To gain a competitive advantage in any industry, business owners should embrace innovation and adaptability. With this, an organization should be open to changes brought by technological and strategic advancements. The popularity of outsourcing has definitely paved the way for streamlined operations, multiple job opportunities, and economic growth. However, just like other business solutions, outsourcing also has its potential drawbacks.
Outsourcing may have helped a lot of businesses succeed. But the truth is outsourcing isn’t a quick and easy decision for everyone. If you’ve been following our blog, you might have come across many articles that tackle the benefits of outsourcing. To help business owners decide whether outsourcing is the best solution for them, we listed both the advantages of outsourcing and its disadvantages.
If you’re thinking of outsourcing your business processes, this is the perfect article for you. See how outsourcing will help you achieve your company’s vision and decide if outsourcing is good or bad for your organization. Read more.
What is outsourcing?
Outsourcing is the practice of hiring a third-party service provider to perform common business operations and allow the in-house team to focus on the core functions of the company. It is a common business practice for businesses that work on large-scale projects that should be completed in a specific time period.
The two most popular types of outsourcing are offshoring and nearshoring. In offshore outsourcing, the organization will move a whole operation/task to another country. In nearshore outsourcing, the company will delegate specific tasks to an external team which is located in a nearby country (usually a country within the same border).
An example of this is when a company hires software engineers from an outsourcing provider for a software development project. The outsourcing industry often boasts about having a solid and accessible talent pool that comes with lower costs. Moreover, outsourcing has also gained immense popularity for allowing businesses to scale their operations depending on the demand. Outsourcing makes it easier for businesses to operate within their budget and achieve productivity at reasonable prices.
What are the pros of outsourcing business functions?
Companies can have access to a global talent pool.
Hiring a contractor with proven expertise in a specific field will lead you to seasoned professionals and skilled workers. Outsourcing often hires competent staff from countries such as India and the Philippines. If you need specialized services related to information technology, customer support, and content creation, outsourcing is an excellent decision.
India, for example, boasts an impressively high employment rate of 93.5% for software engineers. Equipped with solid experience and in-depth knowledge of modern software solutions, you can absolutely be at ease when outsourcing to India. In the supply chain and manufacturing industry, both India and China have the competitive edge in terms of manpower, production capabilities, and lower labor costs.
Cost-saving benefits can help businesses save time and money.
Outsourcing’s cost-saving benefits never fail to impress business owners. As we mentioned earlier, outsourcing services to countries with lower labor costs is one of the best ways to grow your business. Instead of hiring someone in-house, where you will be in charge of paying for the hiring, training, benefits, and other compensations, your outsourcing partner will do the work.
Most organizations in developed countries with higher wages usually opt to outsource their business functions in order to reduce costs without missing high-quality standards. Depending on the pricing model presented by your outsourcing vendor, it is common for outsourcing firms to bid or propose cheaper outsourcing packages to attract more clients.
Think of this. Third-party vendors offer to shoulder the equipment, manpower, and compensation of your external team, and you just need to secure a one-time payment. This is why more businesses are considering outsourcing as a capital investment. You pay for a package of outsourcing solutions, and you receive long-term benefits that could bring success to your organization.
The in-house team can have a better focus on core business functions.
In 2023, a study found that over 57% of businesses outsource to focus on their core competencies. These competencies are revenue-generating tasks that must be managed in-house. Other non-core functions like data entry, live chat support, content moderation, accounting, and software development and maintenance are often outsourced. This is especially recommended for enterprises that encounter high demands and influx of inquiries from their customers.
Ecommerce companies often outsource call centers and other customer support services in the hope of enhancing customer experience with round-the-clock assistance from CX professionals around the world. Apart from these two tasks, an e-commerce company might also outsource order fulfillment, inventory management, order processing, and payment processing.
With the external teams working on these non-core functions, the internal team can bring better focus on core operations, which involve boosting sales, managing finances, helping businesses to reinvest practically, quality assurance, and continuous improvements of business strategies.
Businesses can contribute to the outsourcing market with multiple job opportunities.
This is the more profound aspect of outsourcing. In the business world, where jobs come and go, outsourcing firms exist to provide a wide range of career opportunities to people. In 2023, there were 262,613 BPO service companies in the U.S. alone. This equates to hundreds and thousands of jobs from the domestic and international talent pool.
Outsourcing your business functions to different people from different sides of the world will expose you to different work cultures and give you the opportunity to hone professionals in various fields.
