change depending on circumstances. Important sorting criteria when choosing a supplier are the cultural proximity of the supplier company, focus on continuous improvement, flexibility and willingness to establish long-term relationships.
Prepare an unsuccessful contract
Since the 1980s, partnerships with suppliers (agents) have become a model for gaining a dominant market position in this industry. They replaced the market competition, replacing it with close and trusting contacts with several organizations selected by the firm. The technology that an outsourcing service provider is a partner of an organization and that a contract plays a minimal role was spread when the first outsourcing deals were concluded. But there are pitfalls in managing partnerships. Successful outsourcing requires a good contract that helps to establish a balance between the forces of the supplier and the client. Not giving due time to the agreement of the contract, pretending that the partnership with the supplier will put everything in its place, means to make an unforgivable mistake. The technology of drawing up a successful contract is always important because it allows agents to form expectations and prepare for achieving goals in the short term. Private brokers or brokerage companies should also understand how important this step is in the development of their future.
Neglect of personal issues
Effective HR management and marketing decisions are important, as employees usually view outsourcing as an underestimation of their skills by the investors. This can lead to a mass exodus of specialists by the time the outsourcing decision is made. Companies exploring the possibility of using outsourcing technology should take into account two related personnel problems. Firstly, the main employees of the enterprise should remain in their places, and the management should find ways to motivate them for a good future. Secondly, it is necessary to maintain the loyalty of specialists who have come under the leadership of the supplier company.
Neglect of hidden outsourcing costs
Outsourcing technology clients are usually confident that they can assess whether outsourcing will allow them to achieve cost savings. It is worth noting that such forecasting is difficult to do in this industry. However, they often overlook costs that can cause significant damage to outsourcing efforts. Savings on transaction costs are associated with two main types of hidden outsourcing costs. Firstly, these are the costs of finding an outsourcing supplier (agents) and concluding a contract, that is, the costs of accumulating information to identify and evaluate suitable suppliers, as well as the costs of negotiating and drafting an outsourcing contract. Secondly, these are the costs of managing interaction with suppliers (agents) of outsourcing services in the market, including monitoring signed agreements to ensure that suppliers fulfil their obligations, imposing sanctions on supplier firms that have violated the contract, as well as approving changes in the content of contracts in unforeseen circumstances.
The inability to foresee a strategy for ending the relationship
Many marketing managers are reluctant to think about the end of the outsourcing contract. Therefore, they often do not provide an exit strategy (i.e. supplier change or reintegration of subcontracting operations). Outsourcing relationships can be interpreted as a continuum where at one end, there is a long-term relationship and a future in which both partners or at least one of them is an investor. The extension of the contract with the same supplier gives serious advantages to investors since a change of supplier or resumption of activity can entail many difficulties. At the other end of the same continuum is a market-like relationship where the customer has a choice from a variety of suppliers and can replace one supplier company with another without experiencing high costs or inconvenience. At the same time, prolongation of the contract with the same supplier does not carry any actual advantages.
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The disadvantages of outsourcing are less significant than the obvious advantages of the service. This ensures its increasing popularity all over the world. The main advantages of external management are the reduction of gross costs and the release of the company’s resources for conducting core activities.
The contractor performs the same functions as its counterpart in the form of a full-time division of the enterprise. However, as a specialist in his field, the provider does it more efficiently, simultaneously removing the load from the client. Outsourcing risks are only potential. With careful selection of a reliable partner with a good reputation, they can be excluded.
The most popular is external management in the areas of financial, legal, human resources, logistics, marketing and IT services of the company. The obvious advantages of outsourcing personnel related to the delegation of personnel processes (which helps marketing managers) attract an increasing number of successful entrepreneurs and investors. Experienced businessmen and investors prefer to use external contractors to maximize the efficiency of the company and its bright future.