The undeniable popularity of outsourcing over the past decade proves the significant value that the business practice offers. More and more businesses are realizing its benefits and are partnering with an outsourcing company of choice. As reported by Statista, the global outsourcing market amounted to USD 92.5 billion in 2019—supporting the fact that the industry is booming.
In the past, only well-known brands and big businesses get to avail of outsourcing benefits. In this day and age, even SMEs are also getting on board the outsourcing business practice as the industry makes the most out of startups’ rise.
Outsourcing is now open to every business requiring additional efficiency within its company. Do you find yourself considering an outsourcing partnership? Let’s get you updated with the outsourcing basics to help you decide.
Besides reducing costs and transferring business functions like customer service or IT, outsourcing is now known for its several advantages and wide range of services. Although, we’ll get on that a bit later. Let’s refresh you first with some basics, starting with its definition.
Outsourcing is the business practice of hiring external resources or parties to perform services usually performed in-house by an organization’s employees or workforce. Specifically, companies outsource in place of hiring new employees or assigning new tasks to existing employees.
For instance, your company might need an additional team to manage your administrative tasks, so you outsource this function to an outsourcing company. Your outsourcing partner then creates a team to focus and manage your company’s administrative activities. In turn, your company will be free from the nitty-gritty of administrative processes because your outsourcing partner takes care of the entire administrative function on your behalf.
To make the story short, the outsourcing partner does the job load for you.
On a different note, you may have heard of related terms that are often interchanged and confused with outsourcing, like offshoring and subcontracting. Likewise, offshoring and subcontracting also have the same idea as outsourcing, such as getting the work done by someone else. So, let’s take a quick look at their differences.
Outsourcing vs. Offshoring vs. Subcontracting
Outsourcing is when a company transfers some of its in-house services or functions to external parties so they’ll be the ones to perform the said tasks. Usually, companies engage with outsourcing as a strategy in reducing costs.
Offshoring is a type of outsourcing wherein ‘offshore’ means sending the in-house services or functions to a foreign country. Commonly, the reason for offshoring is also cutting costs as labor costs in other countries are lower.
Subcontracting is when a company hires an individual, specialist, or third-party to perform a task or function that is not available in-house. Typically, subcontracting tasks to an external party is only temporary and does not involve a massive portion of the company’s operations.
Now that we have cleared up what outsourcing is all about, at this point, you may ask: “How does outsourcing help my business?” Well, say no more because we’re about to take on the advantages you can get when you outsource.
Benefits of Outsourcing
Businesses outsource due to various reasons, depending on their goals and issues. Some businesses engage with outsourcing to save on budget, and others may outsource due to a lack of workforce. Here, we’ll give you the most common benefits of outsourcing.
Cutting on Business Costs
The number one reason why businesses outsource is to reduce costs. Deloitte’s 2020 Global Outsourcing Survey proves this as 70% of their respondents say they outsource to cut costs. Indeed, outsourcing can help you save expenses that come with the overheads like insurance, salaries, rent, supplies, maintenance, and the like.
How does it work? Suppose that you need talents for a new team. The expenses for recruitment drives, recruitment process, employee benefits, or salaries can be quite costly. When you factor in the investments in employee training, skills upgrade, and other benefits, these may even cost you a lot. Once you outsource, the outsourcing company of your choice will conduct and cover all of these so you can save on budget.
Tapping Trained Talents
Even when you hire experienced individuals, their said experiences or acquired skills may not be the exact match for the role available. Thus, you’ll still have to invest in training them for the specific tasks or tools you may require, taking more time and expenses.
Outsourcing can help you hire experienced and trained individuals. As mentioned, your outsourcing partner has rosters of talents with the required skillsets for the role you’re trying to fill. You’ll be assured that your outsourced staff has the expertise you need, hence, can deliver excellent performance and quality work.
When we say expertise, we don’t just mean employees who are adept at specific tasks. Instead, this expertise goes beyond individual skills and focuses on industry experts. Sure, companies can train staff and buy tools to assist in certain functions. But, having bonafide experts on your team can make a significant contribution to your success.
With outsourcing, companies can now afford and have the opportunity to get industry experts’ recommendations and insights. You’ll be assured of expert opinions, meaningful insights, specialized skills, and high-quality output—all for your business improvement.