Sure, many consider the BPO industry as a training ground rather than a permanent working place to enhance their potential. But as they train and gain new competencies, your business also prospers. Talk about a win-win situation.
Business owners can scale their operations based on their needs.
Now, this is where the importance of a clear and concise outsourcing contract comes in. Outsourcing enables businesses to scale their operations depending on their needs, the needs of their customers, and how well the business is performing in the market.
This means that as the business owner, you can decide whether it’s time to add new staff or reduce the manpower. If the business is doing well, an additional workforce could be highly beneficial. But if there are problems with the performance of your external team, laying off staff could save the business from potential losses.
Outsourcing companies offer plenty of flexible pricing models that will help businesses scale their operations better. Make sure to coordinate with your service provider for outsourcing terms that will be beneficial for you and your external team.
What about the common disadvantages of outsourcing?
Business owners may lose control of their operations due to outsourcing.
Outsourcing figuratively means that you’re entrusting a huge portion of your operations with a third-party service provider. This also means that your service provider has the right to manage the team based on their proven strategies.
However, in the corporate world, one effective strategy might not be effective for all. When things go south, it’s important to take control. It is a common dilemma among organizations that outsource when they are slowly losing control of their operations.
Over-reliance is always tricky, even with the best outsourcing providers.
While micromanagement is not recommended, it’s important for business owners to regularly check on the working conditions of their external teams. In such a way, you will be able to have a clear view of what’s happening in your outsourced team. You also need to ensure that your external team still adopts the company culture that you have in your on-site team.
Work ethics and other factors such as attendance and performance should also be evaluated. Remember that your involvement is still an integral factor that will guide your external team to do their best. Always be prepared to manage, negotiate, communicate, and evaluate. Your role doesn’t end with overseeing.
Low success rate = high overhead costs.
As unfortunate as it is, businesses and projects are subject to both success and failure. Outsourcing doesn’t guarantee a 100% success rate for every project. Whether it’s employee-related negligence or problems caused by lack of revenue, some projects done in outsourcing can also deliver unsatisfactory outcomes. Of course, when a project fails, overhead costs could pile up, which could cause potential losses.
Communication problems may impact collaboration and productivity.
A diversified team of professionals is always considered a powerhouse. But if the diversity already leads to language barriers and communication issues, outsourcing may also be more challenging. For example, a non-English-speaking country might outsource some of its tasks to an English-speaking country.
Basic conversations could only be good in a short-term project. But when complex issues arise, language barriers could be really problematic for both the in-house and outsourced teams.
Because communication is key, it’s always a must for organizations to ensure that culture and language barriers are properly handled. Some companies conduct language training and cultural immersion workshops to help their in-house and outsourced teams become more comfortable at work.
It is important to note that problems in communication could negatively impact the quality and efficiency of your business operations. Thus, addressing them beforehand is always the best decision.
What are the factors that business owners should consider when choosing an outsourcing company?
Costs of outsourcing services.
According to a global outsourcing survey conducted by Deloitte, 70% of businesses turned to outsourcing with the primary purpose of reducing costs. While it’s true that outsourcing can help you reduce costs, it’s still an important business decision that requires money. Consider the typical costs, which may include hiring and recruitment fees, training costs, salary and incentives, and other essential fees such as technology and equipment upgrades.
Simply put, setting a budget exclusive to outsourcing is a practical idea. You may also want to consider researching the common pricing models that outsourcing companies offer to their clients. Flexible pricing models are usually more affordable and come with lower risk levels. This is especially recommended for outsourcing first-timers.
Specific set of skills needed.
No set of skills is considered non-essential in the outsourcing industry. But if you’re planning to outsource your non-core tasks, identifying the set of skills you need in your external team is a must. For example, you are in need of competent marketing professionals to keep your digital presence active.
Listing down the specific skills and expertise that you need will help you and your service provider get the best people to get the job done. By doing so, you can also be 100% at ease that the team will be productive and compliant with your brand’s quality standards.
Experience in the BPO industry.
Expertise is often developed through experience. In the BPO industry, there are many outsourcing firms that boast decades of experience and even award-winning achievements and milestones. Picking an outsourcing partner that possesses a long and proven experience in various outsourcing tasks could help your business succeed.
Feedback from past or present clients.
Besides years of experience, feedback, and testimonials from clients also matter. Indeed, nobody knows about an outsourcing provider better than its past and present clients. Depending on the previous contract or agreement, some BPO firms showcase a portfolio of case studies and a collection of feedback from their past clients.
