What is Outsourcing and How Can Your Business Benefit?

what is outsourcing

When it comes to outsourcing, many people think manufacturing. But outsourcing of white-collar work has grown rapidly in the 21st century. The main driver is cost savings. And for good reason.

When you can pay a high-quality software engineer in India between 250,000 and 1,500,000 rupees (US$4,000 to US$23,000) compared with $40,000 to $100,000 in countries such as the US and Canada (1), then outsourcing starts to sounds like a pretty good idea.

Smart business owners are outsourcing to leverage global pricing and currency differences for profit. A concept popularised as geoarbitrage by Tim Ferris in his book, The 4-Hour Workweek (2). Outsourcing also means you can focus on what you’re good at, and improve efficiency at the same time.

But What Exactly is Outsourcing and How Does It Work?

Outsourcing—known officially as Business Process Outsourcing (BPO)—is the process of hiring another individual or company, either offshore or overseas, to handle business activities for you. The concept ‘outsourcing’ came from the American Glossary ‘outside resourcing’ and dates back to at least 1981 (3).

It has become a common business practice that allows, solopreneurs, start-ups, SMEs and big corporates to get services and skills they would usually find hard to do themselves. Usually due to financial or manpower constraints, or a combination of both.

And the Internet has made outsourcing accessible to anyone. It’s a marketplace without borders and provides tools like international calling (Skype), collaboration tools (Slack), project management tools (Active Collab, Jira) to name a few. These cloud services allow you to collaborate and work seamlessly with offshore teams as if they were inside your office.

In a nutshell, outsourcing means you can grow your business when you need to without bringing major fixed costs into your business. Some businesses have been able to cut costs by up to 60% by outsourcing key business functions (4).

What Outsourcing Models Can You Choose From?

Colocation Fee

This means your outsourcing partner will provide you with the exact staff wage and taxes required and charge you a monthly colocation fee on top the employee costs. For example:

Staff Wage $2,000
Taxes $400
Collocation fee $400
Total Staff monthly cost $2,800

In this scenario you, as a contractor, will bear the costs and risks of absenteeism and mandatory public holidays plus payment of annual leave. The advantage of this model is full transparency on costs.

Fixed Fee

In this scenario, you will get an all-inclusive fixed monthly fee. The Outsourcing partner will then deduct from your monthly invoice expenses for absenteeism and vacation and annual leave is not payable. Here you don’t have to worry about tax calculations, deduction and the other menial tasks of managing multiple staff. The outsourcing team will do that for you and give you a monthly invoice with the necessary deductions.

Both of these models work really well for outsourcing. There is no right or wrong method and really depends on your preference.

Stay Local or Go Abroad?

‘Made locally’ doesn’t quite have the ring it used to. The pros and cons of jumping time zones and visiting third-world currency are two-fold when it comes to outsourcing: people work while you sleep, and the per-hour expense is less. Time advantage and cost savings.

There is a lot to consider when choosing a country to outsource too though. For example, a company located in country A might consider country B because they have a great people score or have expertise in certain areas.

A people score is measured by the nation’s people skills which includes language diversity, educational skills, and even the size of their information technology industry. Another very important part of doing business offshore is the political environment.

Important questions to consider are:

  • Does the economic/political environment appear strong?
  • How is the state of the country’s telecommunications infrastructure?
  • Is the culture exposure to the western world high?
  • How financially attractive is the country for investment in general?
  • Are compensation and infrastructure costs low?
  • Is there growth potential in this country?

All of these questions are essential to discovering whether or not it is worth doing business abroad. To make things easier, here are the Top 10 countries for business support services based on the 2010 IBM Global Locations Trend Report.

The Top 10 Countries to Outsource Business and BPO services:

  • Philippines
  • India
  • United States
  • Poland
  • China
  • United Kingdom
  • Colombia
  • Costa Rica
  • Fiji
  • Ireland

The report from IBM clearly shows the Philippines has taken the lead as the top choice for Business Process Outsourcing (BPO) all over the world. It has even unseated the might of India which had been topping the list for years.

Here’s some of the reasons why the Philippines ranks No.1:

  • Flexible working hours – Filipinos will work 24 hours, 7 days a week if they have to.
  • English Language Proficiency – the Business English Index (BEI), a whitepaper released by Global English in 2013 ranks the Philippines as the top BEI for two consecutive years with a score of 7.95, next to Norway with 7.06, and Netherlands with 7.03.
  • Highly Skilled Talent – it is a popular misconception that BPO in the Philippines is limited to call centres. Not so. There are a large number of providers offering talent across multiple fields including medical transcription, human resources, customer service, financial services, legal transcription, software development, animation, graphic design, content writing and marketing.
  • Excellent Work Ethic – business owners invest in Filipino teams due to their excellent work ethic, values, integrity, loyalty, service-oriented mindset, and the friendly working atmosphere they seem to foster in any organisation’s culture.
  • Quality Yet Cost-Effective – Filipinos strive to produce quality work. This is obvious by looking at the outstanding business results produced by BPOs in the Philippines.
  • Strong Government Support – as one of the economic pillars and main revenue generators of the country, the Philippine Government has recognised the potential growth of the industry by providing strong support and infrastructure for BPOs.
  • Cultural Compatibility – tracing back, the Philippines was colonised by foreign forces from Spain, United States, Japan, Portugal, and other countries. As a nation was colonised by various foreign invaders in the past, Filipinos have been heavily influenced by ethical values, traditions, customs, behaviours, and ways of life that weren’t originally theirs. This has created compatibility among Filipinos and foreign cultures unlike any other nation.

The Philippines is the country of choice for Outsource Fitch when it comes to the provision of outsourcing solutions for businesses.

How Can Your Business Benefit From Outsourcing?