Achieving productivity at a minimum cost is a business dream for many. Of course, who wouldn’t want to save? Partnering with an outsourcing company doesn’t only get you to save money, finish tasks with excellent output, and work with experts. However, you combine those three, and what are you going to get? Efficiency!
Outsourcing can boost your business’s operational efficiencies because their productivity is unmatched. Typically, outsourced workers are resourceful and are focused on meeting (or even exceeding) client expectations within an agreed time frame. Therefore, you’ll be guaranteed their quality contributions to your business.
Accessing Better Infrastructure and Technology
Not all companies have the latest technology, state-of-the-art infrastructure, and other updated tools. So, it may be impossible to perform tasks, services, or processes at an optimum rate even if you want it. This may hold you back from achieving significant developments or milestones that can bolster your business’s capabilities and profitability.
Engaging with an outsourcing company eliminates the financial burden on your part to invest in such resources. When you outsource, your partner or provider already has the upgraded resources you need or may develop them for you.
Can’t move forward to other business ideas and goals because of long and complicated processes? You don’t have enough manpower to finish pending tasks? Or you don’t have specialists to ideate projects? Those are about to change when you decide to outsource.
Outsourcing helps a business streamline its processes by providing solutions that the business lacks or needs. When you outsource, and the outsourcing company delivers your business desires as expected, you’ll get better and faster results for your company.
Managing plenty of tasks, functions, processes, or teams is quite a load. When you’re in charge of your operations’ mundane and nitty-gritty parts, you won’t have much time to think about other business concerns. What about new ideas or products? What about the welfare of your employees? What about closing deals with clients?
These mentioned concerns wouldn’t be much of a problem when you have an outsourcing company to take the heavy loads off you. You’ll have ample time to manage your core competencies and critical projects so you can improve on what matters to your business.
Have you thought of some business goals or issues that outsourcing can achieve or solve? While you’re still absorbing how outsourcing can help your business, we’ll let you in on its types to help you in your decision-making.
Types of Outsourcing Services
To help you evaluate your needs in outsourcing, let’s categorize the wide range of primary services you may consider for your business.
Start with the question, “What are my options in finding an outsourcing company to partner with?”
This is also called domestic or onshore outsourcing because it involves partnering with an outsourcing company within your country. If you don’t want to go far, then look no further than your country’s providers. The advantages of Local Outsourcing include having an outsourcing partner with the same culture, language, time zone, and location as you do.
If you want to try your success outside your country, but not too far away, then that’s called Nearshore Outsourcing. Basically, this involves partnering with an outsourcing company located in your neighboring countries. The main advantage of Nearshore Outsourcing is that this is a stepping stone in expanding your business. Also, countries nearby your location would almost have the advantages with that of Local Outsourcing, but you’ll enjoy lower costs.
Lastly, if you can go and partner further than your neighboring countries, that’s called Offshore Outsourcing. You may not have the advantages of Local Outsourcing, but most of the time, Offshore Outsourcing can reduce your costs big time. This is because labor costs are significantly lower in foreign countries. Also, having locations overseas or in other parts of the globe can expand your business worldwide.
When you have decided on the location, it’s time to narrow down the kind of service you’ll outsource.
Business Process Outsourcing (BPO)
BPO is a business practice of subcontracting non-core business operations and activities to a third-party service provider. Essentially, if you want to be relieved of non-core or any labor-intensive functions, engaging with a BPO company is the way to go. All those mundane tasks from your back or front office that may hinder you from focusing on critical missions can be outsourced to BPO companies.
Example: payroll functions, administrative tasks, customer service
Professional Service Outsourcing
When you need certain professionals with specializations and skillsets to do the complex tasks you can’t perform, it’s subject to professional outsourcing. Mostly, you’ll have to pay solely for the service provided to you. You won’t have to worry about additional charges that may include training, equipment, and others.
Example: legal professional, accountants, consultants
Usually, big enterprises are those businesses that can afford in-house manufacturing. Owning your business’s manufacturing arm would entail an extremely high capital needed for equipment, infrastructure, materials, and labor. But with the rise of outsourcing, start-ups and SMEs now have the advantage of outsourcing manufacturing functions at a fair and reasonable cost, but with high-quality results.
