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With the advent of globalization, business process outsourcing (BPO) has become a popular strategy for optimizing operations. But how do you best describe the practice of outsourcing?
- A business accessing the talent, technology, and tools of a reputable onshore provider
- A company outsources to an overseas country to reduce costs
- A startup or small business working with a third-party provider to grow
These three scenarios exemplify the practice of outsourcing. However, there is more to BPO than you might think.
This page covers frequently asked questions (FAQs) about outsourcing. Read on to get straightforward answers to common BPO questions.
Seven BPO FAQs: What You Should Know
Outsourcing is a popular business practice among companies across different industries. What began as a business strategy in 1989 has become a global solution for meeting multiple business objectives, such as reducing operating costs and achieving overall success.
The outsourcing industry has come a long way and shows no signs of stopping or slowing down. According to Grand View Research, the industry’s global market size could grow from $280.6 billion to $525.2 billion at a compound annual growth rate (CAGR) of 9.4%.
Read the answers to common BPO questions below to learn which features and functions best describe the practice of outsourcing.
1. What Is Outsourcing?
Outsourcing is delegating specific business processes or functions to third-party service providers. It involves contracting another company to perform non-core tasks for your organization. This straightforward definition best describes the practice of outsourcing.
However, the ideal outsourcing solution varies from one scenario to another. For example, a retail business can hire a warehouse facility and shipping company to manage inventory and deliver products.
Another example is when a bank outsources its customer service, sales, billing, and collections operations to a call center in the Philippines to reduce costs. Lastly, a tech giant can work with an information technology (IT) BPO provider in India to access expertise and technology and save money.
2. What Are the Different Types of Outsourcing?
The different types of outsourcing are front-office and back-end outsourcing (in terms of functions), onshore, nearshore, and offshore outsourcing (in terms of locations), as well as BPO, knowledge process outsourcing, and IT outsourcing (in terms of industries).
As you can see, outsourcing varies based on function, location, and industry. But which best describes the practice of outsourcing? The following types of outsourcing are valid and suitable, depending on your business objectives:
Types of outsourcing by function:
- Front-office outsourcing entails trusting third-party service providers with customer-facing tasks, such as customer service, sales or telemarketing, and technical support.
- Back-end outsourcing involves delegating administrative functions, such as accounting and finance (A&F), human resources (HR), and IT support, to a vendor.
Types of outsourcing by location:
- Onshore outsourcing is delegating business processes to a BPO company in the same country of operation.
- Nearshore outsourcing involves outsourcing business functions to a BPO firm in a nearby country.
- Offshore outsourcing involves entrusting business tasks to an outsourcing company in a distant country.
Types of outsourcing by industry:
- BPO. What is BPO? This strategy involves outsourcing business processes such as customer service, help desk, or digital marketing to specialized service providers.
- Knowledge process outsourcing (KPO)]. KPO focuses on outsourcing knowledge-based tasks that require high expertise, such as data analysis, intellectual property management, and research and development (R&D).
- IT outsourcing (ITO). ITO involves outsourcing IT-related functions, such as IT support, software development, hardware deployment, network management, and IT security and compliance.
3. What Are the Potential Benefits of Outsourcing?
Among the potential benefits of outsourcing are decreasing costs, increasing profits, accessing resources, improving performance, and achieving growth. However, there is more to these than meets the eye.
The following benefits best describe the practice of outsourcing:
- Significant cost savings. Offshore and nearshore outsourcing allow you to cut labor and operating expenses. A BPO service provider can help you save money in the long term.
- Undivided focus on core competencies. Outsourcing entails delegating non-core functions to a third party so you can focus on core operations.
- Real expertise and modern technology. Outsourcing gives you access to highly skilled talent and the latest digital tools and technologies.
- Efficiency, quality, and customer satisfaction. A reliable BPO service provider can increase efficiency, ensure quality services, and enhance customer satisfaction to help you gain a competitive advantage.
- Business profitability, growth, and success. A reputable BPO firm can help boost your profits, leading to growth and success. In 2022, 90% of small companies planned to outsource to scale and grow their businesses.
4. What Are the Possible Risks of Outsourcing?
The possible outsourcing risks are loss of control, communication barriers, cultural differences, privacy and security risks, and potential disruptions.
While explaining its benefits is the best way to describe the practice of outsourcing, you must also identify and address its drawbacks. That way, you can make informed decisions to maximize BPO’s potential and minimize risks.
