What is Outsourcing: An Outsourcing 101

What is Outsourcing - Eastvantage

What is Outsourcing? Outsourcing is a business solution whereby certain company functions are assigned to outside service providers rather than performed in-house. In other words, a company seeks external help or support in performing some of its business activities to stay focused on core business goals and in most cases, to save on cost.

Say you operate a shoe-making factory. Your core lies in producing shoes. You probably don't want the trouble and cost of finding and hiring a full-time team of 10 customer support associates, but it is essential to your business to properly address cusomer inquiries, orders and returns. Yours is a prime example of a company that may benefit from outsourcing.

HOW is outsourcing done?

There are three main types of outsourcing. Outsourcing can be done onshore, nearshore or offshore.

  • Onshore means hiring the service of people from outside a company but within the same country.
  • Nearshore is the type of outsourcing wherein you get work done by people from a nearby country.
  • Offshore involves contracting service providers from faraway countries, typically across the globe for a much cheaper cost. For example, if you run a business in Belgium, outsourcing can be done nearshore to Ireland or Tunisia, or offshore to Japan or the Philippines.

WHO should be outsourcing?

You outsource in many aspects of your business probably without realising it. That website that you paid a team of young designers and developers to create and maintain for you? That's outsourced. So is your lawyer or your office cleaner if they are not under your payroll.

Moving a business process from one country to another is now commonplace in production environments. Outsourcing is actually happening all around you. The cereals you had this morning were made across the border, your coffee was picked in Kenya, the socks you put on were produced in Turkey, and the mobile phone you use was manufactured in China. Today, outsourcing extends to many other business functions.

But HOW is outsourcing even possible?

Thanks to the development of the Internet, exchanging data and working together remotely have become feasible. Broadband connectivity, computer hardware and software are readily available to anybody at a low cost. Network technology and communication tools are now more focused on connecting people and information rather than connecting places. Where you work is fast becoming less important because the internet and technology of today can bridge distances like never before.

HOW about BPO, KPO and ITO? What are they?

These are three different types of outsourcing:

  • Business Process Outsourcing (BPO) is the contracting out of operational functions to a third party firm. Examples of such operational functions are accounting, payroll, customer service, and inventory.
  • Knowledge Process Outsourcing (KPO) is another type of outsourcing which involves more advanced technical skills and a higher level of involvement from the service provider. Services of this type include research and development, data research and analysis, legal services, content writing, and intellectual property research.
  • ITO or Information Technology Outsourcing is that where services outsourced are related to technology functions such as web development, network administration, and software and application development.

Okay, but WHY outsource in the first place?

Imagine how much more expensive your favourite coffee mug or undershirt will cost in a world with no outsourcing -- it would easily be triple the price to cover the cost of producing everything in-house. The most obvious reason why one would want to outsource lies in the massive cost savings involved. Comparing the cost labor in the United States, the United Kingdom, or France with the cost in offshore outsourcing locations, a business can realise up to 65% of cost reductions. This is just one of the many benefits of outsourcing

So WHERE is the best place to outsource?

Asia has been tagged as an outsourcing hotspot. More specifically, Southeast Asia was identified as a top outsourcing destination in the world with Manila, Philippines leading the regional list.

The Asian labor market is expanding at a fast rate, while the Western labor market is in a downward trend. In Western societies and Japan, the baby boomers are reaching retirement age and leaving the labor market at an increasing rate between now and 2020. On the other hand, Asian labor pools are growing every year with more and more young and enthusiastic talents coming in. Moreover, the financial crisis in the West had almost no impact in Southeast Asia. The crisis created even more opportunity than problems for developing countries.

WHEN is the best time to outsource?

NOW, more than ever. Outsourcing can be the big difference between a good company and a great one. In the last five years, medium-sized companies have been making their initial move to outsourcing/offshoring. Even Fortune 500 companies have their own offshore hub, and all top outsourcing companies around the world have outsourced large parts of their operations. More and more companies are evaluating the offshore advantage today. Why stay and watch from the shore when you can act now and stay ahead?

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