What are the different types of outsourcing?
The COVID-19 pandemic and its economic repercussions forced businesses to rethink their business models. Now, they are looking for low-risk, high-reward strategies to keep their business profitable and operational. Thankfully, outsourcing is here to save the day.
The concept of outsourcing “made its presence felt since the time of the Second World War.”
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Delegating tasks to outsourcing providers is a tried-and-tested strategy. Surely you’ve read about various success stories of companies outsourcing tasks to offshore destinations.
What is outsourcing?
Outsourcing is the process of seeking the services of a third party provider to perform job functions and other responsibilities. In this scenario, a business starts an agreement with a business process outsourcing (BPO) company to be responsible for the company’s operations. Usually, businesses outsource their back office operations to an external workforce.
In the early 2000s, outsourcing began making waves across the globe through global call centers. These third party call centers, usually located in destinations like the Philippines and India, provide customer service for Western companies. This became a huge phenomenon, with the Philippines being declared as the call center capital of the world.
Fast forward to today, outsourcing is not limited to call centers and customer service providers anymore. Companies now outsource various services and tasks, which include:
- Bookkeeping
- Graphic design
- Engineering
- SEO writing
- IT support
- Human resources
- Payroll processing
- Web programming
- Transcription
- Social media marketing
- Data entry
- Legal and healthcare services
- Telemarketing
- Lead generation
Because of technology, the barrier that separates different country’s operations have been eliminated. Today, companies can keep their business seamlessly running smoothly even if their operations are delegated on the other side of the world.
What are the types of outsourcing?
People who don’t fully understand the concept of outsourcing criticize it for “taking jobs away from home.” This is one of the greatest misconceptions about this industry.
It should be noted that outsourcing doesn’t only provide jobs to professionals in offshore locations. It’s not about taking away jobs, it’s about making jobs easier for the company.
Get to know the different types of outsourcing to learn more about the industry.
Business process outsourcing
Business process outsourcing (BPO) is arguably the most common form of outsourcing. This type of outsourcing pertains to the hiring or contracting of another company to perform specific responsibilities for your business operations. With BPO, businesses delegate their tedious and repetitive tasks to a BPO provider, which is usually in an offshore location.
The Philippines is considered as one of the world’s leading BPO destinations. With its impressive blend of Western cultural affinity, high literacy rate, English proficiency, and friendly people, companies all over the world can rely to Philippine BPO companies for a seamless transition to the world of outsourcing.
IT outsourcing
Information technology (IT) outsourcing is also making waves in the business world for the past decades. IT outsourcing is the practice of utilizing the services of a third party provider to take care of your company’s IT functions. Companies can outsource some IT functions, including manning the help desk, ensuring that company databases are protected from viruses, and providing learning materials for employees regarding safeguarding confidential data.
Project-based outsourcing
Tight schedules, deadlines, and an unexpected number of projects can overwhelm teams and companies. To solve this, companies resort to project-based outsourcing. Project-based outsourcing is the delegation of an entire project to an external company. This type of outsourcing, as implied, is project-based. Once the task is completed, the partnership also ends.
Project-based outsourcing takes a large bulk of work on team members’ hands. For instances of an overwhelming number of projects, companies can again reach out to their outsourced team to seek help.
Offshore outsourcing
Offshore outsourcing is the strategic practice of contracting a part of your business process or functions to an external outsourcing provider from an offshore location. This is a very effective business strategy, especially done by businesses looking to save on labor costs without sacrificing the quality of work.
Companies do offshore outsourcing to tap into dedicated and world-class global workforces. With this type of outsourcing, companies relocate their office jobs into offshore locations like India, the Philippines, or China – or they expand their teams into these locations.
The benefits of offshore outsourcing include:
- Access to a dedicated and diverse pool of offshore talent. These locations take pride in their university educated professionals ready to work for an outsourcing company.
- Since the cost of living in these areas are lower, western companies can save up to 70% on labor costs.
- Highly satisfying quality of output and work ethic.
Offshore outsourcing’s alternatives are onshore outsourcing and nearshoring. Both will be discussed below:
Onshore outsourcing
Onshore outsourcing is similar to offshore outsourcing in a way that they both involve hiring an external company to perform other business functions. However, with onshore outsourcing, this external provider is located in the same country as the company’s headquarters. Say the company’s headquarters is located in New York, United States, onshoring means seeking a third party company in other states, like Illinois or Florida. The external provider is still in the same country.
Onshore outsourcing is also defined as “domestic outsourcing.” Outsourcing to a domestic location may not be cost-effective, as the cost of living and minimum wage is still the same. However, companies that try onshore outsourcing may benefit from the same time zones, same culture, and accessibility to the site (as compared to an offshore office).
Nearshore outsourcing
Nearshore outsourcing, or nearshoring, is outsourcing your company’s business functions to a company located in a nearby country. Nearshoring means that the business has shifted work to a lower cost organization, but within its own region. For American companies, this means seeking the services of third-party providers in countries like Mexico, Canada, and other parts of Latin America.
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Nearshoring has its own set of benefits, including the following:
- More accessible location, compared to offshore destinations
- More cost-effective staffing solutions, compared to onshore outsourcing and direct hiring
- Similar time zone