If the contract was not bound by NDA, it’s easier to find a list of companies that work with a BPO firm. Doing this can give you a more transparent and detailed context of how an outsourcing firm performs. It can also give you enough time to check and filter which outsourcing partner can give your business long-term benefits.
Technology and modes of communication.
Another crucial factor that you have to consider when picking an outsourcing partner is technology. If you’re outsourcing tasks like customer support, it is important to maintain hassle-free and round-the-clock communication with your external team.
A stable internet connection with several backups, an excellent power source, and good cell network signals are just a few of the essential tools that an outsourcing provider should have. An omnichannel platform could also be highly beneficial, as it enables clients and staff to access important communication channels anytime and anywhere.
Duration of a project or campaign.
How many months or years will the project/campaign last? Is it a short-term or a long-term project? Finding the duration of a project is crucial in determining whether outsourcing is beneficial or detrimental to your business.
If you’re aiming for a short-term project, find a service provider that specializes in recruiting staff for short-term projects. Signing a partnership with a BPO firm that offers customizable outsourcing packages is also recommended to minimize risks and potential losses in case the outcome doesn’t meet the standards.
Risk management practices.
Of course, every outsourcing project is associated with a couple of risks. But at the end of the day, the efforts to manage these risks matter the most. A great outsourcing partner should be prepared to handle and resolve issues that come up during the duration of a project.
Staff attrition, outdated technologies, and cultural barriers are just a few of the common roadblocks that outsourcing firms encounter. While these issues are serious, they are also manageable with prompt and proper assessment and intervention.
Analyzing the impact of outsourcing on the global economy.
Experts describe the impact of outsourcing on the global economy as “cyclical”. The practice itself comes with many different questions, and its integrity is still being criticized. But U.S.-based companies alone can prove how business process outsourcing has paved the way to global economic rise. In a 2020 article published by Mindy Support, outsourcing was defined as the U.S.’s way to balance out all the revenue losses from imports.
With over 53% of businesses in the U.S. offshoring their customer support services, American companies take advantage of lower labor costs in foreign countries. At the same time, it strengthens the economic condition of those countries which also became some of the major players of the global market.
In the Philippines, the IT and Business Process Association of the Philippines (IBPAP) reported that the outsourcing industry has generated over $29.1 billion in revenue, which is 7.5% of the nation’s GDP. The industry has encouraged Filipino professionals to update and improve their skill sets and adapt to the latest technological advancements. BPO firms also pushed the infrastructure sector to become more open to architectural improvements and urban development.
Lastly, the thing that makes outsourcing stand out among other industries is its economic resilience. While many business sectors crumbled during the height of the COVID-19 pandemic, the BPO industry remained incredibly steadfast. The availability of more comfortable working arrangements, such as remote and hybrid work, also motivated individuals to apply for BPO jobs. Citing the importance of work-life balance and providing a wide range of high-paying jobs to different people across the globe.
So, is outsourcing good or bad? Here are our key takeaways.
Weighing the potential advantages and disadvantages of outsourcing to your business is crucial. Outsourcing is a business practice that requires a careful decision-making process and a definite budget. Here are some of our takeaways to help you decide whether outsourcing is good or bad for your business:
- Outsourcing aids businesses that struggle with productivity and efficiency. If you need to enhance both aspects of your business, it’s an excellent step.
- The practice serves as an investment. If you have a budget to spare for its long-term benefits, go for it.
- Business owners who outsource their operations are advised not only to oversee, but to manage. If you don’t have time to look over your external team, outsourcing might not be for you.
- In every outsourcing project, it is essential to implement technology upgrades. If you’re ready to adapt to the technological demands of your external team, give it a try.
- Outsourcing is also associated with risks. It’s important that business owners start with a customizable outsourcing package to assess potential risks and prevent losses.
- The success of every outsourcing project will depend on proper management and coordination between you and your service provider. For the list of Best Outsourcing Practices, read this.
Outsourcing is good when you have a good outsourcing partner like Digital Minds BPO.
And, of course, a good service provider can make your outsourcing journey easier! Here at Digital Minds BPO, you can start the best outsourcing project with the right people and reasonable prices. You read that right. Digital Minds BPO has been helping businesses streamline their operations with our affordable outsourcing solutions. We offer a range of services, such as live chat support, data entry, and content moderation.
Digital Minds BPO will help you deliver the most efficient support to your customers and at the same time, improve and protect your digital presence. Contact us now to have access to seasoned professionals who will take your business to the next level. Let’s start building your dreams!
