Global outsourcing and outsourcing are two terms that are often used interchangeably but don’t let that fool you, there is a difference!
Outsourcing, by definition, is the practice of hiring a third party to provide services or perform tasks that would otherwise be done in-house. This could be within the same country or even just down the road.
For example, a company working from the US may be seeking outsourced talent from the same country if they are working on country-specific projects. In this case, they might hire a US-based virtual assistant that allows them to avoid language barriers and challenges arising from cross cultural differences.
Global outsourcing, on the other hand, is the practice of outsourcing to a third party based outside of the company’s home country, often referred to as offshoring. There are many reasons why organizations turn to global outsourcing, and there are both advantages and disadvantages to consider.
Global outsourcing is when external firms or individuals are enlisted to execute business functions in another country, often to cut expenses, access specialised skills or technology, and enhance overall efficiency.
In this blog, we will discuss the top reasons to choose global outsourcing for your business, as well as the pros and cons of this practice.
Why global outsourcing is a smart business decision?
Global Outsourcing: a win-win for companies and consumers. Globalization and outsourcing offer many advantages for businesses of all sizes. No matter the size of the business, everyone loves excellent cost-cutting services while maintaining great quality.
Cost savings is the primary reason for outsourcing, as it allows businesses to reduce operational costs and increase efficiency, even for smaller businesses with lower budgets. Additionally, global outsourcing provides access to a larger talent pool and specialized expertise, allowing businesses to tap into a broader range of skills and capabilities.
Global outsourcing also allows businesses to scale quickly and increase their global presence as well as helping businesses stay competitive in the global market, allowing them to access the latest technology and processes.
With all these benefits, it’s no wonder why global outsourcing is becoming increasingly popular and a very profitable business, with the industry of BPO (Customer Services, Development, Finance & Accounting) being valued at almost$250 billion annually, and the numbers are still rising every year.
In 2022, the global market size for business process outsourcing had achieved a valuation of USD 261.9 billion. Projections had indicated a prospective expansion at a compound annual growth rate (CAGR) of 9.4% spanning from 2023 to 2030.
Global outsourcing or offshoring to a lower-cost economy is also an appealing alternative due to its ability to scale up or down quickly. Flexibility is a top deciding factor for nearly half of executives, and a quarter of opened small businesses state they use global outsourcing services to improve job efficiency.
The 2020 pandemic has also led to a digital transformation in the IT business sector, necessitating better cybersecurity measures and extra capacity to sustain surges of users and enterprise upgrades. As a result, 8 in 10 leading IT organizations are entertaining the thought of partnering up with global outsourcing services to ensure extra protection and security against increased digital threats.
Recruiting and retaining qualified personnel is a challenge that businesses across industries are currently facing. To address this issue, many organizations are spending more than necessary on the hiring process, failing retention packages and employee training. However, investing in a global outsourcing strategy can provide a simple solution to this problem as this approach gives businesses access to a larger, high-quality talent pool, as well as new markets that may have been otherwise inaccessible.
By taking this approach, businesses can reduce their spending and ensure they have the right personnel to meet their needs.
Who can benefit from global outsourcing?
A – Small and Medium Enterprises (SMEs)
Small and medium enterprises can expand their operations globally without the need for large capital investments by outsourcing. This approach allows them to access international talent, reduce costs, and increase their competitive edge in the market.
B – Large Corporations
Large corporations can improve their global footprint and operational efficiency through outsourcing. It provides an avenue for these companies to manage extensive and complex operations across different regions without compromising on quality or productivity.
C – Startups
Startups can use outsourcing to access affordable and flexible resources, which is crucial for driving innovation and growth in their early stages. Outsourcing tasks to specialized service providers allows startups to focus more on core business strategies and development.
Key Sectors
Several sectors stand to benefit significantly from global outsourcing, including:
- Information Technology: for technical support and software development
- Customer Service: to manage customer relations and provide support
- Healthcare: for administrative functions and medical billing
- Manufacturing: to handle production lines and quality assurance processes
Common tasks outsourced globally
Information Technology (IT)
Global outsourcing in IT typically includes:
- Software development
- Ongoing IT support
- System maintenance
Human Resources (HR)
Outsourcing in human resources helps companies manage:
- Recruitment processes
- Payroll operations
- Employee training programs
Customer Support
Companies outsource customer support to improve their service quality and availability, including:
- Call center operations
- Help desks
- Telemarketing services
Finance and Accounting
Outsourcing finance and accounting tasks allows businesses to manage:
- Daily bookkeeping
- Invoice processing
- Comprehensive financial analysis
Marketing and Sales
Outsourcing in marketing and sales involves:
- Digital marketing strategies
- Content creation
- Lead generation efforts
Manufacturing
In manufacturing, outsourcing can cover:
- Component production
- Assembly processes
- Quality control checks
Outsourcing these tasks enables businesses to streamline operations, access specialized skills, and enhance productivity without substantial internal investment. As the global market continues to evolve, outsourcing remains a vital strategy for businesses looking to maintain competitive advantage and operational effectiveness.
