Written by Dion Jay Tality
Offshore outsourcing has become a widespread business practice in recent years. For instance, companies outsource tasks to Philippine offshoring providers to reduce costs and scale their operations.
But if you are new to this concept, you might ask what offshore outsourcing is precisely.
Sit down and buckle up—this page contains a beginner’s guide to offshore outsourcing. Read on to learn more about:
- Its types of services,
- Its key benefits and potential risks,
- The top six offshore destinations,
- Steps in finding an offshore provider, and
- Best practices for outsourcing success.
Let us dive right in!
What Is Offshore Outsourcing?
Offshore outsourcing involves hiring an overseas third-party vendor to handle business functions instead of performing them in-house. The outsourced work can include customer-facing (customer service and sales) or back-end functions (administrative tasks).
Businesses employ offshore outsourcing for many different reasons. Most companies outsource primarily to cut labor and operating costs; others aim to focus on their core functions. Either way, they all have access to skilled talent, advanced technology, and abundant resources.
Improved services, customer satisfaction, and increased profits are the ultimate goals of offshore outsourcing. Learn more about the potential benefits of this strategy in the following sections.
Offshore vs. Onshore vs. Nearshore Outsourcing
Outsourcing is a broad term. Generally, it refers to delegating tasks to third-party service providers.
But what is offshore outsourcing? Along with onshore and nearshore outsourcing, it is a specific outsourcing category. For a better understanding, here are their differences:
- Offshore outsourcing entails hiring an external provider in a different country. For example, a U.S.-based bank engages in business process outsourcing (BPO) in the Philippines to have a service provider handle its customer service. This move is a viable solution for accessing expertise and technology while cutting costs.
- Onshore outsourcing involves hiring a third-party vendor in your country to handle your business functions. For instance, a walk-in clinic subcontracts imaging services, such as MRI and CT scans, to a radiology center in the same city. Businesses employ this strategy if they lack the workforce, technology, and resources for specific services.
- Nearshore outsourcing entails working with an outsourcing service provider in a nearby country. For example, a Canadian e-commerce business hires a BPO firm in Mexico to handle customer service and assist American and Spanish customers. This type of outsourcing guarantees geographical proximity and minimal time zone differences.
Types of Offshore Outsourcing Services
Now that you know what offshore outsourcing is, learn which services you can outsource. As mentioned, you can employ front- and back-office outsourcing. Your decision boils down to what your business needs.
The distinct types of services you can outsource separate these four categories of offshore outsourcing.
Business Process Outsourcing (BPO)
BPO is the most popular type of offshore outsourcing service. The global BPO market is projected to grow from $280.6 billion in 2023 to $525.2 billion by 2030. It is expected to achieve a 9.4% compound annual growth rate (CAGR) during the forecasted period.
Companies of all sizes outsource business processes such as the following:
- Customer service – assisting customers by answering questions and processing requests
- Sales or telemarketing – promoting brands and selling products or services
- Administrative work – working on accounting, payroll, human resources (HR), and information technology (IT) support tasks
Knowledge Process Outsourcing (KPO)
KPO involves hiring a third-party vendor to perform knowledge-based tasks or activities that require advanced analytical and technical skills. Companies outsource to offshore providers to access specialized knowledge and abilities unavailable in-house.
KPO services include the following:
- Research and development (R&D) – gathering data for project development
- Data analysis – analyzing information for business initiatives
- Market research – studying the market to help make informed decisions
Information Technology Outsourcing (ITO)
ITO entails hiring a third-party company to provide IT-related services. This segment makes up a bigger chunk of the outsourcing market. Finance (44%), payroll (32%), and contact centers (22%) are the next most frequently outsourced services, all at nearly 54%.
ITO services include the following:
- Technical support – providing end users with technical assistance
- Help desk support – serving as a single point of contact (SPOC) for all user concerns
- Software development – designing and creating digital tools or applications
Creative Services Outsourcing
This type of outsourcing involves delegating creative services to a third-party service provider. Businesses outsource such tasks to access creative skills and expertise. Doing so frees up their time and allows them to focus on core business activities.
Creative services you can outsource include the following:
- Content creation – creating blogs, landing pages, marketing copies, and more
- Video production – producing promotional, educational, or entertaining video clips
- Graphic design – bringing images or visuals to life
Eight Key Benefits of Offshore Outsourcing
There are pros and cons to outsourcing to the Philippines, India, and other offshore destinations. Weighing both sides of the argument is critical to making informed decisions.
To fully understand what offshore outsourcing is, let us first explore its potential benefits below.
1. Significant Cost Savings
Deloitte identified cost reduction as the top reason for outsourcing. However, we can attribute such a benefit to no less than offshore outsourcing. Most companies outsource their tasks to offshore BPO firms to save money.
Through outsourcing, you can save up to 70% on labor costs. You can also cut operating expenses as you no longer need to spend on building infrastructure and technology and hiring and training people.
2. Core Operations as the Primary Focus
Outsourcing non-core functions allows companies to focus on revenue-generating activities. At the same time, they can reduce operating costs without compromising service quality. That is how beneficial offshore outsourcing is—it lets companies kill two birds with one stone.