Example: product assembly in the Philippines, creation of electronic components in Japan
This type of outsourcing focuses on a particular process or internal procedure of the company’s product or service delivery. This may aid a particular operational process that your company may be struggling to perform for some reason. It can be a lack of manpower, knowledge, or skills.
Example: logistics for e-commerce, production management
Majority of organizations have some sort of IT-related need as almost every business becomes a technology-driven establishment. IT requirements form part of an organization’s entire infrastructure. Today, even small businesses turn to technology for business purposes and operations. That’s why IT Outsourcing becomes a more common type of outsourcing at present.
Example: contracting IT services specific to software development, outsourcing data management
Companies usually have numerous projects in a year. However, because some of these projects are on-demand, contracting a portion of such activity may be the right approach. Why? Not all companies have sufficient skills, specializations, budgets, manpower, and time to finish many projects in a given period. It is better off outsourcing a portion of a project to specialists or an outsourcing company than doing everything internally.
Example: certain marketing or advertising campaign, rebranding project, a part of an IT-related company-wide update
Combining some types of outsourcing, or simply contracting multiple suppliers, is called Multi-sourcing. In this outsourcing type, businesses like yours can enjoy the benefits of contracting your various services or functions to more than one outsourcing company.
Example: contracting several or complex IT functions to different IT-BPO companies
Common Business Functions You Can Outsource
Deciding to outsource your business functions can get a bit tricky when you factor in your short-term or long-term goals. There might be some business tasks that you can manage and some you really need a hand to perform. If you’re not quite sure yet on which functions to outsource, find out some of these commonly outsourced tasks so you’ll have an idea.
Probably one of the frequently outsourced services, customer support has been a favorite outsourced business function. It’s quite ideal because you can save more by contracting customer support to an outsourcing company than forming your own team. You won’t have to deal with hiring additional manpower, providing office space, training employees, and others. Plus, you can be assured that the customer support members are already trained customer service professionals.
Accounting and Bookkeeping
These tasks are not as easy as one-two-three. Although a portion of handling financial transactions can be a mundane and time-consuming activity, it’s still an essential business process. However, keeping these functions may keep you from concentrating on more pressing business matters. So, leave it to the finance experts and make your life easier.
When you have many employees, processing their monthly pays can take up much of your time. It’s not just the salary per se we’re talking about. As employees, they have bonuses, taxes, leaves, loans, and financial benefits that you’ll need to take care of. It’s just normal to get overwhelmed by these because a business leader like you already handles many business aspects. So, practicality-wise, outsourcing payroll processing may help you sort things out for your employees.
Besides payroll, managing your employees also encompasses complex processes. There is employee recruitment, acquisition, training, benefits, attendance, and others. These tasks also need particular attention so you can make your employees well and happy. You must handle your human resources functions effectively, and what better way to seek help than by delegating these services to an outsourcing company that specializes in human resource functions.
Aside from financial transactions and payroll processing, tax filing and preparation can also consume some of your time. As a business entity, complying with government mandates is a must. However, managing taxes is an additional task you can unburden yourself. You can easily find tax specialists or consultants to do the job for you. Don’t worry; this service will not cost you a lot as long as you partner with reliable professionals.
Programming and other IT Services
Possessing technical skills like these isn’t a walk in the park. IT professionals took years of their lifetime to study and practice their profession. Thus, learning these skills in a very short period is impossible, and doing this on your own or by employees who aren’t specialists in the field can only produce bad results for your business. Sensibly, outsourcing these highly-specialized functions and having experts on your side will do your business right.
Manufacturing and Production
Perhaps, the most outsourced services ever since are manufacturing and production. Up until now, businesses have products that need to be manufactured and produced on a large scale. But the challenge is the cost of having your own infrastructure for processing. Setting up your own facility can cost you tons of budget and resources. However, with outsourcing, you don’t have to put up your facility and instead have your manufacturing and production performed by your provider without breaking the bank.
Logistics and Shipping
With the rise of e-commerce, logistics and shipping services have become more in demand. For instance, many entrepreneurs nowadays are fortunate to quickly find providers who can efficiently deliver their products to customers. No longer should entrepreneurs have to establish their own logistics and shipping facility. They can rely on outsourcing these services instead and focus more on developing and promoting their products.
