Why Is Outsourcing The Best Option?

Outsourcing has revolutionized the way business is done all over the globe. Offshore locations continuously receive more and more outsourcing opportunities. Many medium and large scale companies have some type of service being done across the globe. The types of services that are being outsourced are the customer and technical support, collections for billings and payments, and payroll. Developing countries usually is the nesting ground for outsourced jobs, which is the reason why a growing number of companies choose to outsource their services? Outsourcing reduces a company’s investment in hardware, software, manpower and customer support, replacing it with a more predictable and stable monthly spending.

There are so many reasons why to outsource a specific service. Businesses gain more economic advantage due to outsourcing. A lot of companies save a lot of money because they choose to outsource some of their services. Specialized services like technical support, customer service, billing and credit cards are now being offered by a lot of call centers found in India and the Philippines. The minimum wages of employees are so much cheaper in developing countries as compared to those in the developed nations. Costs such as electricity and rent are much lower in developing countries that you won’t have to worry about spending too much on these. Many companies get more and more involved in outsourcing due to the fact that they spend less in wages, health benefits, bonuses, and even rent which is why the overall operational cost is quite lower.

Many companies outsource in order to achieve a higher quality of service due to a specific focus of the supplier. Making an employee specialized in one service area makes them more productive and give better service quality for your customers. Batch training for new employess makes them specialist in specific fields of service in a shorter amount of time. Outsourced jobs enable you to get more and more people to service your customers’ needs.

Large organizations tend to have a complex internal bureaucracy that can hamper the speedy response to market demands. Services being outsourced to third party companies give you better control of your overall business. The outsourcing of some services gives you the ability to concentrate more on the core functions of the company rather than having to deal with so many other things. Being able to focus its attention on important functions enables a company to meet changing business demands and also establish business expansions.

Outsourcing offers a seemingly limitless potential that all a company need to realize is what type of service it needs to outsource and carefully select the right offshore location to operate it. The two countries that are at the forefront of the outsourcing business are India and the Philippines, thse two are the leader in offshore service providers for the US and Europe. These two countries excel in different services and it is best to look into these two countries and keep in mind which of you specific service you want outsourced to which country.

Various Trends in Outsourcing Services

Outsourcing services have become one of the biggest trends for several industries around the world. Since almost all industries in the world are in competitive global area, there is more demand for high-quality and more diverse products. This is where the outsourcing of services comes in: There are certain portions of the supply chain that are given to other firms so that the process assures more quality, or even more efficiency, which means that ultimately, the consumers are the winners.

Consequently, this trend of increased demand for outsources services has pushed the development of infrastructure in these countries. Firms have needed more efficient methods of communicating with other firms since, at times, they need to correspond with the service companies in order to clarify specifications or ensure prompt delivery. This need for communication happens because the outsourcing of services does not really happen within the same country. Most firms choose to outsource production from less developed countries where the costs of services are significantly lower. Some examples include H&M which has their clothes made in China and Bangladesh. Thailand is known for creating quality T-shirts, and Ralph Lauren has a working relation with Chinese producer Luen Thai.

It is also evolved into a competitive market for outsourcing providers. Luen Thai has is progressively absorbing the production method in Ralph Lauren’s supply chain, which will make them more money while allowing Ralph Lauren to save money on shipping and production. Moreover, shoe manufacturers in the Philippines, for example, have been losing business to Chinese producers. One report stated that about 60% of shoes production in the Philippines are outsources from China, showing that even developing countries find ways to outsource.

Thus, if you need one indication that will tell that the world is moving closer together, you just need to look at the impact of outsourcing services. For one, this makes things more difficult for the established firms worldwide, since various laws and tariffs, and ultimately, more competition has made company sustenance nearly impossible. However, this also allows wonderful opportunities to business start-ups. The true winners in this trend are the consumers, who will ultimately benefit from high quality, and better-priced goods.

Trend in the Industry Of Outsourcing

When a company subcontracts a part of their business function or service to a third party company locally or abroad, that is known as outsourcing. Developing countries like China, India, and the Philippines’ economies continue to benefit well from the outsourcing industry. The outsourcing industry is divided into three major types; the Business Process Outsourcing, Knowledge Process Outsourcing, and Information Technology Outsourcing. Business process outsourcing or BPO often involves assigning a particular business function to third party companies such as customer service and bookkeeping.

Advanced research and technical analysis is also known as knowledge process outsourcing. The Information Technology Outsourcing involves outsourcing business functions such as programming and other computer and internet related tasks. Among these major types of outsourcing, the Business Process Outsourcing is considered to be the most in demand and most popular type.

Outsourcing to other companies have many reason and one of them is: cutting operational costs – they try to find countries with lower wages and outsource their part of business functionality over there. Another main reason why companies tend to outsource is because the company itself lacks the resources to get the job done. Lack of resources is one reason companies outsource their specific functions to other companies as these companies are able to provide the right resources needed to perform the tasks that are needed of them. Outsourcing also helps increase the business’ flexibility that will help them meet the changing needs of the industry and their clients.

It saves a lot of time and energy when company outsources some of its specific functions to other companies. Predictable operational costs enables companies to have more control with their finances. Organizations believe that tasks can be done easily and efficiently if they are outsourced because the company in which the organization has assigned those tasks will focus on accomplishing them with the highest quality, therefore the organization can then focus on the business aspects that need keen attention.

India, China, Philippines, and Malaysia are just some of the major outsourcing locations. These countries boost the growth of outsourcing for them because of the lower wages being paid yet the high quality results of the tasks being given to them by multinational companies and corporations.

The Best Practices in Outsourcing

More and more companies nowadays, have resorted to outsourcing in order for them to cut their overhead costs. Moreover, a lot of companies in the United States and in Europe had paved the way for the increase in the employment rate of some of the developing countries such as India, China, and the Philippines.

Outsourcing, however, is not just delegating tasks and/or getting the service of a certain provider and providing employment to low wage countries. There are some rules and practices that the companies must learn and follow in order for them to be succesful in this field and gain an even more increase in their profits.

First of all, the companies and the providers must develop good working relationship with each other. The usefulness of the relationship between the key management personnel of both teams depends on good understanding and strong working ties between them.

Presenting a quantifiable objective is also an important factor in outsourcing. The client or the company requiring the service must clarify with the provider their level of expectation when it comes to quality of service. That way, strifes or misunderstanding will be avoided.

Before the signing of the agreement of the client and the provider, they should agree first on the incentives if the provider would be able to meet the client’s expectations, and the penalty schemes if the objectives would be consistently missed. The provider should be driven to meet the established customer expectations or even exceed it by adopting the performance based pricing criteria.

The client must review periodically the performance of its provider. A formal review meeting at least twice a month would be of great importance. This way, the two parties could discuss the performance of both teams and further determine the future goals and objectives of the company accordingly. Moreover, the meeting could also be a good avenue to discuss product reviews and all other deliverables. Both parties must understand that there might be a need to revise performance objectives to adapt to the the changing market conditions and the opportunity costs of both firms.

Most importantly, communication between the two parties must always be placed on top priority. The client and the provider must ensure that they communicate well with each other to be able to bridge whatever cultural differences they may have. Since the two parties belong to different countries and cultures, it is expected that there are some things or issues that they might not agree on most of the time. It could, however, be enhanced by organizing social events, educating each other about company background, and active participation in each others’ quality programs. As always, communication is always the key to better understanding and establishing good and healthy relationship. It might also be a good idea to send a top and loyal employee to the business process outsourcing site for a couple of months to make him/her understand the implementation phase.