According to Clutch, 90% of small businesses plan to outsource business functions in 2022. About 27% aimed to save time; others hoped to access resources (33%) and experts (26%). Offshore outsourcing allows you to prioritize your core functions and grow your business. About 19% of small businesses outsource.
3. Skilled Professionals
What offshore outsourcing does is that it lets you tap into skilled professionals from an overseas BPO vendor? It allows companies to access the specialized knowledge and expertise that their business operations require.
For example, you can outsource your software development or even outsource software maintenance to the Philippines or in India, Ukraine, or Poland. Likewise, you can outsource contact centers to a BPO company in the Philippines or Malaysia.
4. Modern Technologies
Aside from a skilled workforce, offshore outsourcing provides access to digital tools and modern technologies. As you might know, the latest innovations can give companies a competitive advantage.
According to Deloitte, the top digital enablers are automation, single-instance enterprise resource planning (ERP), case and service management, and cloud technology. Leveraging these technological resources can significantly improve your business processes.
5. Improved Business Performance
As mentioned, offshore outsourcing provides companies access to true expertise, advanced technology, and available resources. These factors can streamline workflows and improve overall operations.
So what can you expect from offshore outsourcing? When you partner with the right BPO company, you can see a significant boost in efficiency and output. Your business will also deliver quality products or services.
6. High Customer Satisfaction
Offshore outsourcing is what you do when working with an overseas company to scale your business and improve your operations. However, there is one key stakeholder in the overall equation—the customers. You outsource to improve your services to always satisfy your customers.
Case in point: Consider customer service outsourcing in the Philippines. The country is known for its English-proficient, highly skilled, and hardworking people. Filipinos are also very respectful, hospitable, and patient. These desirable traits are ideal for your customer service operation to ensure customer satisfaction.
7. Increased Profitability
While offshore outsourcing is ideal for cost reduction, it is also good for boosting profits. As explained, businesses outsource to offshore providers to access expertise and technology to improve their performance. All these efforts boil down to one goal: to increase the bottom line.
Hiring a reputable BPO partner is key to improving your cash flow. A reliable provider helps you save money on operating expenses. It can also help you win new customers and keep the ones you already have.
8. Faster Business Growth and Global Expansion
The world has become a global village. Today, it is easy to see companies expand to different parts of the world. They tap into the worldwide market to grow their businesses, making them globally competitive.
If you plan to achieve the same objective, employ offshore outsourcing. The strategy gives you access to new markets, customers, and business opportunities, accelerating your company’s growth and expansion!
Bonus: To fairly look at what offshore outsourcing really is, let us also tackle some of its possible drawbacks:
|Potential Risk of Offshore Outsourcing||What to Avoid and What to Do|
|1. Goal Misalignment|
Problem: The provider’s operational objectives are not aligned with your general business goals
Solution: Define your SMART goals in your service-level agreement (SLA).
|2. Communication Barriers|
Problem: Language barriers and time zone differences
Solution: Pick an English-proficient outsourcing destination. Be selective in your recruitment and offer language training programs.
|3. Cultural Differences|
Problem: Differences in work ethics, communication styles, and business practices
Solution: Orient your BPO team on cultural gaps and work towards bridging these gaps.
|4. Lack of Control|
Problem: Overdependence on your hired provider
Solution: Ensure regular communication. Set quality control measures in place. Track your outsourcing progress.
|5. Security Issues|
Problem: Physical attacks and cyberattacks
Solution: Set data privacy policies and network security protocols in place.
|6. Regulatory Compliance|
Problem: Noncompliance with laws and regulations, resulting in financial and legal consequences
Solution: Study the country’s laws and regulations. Ensure full adherence to them.
|7. Business Disruptions|
Problem: Natural calamities, geopolitical issues, holidays, etc.
Solution: Maintain an in-house team for your business operations. Set up a contingency plan.
Top Five Offshore Outsourcing Destinations
To know what the success rate of your offshore outsourcing engagement is, factor in the location. Some countries have become go-to outsourcing hubs since they welcome companies of all sizes. Even so, selecting a country to outsource your business functions to is crucial, so you should understand your choices before you start.
No idea where to outsource? Let us look at the top five offshore outsourcing destinations and what they offer:
1. The Philippines: Ideal for Voice-related Services
The Philippines has become a top outsourcing destination due to its lower labor costs, English-proficient workforce, full government support, and ideal business environment. The country is also the world’s BPO and call center capital.
Colliers cited BPO Philippines as having the potential to capture a bigger share of the global BPO market. The country’s IT and business process management (IT-BPM) industry ranked first in voice-related services, comprising 13% of the worldwide market share.
2. India: Best for IT and Tech Solutions
India is a major global outsourcing player, followed closely by the Philippines and the United States. The country is notable for its diverse pool of talent and cost-saving benefits. It is known for its IT, software development, and tech-related services.