Beware of the following outsourcing risks:
- Loss of control. Outsourcing entails entrusting parts of your operations to third-party companies. Doing so can lead to a loss of direct control over those functions.
- Communication barriers. Outsourcing creates communication problems due to geographical distance, time zones, and cultural differences. These factors can impact worker collaboration and agent-customer interactions.
- Cultural differences. Offshore outsourcing involves two companies from different countries working together. Differences in cultural norms, working styles, and business practices might negatively impact outsourcing engagement.
- Privacy and security risks. Outsourcing means entrusting your business data, systems, and networks to third-party service providers. Your hired vendor might compromise security and expose data to physical and cyber attackers.
- Business disruptions. Working with an offshore provider means being open to potential disruptions due to natural calamities, public holidays, cultural festivals, and geopolitical events. You must come prepared with contingency plans.
5. What Countries Are Popular Destinations for Outsourcing?
Popular countries for outsourcing are the Philippines, India, the United States, Mexico, and Ukraine, among others. They have emerged as popular outsourcing destinations due to their highly skilled labor, cost-efficient services, ideal business environment, and strong government support.
But which countries offer the best examples to describe the practice of outsourcing? Find out below.
- Philippines. As the world’s BPO capital, this country is notable for its cost-effective labor, highly skilled workforce, and total government support. Its IT and business process management (IT-BPM) sector ranked first in voiced services, comprising 13% of the global market share.
- India. Known as the world’s top outsourcing destination, India specializes in ITO. It expertly handles IT support, software development, and BPO services. It tops this year’s Tholons Top 50 Digital Nations list.
- United States. This country has long been popular for onshore and nearshore outsourcing. The U.S. shares the top spot with India in the Tholons Top 50 Digital Nations list for 2023.
- Mexico. This country is a leading ITO destination due to its proximity to the U.S. It offers IT services, such as IT support, software development, cloud computing, and cybersecurity.
- Ukraine. The Global Sourcing Association (GSA) awarded Ukraine the Delivery Destination of the Year 2021 award. Amid the current conflict in this country, it is recognized for its technically skilled workforce, which is best for software development and IT-related services.
6. How Do You Get Started with Outsourcing?
Outsourcing starts with examining your business operations and ends with hiring a BPO service provider. This process best describes the practice of outsourcing. However, a lot happens in between, and the outsourcing engagement continues after you launch your BPO operations.
To get started with outsourcing, follow the crucial steps below:
- Study your business operations to identify your business needs and outsourcing requirements.
- Search for potential service providers by checking online, getting referrals, and attending industry events.
- Screen your list of prospects according to business reputation, track record, workforce, technology, and outsourcing cost and pricing model.
- Select an outsourcing provider best suited for your business type, size, niche, and budget.
- Create a service-level agreement (SLA) detailing your business goals, key metrics, work scope, processes and policies, and contract breaches.
- Start your outsourcing operations after performing a pilot run. After the launch, ensure regular communication, monitoring, forecasting, and reporting.
7. Is Outsourcing Right for Your Business?
Outsourcing is right for your business if you need access to expertise, technology, and resources. The same is true if you need help increasing service efficiency, ensuring quality standards, and enhancing customer satisfaction. In most cases, outsourcing is right for companies seeking to decrease operating costs and increase business profits.
Outsourcing is best for companies of all sizes. But which strategies can best describe the practice of outsourcing for your business? Determining whether outsourcing is right for your business depends on various factors. As such, take the following steps:
- Study the nature of your business, the specific functions you want to outsource, your financial resources, and your long-term goals.
- Conduct a cost-benefit analysis and assess the potential risks and rewards before deciding.
- Learn from some outsourcing case studies to see how other companies have taken advantage of outsourcing and if their strategies apply to your organization.
- Consult with industry experts or engage in pilot projects to evaluate the viability of outsourcing for your business.
The Bottom Line
So there you have it—answers to multiple BPO FAQs that best describe the practice of outsourcing. One should know these answers to make informed outsourcing decisions.
Outsourcing has become a viable solution for streamlining operations, reducing costs, and achieving business success. Consider the practical steps above for outsourcing and choosing the right BPO service provider. By harnessing the power of outsourcing, your business can be on its way to growth and success!
Ready to outsource? Look for a reliable BPO provider, such as Unity Communications. We serve businesses across various industries by offering front-office and back-end outsourcing services. Let’s connect today to get started with us!