The pros of global outsourcing
After finding out the rationale behind organizations turning to international outsourcing, let’s explore some of the pros of interacting with offshoring or business process outsourcing (BPO) services suppliers.
Core process focus and business growth
Global outsourcing is a great way for businesses to focus on their core processes and increase their capacity for more work. With the help of a global outsourcing provider, businesses can have a team set up in a short amount of time and free up funds to reinvest into their growth.
This allows them to focus on the processes that need undivided attention and have the resources they need to take on more work and reach their growth objectives. By leveraging global outsourcing, CEOs and business owners can strengthen their operations and achieve their business KPIs.
Higher quality service and employee satisfaction
Global outsourcing provides businesses with the opportunity to access higher levels of expertise than they may have internally. This can be especially beneficial when a task requires specialized knowledge or equipment that the business does not possess. By outsourcing, the business can benefit from the technical or administrative expertise of a third party, resulting in a higher-quality final product.
Global outsourcing is also a great way to maximize the efficiency of your team and ensure customer satisfaction. By outsourcing the more tedious, redundant tasks to an offshore employee, your onshore team can focus on what they do best and what motivates them, while your offshore team supports your business by doing the grunt work.
Improved productivity and job satisfaction, as well as excellent customer service are desirable traits of any business and so you might want to consider setting up a non-stop customer support line to ensure that your customers have round-the-clock access to expert services. With global outsourcing, you can be confident that your team and customers will be taken care of appropriately and professionally.
Related: Why Outsource To India? How It Can Benefit Your Business?
Significant cost reduction
Global outsourcing can be a great way to reduce costs for your organization. By having day-to-day tasks completed in a lower-cost economy location, such as India, where hiring costs are almost 4 times lower than in the US, you can reduce overhead costs associated with hiring new staff.
There are several global outsourcing models to choose from, and the “Managed Ops” model is a popular option. In this model, a third-party provider takes care of everything from HR & Recruitment, equipment providing, taxes, workers’ salary and compensation, IT and general management.
With this model, the only thing that will require your attention will be employee training and when that is done you’ll have an operational team ready to do the heavy lifting for you, according to your terms.
Drawbacks of global outsourcing
It is important to note that, to ensure that no incidents or miscommunications occur, organizations need to take the necessary steps to research potential outsourcing providers and locations that meet the business requirements.
This assessment is essential to ensure that the right provider is chosen for the organization, as there are several limiting factors that can arise if the selection process is done carelessly.
Here are some important factors to consider when making a global outsourcing strategy:
Cultural and language differences
When outsourcing globally, language barriers can always bring about potential issues as in the majority of low-cost economies, English may not be the primary language.
However, countries such as India have English as an official language, making communication easier. It is important to research the offshoring location you choose to ensure that language does not become a barrier to success.
Additionally, cultural and social customs vary between countries, so it is important to be aware of these differences and use a confident, polite tone when communicating. Establishing efficient methods of communication for deadlines, KPIs, and any other concerns is key to avoiding misunderstandings and ensuring successful global outsourcing.
Sensitive information exposure risk
When outsourcing services globally, it is important to be aware of the potential risks to sensitive information and intellectual properties.
Data security should be a top priority and protocols should be in place to ensure that confidential company data is managed securely. To lower the potential risks of a data breach, it is important to ensure that the offshoring provider has appropriate cybersecurity protocols and management plans in place. By taking these steps, companies can ensure that their data is kept safe and secure.
Global outsourcing beneficiaries and ethical concerns
It is clear that both businesses who need outsourced personnel and the outsourcing companies that provide this service benefit from this arrangement. This type of arrangement can create jobs in countries with high unemployment, and help businesses save money on labor costs.
However, there are some drawbacks to this arrangement that should be taken into consideration, such as cultural clash, security risks, and language barriers. Despite these drawbacks, the mutual benefit of this arrangement is undeniable.
Outsourcing done correctly can be beneficial for all involved, from CEOs and local staff to consumers and offshore teams. For organizations, it can help increase efficiencies and provide the flexibility to scale and grow, allowing them to reinvest in other areas of the business. For local teams, outsourcing just one administrative task frees up time to take on other, more high-level tasks. This can have an efficiency domino effect, allowing more to be done onshore that is business growth-oriented. It can be confidently affirmed that outsourcing, when done right, can be beneficial for everyone.
Outsourcing is an ethical practice from multiple standpoints, as it provides jobs and work opportunities to people in foreign countries with competitive wages.
For example, the outsourcing industry in India has had a significant impact on the local economy, employing millions of talented workers. Wages paid to Indians in the outsourcing sector are competitive internationally, and typically more than the national average, with added benefits such as health membership.
To ensure that private employees are protected, companies looking to offshore employees must adhere to the respective country’s labor laws, which are strictly implemented. For companies that wish to comply with these laws fully, the best approach is to engage a reputable offshoring provider. Doing so will help guarantee that the interests of both the business and the outsourced employees will be protected.