India tops the 2023 Tholons Global Business Innovation Sustainability Index (TBIS) list. Along with the United States, the country is considered a global leader in the digital transformation of industries and services. It joins the ranks of “avant-garde” nations for pioneering and accelerating their leadership in the field.
3. Ukraine: Good for Software Development and IT Services
Ukraine has quickly become a popular outsourcing destination in recent years. The country ranks next to India in IT outsourcing. It offers software development and IT-related services.
Ukraine is notable for its ideal business environment and is a popular nearshore destination among its neighboring countries. However, companies based in the U.S., Canada, and other European nations can also hire offshore outsourcing services in Ukraine.
4. Poland: Top Choice for Accounting and Financial Services (A&FS)
Aside from Ukraine, Poland is another European country ideal for outsourcing. It has one of the biggest IT outsourcing markets in Europe. The country is also notable for its financial and accounting services.
According to a recent news report, Poland is a top offshore and nearshore outsourcing location. The country is famous for its diverse pool of skilled talent. It is also known for its BPO, global business services (GBS), and ITO services.
5. Malaysia: Good Option for IT and Software Development Services
To understand what offshore outsourcing is, Malaysia is a perfect example. The country is another rising contender in the outsourcing arena. It excels in outsourcing services such as IT and software development.
Malaysia is an ideal outsourcing destination for a handful of reasons. First, the country has good English proficiency, ranking 3rd in Asia and 28th globally for the 2022 EPI index. It also has a low cost of living, which makes it ideal for reducing operating expenses.
How to Find an Offshore Service Provider
Hiring the right offshore service provider can be instrumental to your success. However, this critical step can be daunting. With so many providers readily available on the market, you might find it hard to pick the best fit for your business needs.
Partner with the right provider to unravel what offshore outsourcing is and maximize what it offers. Follow our crucial steps below.
- Choose an outsourcing destination. You can consider outsourcing to the Philippines, India, and the other countries mentioned above. They are among the top destinations for offshore outsourcing due to their skilled workforce, favorable business environment, and proven track record.
- Research potential service providers. After choosing an outsourcing destination, look for the right provider. Start by searching online to create a list of BPO firms in your chosen country. You can also seek recommendations from other businesses or professionals.
- Evaluate the list of prospects. Once you have a list of prospective offshore providers, you can begin your evaluation. First, check their websites, ask for quotes, and conduct interviews if possible. Assess these prospects according to reputation, credentials, talent, technology, resources, and pricing.
- Hire the right outsourcing partner. Hiring is crucial since your provider can make or break your business. Here is a rule of thumb: Pick a BPO partner best suited for your industry, size, and budget. The goal is to find an offshore provider to meet your business needs.
- Create an outsourcing contract. Make a contract once you hire a provider and get the best deal. This legally binding paper outlines your work scope, deliverables, pricing, resources, and contract breach, including the SLA and key performance indicators (KPIs). It guides and protects both parties during the outsourcing engagement.
- Start the outsourcing operation. Finally, you can allow your hired provider to launch the outsourcing operation. Assist them in setting up. Perform a pilot run to ensure everything goes as smoothly as possible.
Best Practices for Guaranteeing Offshore Outsourcing Success
Hiring the right provider is often the key to offshore outsourcing success. However, that alone is not a guarantee that your business will succeed. Such success requires careful planning, effective collaboration, and robust implementation.
To make the most of what offshore outsourcing is, follow some best practices below:
- Revisit the SLA. Revisiting your SLA and adjusting your KPIs when necessary is crucial. Offer help and support to your provider to ensure it can hit these metrics.
- Maintain business control. Outsourcing does not mean losing control of your business. You give your hired provider the liberty to handle your business functions. However, being proactive, communicative, and collaborative in your outsourcing engagement is important.
- Ensure constant interaction. Effective communication is almost always the key to business success. Establish seamless channels and ensure regular check-ins and meetings with your BPO team.
- Reskill and upskill the workforce. Invest in talent reskilling and upskilling, and work with your BPO partner to provide training programs. Remember, the workforce is the most valuable asset in your outsourcing partnership.
- Invest in the latest technology. Technology constantly evolves, and investing in the latest tools and platforms gives you a competitive advantage. Consider adopting artificial intelligence (AI), automation, and cloud-based technology.
- Measure outsourcing performance. Set KPIs, monitor your BPO team, and measure its performance. The goal is to identify your outsourcing strengths and weaknesses and take action toward them.
- Optimize outsourcing. Improve your outsourcing operation regularly. Monitor good performances and maintain best practices. Identify areas for improvement and make necessary adjustments.
The Bottom Line
So what is offshore outsourcing? Outsourcing to an overseas provider is a cost-effective solution for scaling your business.
But to make informed business decisions, consider the above services to see what tasks to outsource. Weigh its pros and cons before taking the first step. More importantly, hire the right service provider and implement best practices to guarantee success. With this guide, you are ready to kick off your offshore outsourcing and soon reap many potential benefits!
Are you searching for a top offshore outsourcing destination and looking for the right service provider? Let’s connect; Unity Communications has what it takes to scale your business and reduce costs.