Minor and non-core tasks such as administrative-related functions can hinder your employees, or yourself as a leader, from prioritizing more critical matters. What can help you maximize your time and resources is to delegate your back-office functions to capable providers. Also, you may quickly find virtual assistants online in this day and age if you’ll only need a few people to manage your admin tasks.
Marketing and Creative Services
Scaling your marketing campaigns and activities can be hard to achieve if you lack enough resources and skilled employees to perform them. Consumers’ behaviors have changed and are still evolving so, having the perspective and updated skills of marketing and creative specialists can boost your marketing efforts. At present, you can outsource diverse solutions such as social media marketing, digital marketing, content marketing, or graphic designers.
Research and Development
When you don’t have the means and people to provide you valuable insights for your business, chances are you’ll not improve. Research is such a significant factor in a business because knowing, discovering, and asking your customers are keys to helping your business become better. Since this will cost your time, you can let experienced people research on your behalf. Not only you’ll get the results you desire, but you’ll also have access to your outsourcing partner’s methods and tools.
Just like other services, outsourcing legal processes has been a practice to reduce costs or billable hours. At most, outsourcing legal services can benefit small businesses because of its affordability. For example, you may only need non-core legal solutions like document review, paralegal support, legal documentation, or litigation support. When you outsource these, you’ll only need to spend on what you really hired them to do without making them your full-time employees.
Outsourcing Pros and Cons
Getting into any business practice has its advantages and disadvantages. You’ll just have to make sure that the advantages outweigh the drawbacks you’ll get from outsourcing. Here’s a quick list for you to consider when you decide to outsource:
- It helps you save on costs and time.
- It taps the skilled talents you need.
- It allows you to gain insights from industry experts.
- It increases your operational efficiencies.
- It gives you access to updated tools and technology.
- It speeds up projects while maintaining high-quality output.
- It lets you focus on your company’s critical missions and competencies.
- It may include some hidden charges.
- It may hinder you from having full supervision or control of business processes.
- It may result in the realization of mismatched expectations and performance.
- It may keep your business out of focus.
- It may cause issues regarding the quality of output and deadlines.
- It may not give your business the focus it deserves.
- It may risk your business’s and clients’ data security.
Outsourcing in the Philippines
Ever since establishing the first contact center in the country in 1992, the local outsourcing industry has only seen growth. Today, global businesses consider the Philippines as one of the top outsourcing destinations worldwide.
Let’s look into more of these fast facts about outsourcing in the country:
Call Center Capital of the World
The Philippines had overtaken India as the contact center leader in 2010. Due to the growing call center workers and revenues coming from the industry, the country remains on top of the outsourcing field.
Local Government Appreciation
As an economic pillar, the Philippines considers outsourcing as one of its top economic contributors. Outsourcing is such an economic powerhouse in the country that the local government has developed policies for the sector.
The Philippine Advantage
✓ English proficiency
✓ Good education
✓ Hard workers
The Philippines and Filipinos got them all!
🠆 Top 6 Digital Nation (Tholons Global Innovation Country Index 2020)
🠆 Manila and Cebu as “Super Cities” (Tholons Global Innovation City Index 2020)
🠆 Top 10 Location for Offshore Operations (Kearney’s 2019 Global Services Location Index)
🠆 No. 1 Trending Country as Top Outsourcing Destination (ASEAN Briefing)
According to industry experts, the local outsourcing sector expects to cover 15% of the global outsourcing market by the end of 2022. Further, they’re looking forward to the industry’s USD 40 billion worth of revenues, 7.6 million direct and indirect jobs, and 500,000 jobs outside the National Capital Region.
Business Optimization with Outsourcing
As an integral part of the outsourcing industry, for instance, the global BPO market is expected to reach USD 405.6 billion by 2027. This underscores how outsourcing continues to gain momentum as it significantly addresses various sectors’ diverse service needs.
According to Grand View Research, Inc., the major reason companies outsource is to save on costs. Although, operational efficiency, improved customer service, innovation, and flexibility are still some of the determinants that will accelerate outsourcing’s market growth by the said year.
Indeed, there is no stopping the growing sector. Its significant benefits are the major factors why many businesses can achieve savings, efficiencies, and focus. For the coming years, small and large enterprises have the flexibility to explore opportunities and improvements with the help of outsourcing.