As your business expands, it may become difficult to enhance its prospects and focus on the more essential elements of the business all by yourself. This is when outsourcing or off-shoring to a reliable provider of BPO services providing data entry services and such other useful solutions becomes useful. Outsourcing helps to streamline your business and contribute to its growth.
Outsourcing and off-shoring help to improve productivity, and reduce the cost of business by capitalizing on existing comparative cost advantages. Although the principles of off-shoring and outsourcing are similar, their implementation and effects on the economy are different. Outsourcing is the process of hiring an external organization (outsourcing can be done to a domestic or off-shore service provider) to perform various operations of a business by subcontracting it, whereas off-shoring specifically refers to the act of outsourcing work to a supplier located in a different country. Both procedures have proven to be useful for businesses but they have their own set of advantages and disadvantages.
Before going on to the benefits and disadvantages of outsourcing and off-shoring let us examine the latest trends in this regard.
Latest Trends in Outsourcing
Outsourcing is an ever growing industry. According to Deloitte, 31 percent of IT services have been outsourced in 2017 and this percentage is expected to rise in the future. In the healthcare sector and finance sector they have seen a growth of 36 percent and 30 percent while the HR sector has witnessed a growth of 32 percent. According to the latest estimates, around 43 percent of the manufacturing industry outsources their work from time to time. 63 percent of the outsourcing consultants expect their clients’ marketing to increase in 2018 and 2019. The entire outsourcing business is likely to grow with the use of centralized technology and some new aspects of technology such as IoT (Internet of Things), AI (Artificial Intelligence) and automated chat bots are likely to be introduced in more outsourcing business. The following are the trends:
- Cloud computing: In 2015, it was predicted that the cloud computing industry would grow and reach a worth of $121 billion, and in 2018 the figure has risen and it is expected to reach $ 200 billion.
- Information and Data security: Cyber security will surely be the focus in the future. This is because many firms outsource their entire work to a consultant and expect a high level of data security from them.
- AI and RPA (Artificial Intelligence and Robotic Process Automation): RPA is becoming very popular with every year and it ensures enhanced productivity and efficiency at lower cost while retaining maximum quality in the process. Many firms use several robots and other computer programs to replace humans for repetitive work. AI is robotics that will reign in the present world of technology and outsourcing services.
- Cloud technology: Cloud technology is very likely to be more widely used. Many more businesses are moving to the cloud with each passing year. According to a Whitelane study, 89 percent of clients who have outsourced their work claim that they are satisfied by the service provided by the third party.
- Freelance and Independent Outsourcing service: Several firms work from remote locations while rendering outsourcing service to clients. In the coming future there will be a rise in freelance and independent outsourcing.
Outsourcing firms are focusing on providing enhanced services to their clients leveraging the latest technological advancements and in keeping with the latest trends.
Outsourcing and Off-shoring – Common Advantages
- Better productivity: Outsourcing and off-shoring helps to improve productivity because it helps the business to focus its resources on its core functions.
- Reduces cost: Both options help you avoid the need to recruit the right talent or invest in infrastructure and training. The outsourcing company will be responsible for its own cost of operations. This helps to minimize operating cost and the money saved can be repurposed to support revenue-generating programs of the company.
- Reduces risks: When your team is distributed across multiple locations, the risks associated with work lags, unsatisfactory customer engagement and communication, and such other challenges associated with a team located in a single place can be avoided. All your business needs will be attended to every day on a 24/7 basis with adjusted work shifts.
Advantages and Disadvantages Specific to Off-shoring
- Economies of scale: When a business sets up an office abroad it not only capitalizes on relative advantage on labour but also on existing economies of scale. In host countries the cost items such as power, internet connectivity, rent etc may be lower and most companies that offshore realize at least 30 to 50 percent cost-savings. Companies can take advantage of the comparative cost advantage by diversifying positions and negotiating for volume discounts when purchasing assets or services.
- Favorable government policies: Some governments provide special exemptions such as exemption in tax and access to cheap credit, as well as incentives to companies that invest in their economy.
- Increased flexibility: Businesses can increase flexibility by off-shoring due to time zone differences and this helps businesses to quickly expand and achieve their objectives.
- Increase in domestic unemployment: The major criticism of off-shoring is that it increases the level of unemployment of the local economy. Companies like Caterpillar and Nike have been accused of taking away jobs from America and displacing their existing workforce in favor of other nationalities.
- Cultural and Social: There may be cultural and social differences that may affect productivity and communication or cause delay due to changes in manpower availability.
Outsourcing and Off-shoring – Common Disadvantages
- Security issues: Outsourcing and off-shoring always carry a risk of security breach and there is always the concern of compromised data. There could be a risk of exposing confidential and sensitive data when outsourcing to a third party.
- Failure to deliver on time: If your outsourcing partner doesn’t deliver on time, then you may face unnecessary lags and delays, sub-standard quality output and inappropriate responsibility categorization that could prove to be costly in the end.
- Hidden costs: Many organizations outsource and off-shore primarily to save money. However, the contract may contain hidden costs. If you are not aware of these, it will defeat the very purpose of using the services of an external provider. It is best to seek professional advice before signing the outsourcing contract to ensure there are no hidden costs involved.
- Lack of customer focus: The outsourcing company you choose could be serving many clients. So make sure that you clearly outline your requirements to them including the specifics regarding how each service is to be delivered.
Choosing the Right Outsourcing Services: Onshore or Offshore
Businesses choose to outsource due to lack of expertise, availability of affordable outsourced labor, and the time freed up to concentrate on business processes. No matter which type of outsourcing you choose, what is important is choosing the right provider of dedicated outsourced solutions. Outsourcing is here to stay and there are many companies to choose from which has made the industry to become more reliable, refined, and competitive. When deciding to outsource, consider the following questions:
- What is your budget?
- What processes do you need to outsource?
- Who are your customers and what are their requirements?
- How many hours each day will you need the outsourced team to work on your project? What should the size of the team be?
- What impact will a time zone difference have on the way your business is run?
Asking these questions is important to become better equipped to review and decide which outsourcing provider best suits your requirements. More than the location of the provider, what matters more are quality, skill level, budget, and communication between you and the outsourcing company.