Outsourcing: A Basic Guide for your Business

Outsourcing is a modern business strategy of partnering with another company to fulfill various tasks and processes within your business. Companies of all sizes from start-ups, small & medium businesses, and large enterprises all rely on outsourcing for the delivery of primary and non-primary business functions. 

Four Key Benefits of Outsourcing 

Whether you want to cut costs or establish focus on critical functions within your company, outsourcing is an attractive solution for businesses to open opportunities for growth. In 2019, 37% of small businesses outsource specific work processes and 52% are planning to do so. Here are key benefits your business can accomplish through outsourcing.

  1. Minimize costs
    A leading reason for outsourcing, at 59%, is to reduce costs. Since there are varying wage patterns in different countries, a business has the option to acquire talent from a foreign country at a lesser cost by outsourcing. For example, the average hourly rate for software development outsourcing are lowest in Asia at $26/hour and highest in Western Europe at $67/hour. 
  2. Enable focus on core business
    The next major benefit of outsourcing, at 57%, is enabling the organization to focus on core business activities. By freeing up human capital and time allocated for non-core functions, internal teams can perform tasks that directly impact business goals. Moreover, predictions show that in 2020, companies will increasingly rely on outsourcing even for their core business areas.
  3. Gain access to specialized skills
    As technology and innovation become more sophisticated; business will look to outsourcing for the capacities needed to adapt to the change. Emerging outsource services include cloud computing, social media for customer service, and robotic process automation.
  4. 24/7 operation creates productivity and success
    This is especially true if you are outsourcing to a country in another time zone which can significantly improve customer service. Being able to provide 24/7 support can result in increased customer satisfaction by allowing your business to be there to support your customers on their terms. Additionally, allowing your business to operate around the clock provides a competitive advantage, enabling you to double productivity and get work done faster.

Four Categories of Outsourcing Based on Location

An important factor in outsourcing processes to another company is location. This is key to ensuring a seamless integration of the outsourced functions to your overall business operations. Understanding the different outsourcing categories based on location will help you decide which one will best complement your business objectives.

  1. Onsite Outsourcing:
    Subcontracting your business needs to a third-party service provider working within your company premises. It allows you to save time and money on recruitment and payroll management for additional manpower. Moreover, having the outsourced talent working in your office allows close supervision, team collaboration and efficiency in terms of communication and workflow. This also allows the team to immerse in your company culture which may contribute to better output.
  2. Onshore Outsourcing:
    Subcontracting your business needs to a third-party service provider working outside your company premises but within the same country. The primary benefit of this type of outsourcing is that you avoid dealing with possible cultural difference or language barriers. Additionally, it is easier for the team to meet on-site if necessary.
  3. Nearshore Outsourcing:
    Subcontracting your business needs to a third-party service provider working from a neighboring country or within the same time zone. This allows you to still minimize your costs without dealing with big time zone differences and disadvantages of geographical location. In addition, nearshore outsourcing companies are likely to have minimal difference in culture and legal practices.
  4. Offshore Outsourcing:
    Subcontracting your business needs to a third-party service provider working from a distant country or on a different time zone. This is the most cost-efficient of all, since you will have more country options providing the same level of service at lower rates. Having a team offshore is the best option to enable your company to operate 24/7, because you can hire a team from the other side world.

Three Types of Outsourcing

There are different basic types of outsourcing which correspond to each business need. Knowing the features and differences of each will give you a better idea of what processes you want to outsource, and which service can best fulfill your business requirements.

  1. Business Process Outsourcing (BPO)
    This refers to external service providers who handle and implement front-end and back-end company operations such as human resource services, website services, accounting & payroll, and customer service functions. The BPO industry is relatively focused within Asia because of competitively low costs, a highly skilled & professional talent pool, and robust infrastructure. It’s worth noting that the Philippines was named the BPO Capital of the World in 2010 and continues to be the preferred outsourcing destination world-wide. In addition to its world class and well-educated technology talent pool the Philippines also enjoys outsourcing advantages such as its high fluent English proficiency, 95% literacy rate, and cultural affinity with the US and other western countries, to name just a few.
  2. Knowledge Process Outsourcing (KPO)
    This refers to external service providers who handle and implement primary business functions such as research and development (R&D), data mining, analytical services, and training & consultancy. The Philippines is also a leading KPO destination offering banking and finance, legal, medical and R&D, animation & design services. India is a close competition because of factors such as the low labor cost, communication, and time zone.
  3. Managed Outsourcing
    This refers to full end-to-end or partial/targeted management and delivery of a company’s entire workforce, processes, and/or tools. Since outsourcing is a complex and continuously evolving industry, this type of outsourcing service offers businesses the added level of expertise to effective management of remote teams and seamless integration and implementation of outsourced functions.

Regardless of the nature of your organization, the industry you belong to, and the type of assistance you need – you can improve your internal/external operations, cut costs, and grow your business by working with a reliable and expert outsourcing service provider.

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