There are many benefits to outsourcing your business processes to destinations around the world. Some of the benefits of outsourcing include:

1. Saving Costs

As mentioned above, the most obvious and visible benefit relates to the cost savings outsourcing brings about. You can get your job done at a lower cost. But remember, ‘low-cost’ does not mean ‘low-quality’ when it comes to outsourcing abroad.

2. Increased Efficiency

Your outsourcing partner can bring years of experience in business practices and expertise in delivering complex outsourcing projects. They can generally do a job better with their knowledge and understanding of a specific domain.

3. More Time to Focus On Core Areas

Outsourcing your business processes frees your time and income to focus on building your brand, with money left over money for investment in R&D and marketing.

4. Save on infrastructure and technology

Outsourcing eliminates the need for investment in infrastructure as the outsourcing partner takes the responsibility of the business processes and develops infrastructure themselves.

5. Access to skilled resources

You no longer need to invest in recruiting and training expensive resources for your business. Outsource providers take care of resourcing needs with their pool of highly skilled resources. If you decide to scale back your business operations there is no liability or long-term contract to fulfil. You are basically passing the employment and infrastructure liability to your outsourcing partner.

6. Time zone advantage

Apart from the cost advantage, the other much touted benefit has to do with the time zone differential between your country and the location you are outsourcing to. Imagine sending work after 6pm and arriving back at your desk the next morning with the job done.

7. Faster and better services

Improve your service offering with high quality deliverables and decrease the lead time it takes for your product or service to reach the marketplace.

What Can I Outsource?

You can now outsource every major business function in your business. Front, middle and back office. It doesn’t really matter. You can even outsource your personal life if you really want to. The main business functions include:

Information Technology

Local high-calibre IT professionals come with a price tag. Many business owners are turning to outsourcing to drive down their IT overheads. This includes everything from development, service administration, backend management, IT support, testing, Q&A and more.

Web Development

The complexity of web development and maintenance can sometimes be a burden. It’s one thing to launch a website, yet it’s another to keep it running smoothly, implement improvements and continue to grow it using the Agile Development methodology.

The assistance provided by professional web developers is in high-demand with businesses relying more and more on their respective web applications. Expect recruits to be highly-versed in various programming languages such as PHP, JavaScript, MySQL, Laravel and CMS such Magento, Drupal, and WordPress.

Creative Staff

You can have your very own virtual creative team including graphic designers, copywriters, web designers, UX designers, video editors. Creativity and innovation transcends all borders and there is no shortage of skilled talent in developing nations waiting to assist. The hardest part is narrowing down a select group of candidates. Good creative staff can learn the style and cultural aspects of your target market and adapt their design to suit your business.

Customer Support

As your platform or service gets more users, there will inevitably be a larger number of customer enquires due to product bugs or support issues. This can result in severe inefficiencies. Outsource your frontline support and keep your team updated with detailed weekly reports while escalating important issues to your development team and put a stamp on those bugs.

Digital Marketing

It’s said that all things are in a state of flux. And this is definitely the case for digital marketing. Business owners know very well the ins and outs of this fast-paced consumer landscape, including Social Media marketing, Google Adwords, Affiliate marketing, Display Ads, re-marketing and more.
If you’re having a hard time curating your brand’s Instagram account, or you can’t seem to hit your follower quota, then perhaps it’s time to start outsourcing some of your social media baggage and other digital marketing activities.

Telemarketing

You can hire virtual help for complete call-centre services including telemarketing, lead generation, appointment setting, inbound and outbound calls, debt collection, customer research, and customer service solutions. Expect super-fast broadband connections allowing professional callers to call anywhere in the world with ease.

Debt Collection

Accounts receivable can become a burden to your business. But it’s a hassle to chase your invoices and collect payments diligently. This is a must-do and time consuming task which can be outsourced for a fraction of the cost compared to local providers.

Accounting and Book Keeping

Offshore accounting services is one of the most widely used BPO services. Third-party service providers are highly skilled professionals who can attend to your firm’s accounting, bookkeeping, financial reporting and taxation processes at a very low cost.

How Do I Get Started?

To get started, the first question you want to ask is: do I want a solo assistant or a support team?

Being dependent on the perfect individual outsourcing assistant is not recommended. They might be good at what they do but you can be left stranded in the event of sickness or an emergency. In the world of high-technology this would be referred to as a ‘single point of failure’—one fragile item which all else depends.

In the world of IT the term ‘redundancy’ entails having fall-back support. It’s recommended you hire virtual assistants with back-up teams instead of sole operators. Besides simple disaster avoidance, a group structure provides a pool of talent allowing you to hire staff and assign multiple tasks with the full support of on the ground management.

In addition, ideally you want to partner with an outsourcing partner based locally. This will ensure you comply with local labour laws and regulations. Outsourcing companies in most cases also provide recruitment services, head hunting staff to match your desired skill set, and pre-screening the best candidates to ensure you are getting the best people in the market.

Outsource Fitch exemplifies this type of structure and provides you with a single point of contact—a personal account manager—who among several tasks head hunts, recruits and manage the back office and HR of your staff, while you focus on working on tasks at hand with your team.

Need graphic design? Covered. Need a web developer? Covered. If you don’t like calling and coordinating multiple people then a one-stop like Outsource Fitch is beneficial. Remember that team presence doesn’t mean bigger is better, just that multiple people are better than one person.

Please get in touch with us today if you’d like to discuss your specific outsourcing requirements.

References:
(1) Gillis, A. (2001, Digital sweatshops. This, 34, 6-6.
(2) https://altlifehack.wordpress.com/2009/06/15/introduction-to-geoarbitrage/
(3) https://en.wikipedia.org/wiki/Outsourcing
(4) http://www.johnchow.com/how-outsourcing-can-save-you-money/

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