Businesses nowadays must keep up with the evolving business landscape. Often, they can not handle all the aspects of the business process internally. On the other hand, some processes are temporary, and hiring and training in-house staff is too expensive. That is why businesses decide to outsource to foreign countries. What is global outsourcing?
In this article, we aim to explain why global outsourcing is important and what are its advantages. Plus, we will explain the most important types of global outsourcing. Finally, we will reveal which processes should not be outsourced.
Importance of Global Outsourcing in Business
Global outsourcing is the allocation of certain business operations to a third-party service provider based outside the country. Global outsourcing is very important in modern business because it offers several benefits that contribute to organizational growth and success. It empowers businesses to stay competitive and adaptable to the evolving business landscape.
Among the advantages are cost reduction, access to a larger talent pool, and expertise. Global outsourcing also improves flexibility and scalability and enables innovation.
Yet, besides the pros, there are some cons associated with global outsourcing. Among the disadvantages of global outsourcing are loss of control, data protection and confidentiality risks, lack of consistency, and reputation risk.
Advantages of Global Outsourcing
Once you discover the most important benefits of global outsourcing, you will understand why businesses outsource.
Cost Savings
Global outsourcing enables companies to allow their day-to-day tasks to be completed by workers in lower-cost countries. Businesses do this because hiring, providing new hires with suitable technology, and training new in-house staff is expensive.
Access to Specialized Skills
Collaborating with foreign service providers gives access to a vast pool of global talents. These candidates have different skills, knowledge, and experience, so you can find the best fit for your company. Most of the employees are already trained and have advanced knowledge and expertise in the particular field.
Scalability
Many businesses encounter challenges in achieving substantial growth because they lack funds for new resources. Global outsourcing, being cost-effective, allows you to save and invest in business growth. On the other hand, there is an opportunity to outsource expert advice.
Potential for Increased Innovation
Innovation is the key to any business. Outsourcing can give many ideas, fresh perspectives, and expertise for your projects. All this is possible because of the blend with people from other cultures with different backgrounds, experiences, and knowledge.
Types of Global Outsourcing
There are many types of outsourcing, including ITO, BPO, and KPO.
ITO (Information Technology Outsourcing)
IT outsourcing involves assigning IT-related tasks to external service providers. This encompasses:
- Software development
- Infrastructure support
- System maintenance
- Network management
- Help desk support
Outsourcing IT functions benefits companies because they can avoid investing big amounts of money in their department.
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BPO (Business Process Outsourcing)
BPO refers to outsourcing of non-core operations to external service providers.
These processes include:
- Data entry
- Back-office operations
- Customer service
- Payroll
- Accounting
Outsourcing these operations allows businesses to focus on their core processes while saving costs and improving productivity.
KPO (Knowledge Process Outsourcing)
This type of outsourcing includes outsourcing high-value knowledge-based operations that need advanced technical and analytical skills.
These processes involve:
- Data mining
- Research and analysis
- Market research
- Legal documentation
- Intellectual property research
KPO providers work with highly skilled professionals, like analysts and researchers.
Reasons for Global Outsourcing
More and more, businesses choose to outsource because they can benefit from it in many ways and find strategic partners in new markets. Moreover, global outsourcing helps businesses grow and expand. We have enlisted the main reasons for global outsourcing.
Strategic Cost Management
The first reason for outsourcing is, unsurprisingly, cost savings. Businesses outsource to save on labor costs and maximize profits. According to Global outsourcing statistics, cost management is the top reason for outsourcing (70%).
This is no surprise because if a U.S. business hires a third-party outsourcing agency in a foreign country, it can save on office spaces, in-house hiring and training, office supplies, etc. The overall costs in a country with lower standards are significantly lower than in the U.S.
Access to a Global Talent Pool
There is a talent shortage in many industries. No wonder, for many businesses, it is a struggle to find and keep talented employees. That is why businesses outsource. They find it easier to connect with global outsourcing companies and access a global talent pool than to explore the local market. Collaborating with experts from foreign countries may bring new ideas, innovative problem-solving approaches, and different experiences.
Time Zone Advantages
Different time zones allow uninterrupted business operations. For instance, many businesses have customer service available 24/7. Unlike in-house staff, offshore outsourcing can provide access to a flexible workforce.
Besides this, different time zones ensure increased productivity, which leads to business growth and success. And all this while the business saves significantly on talent recruitment, training, technology, etc.
Ability to Stay Competitive
Every business must find out how to stay competitive in today’s rapidly evolving markets. One of the solutions is to outsource non-core operations while the in-house team focuses on the core functions and strategies.
So, when businesses allow external experts to dedicate themselves to less essential tasks like customer service, IT support, etc., they free up their time to develop new ideas and solutions to stay competitive in the fast-paced market.
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What Business Processes Should Be Kept Within the Company
Certain business processes should be kept in-house.
First, processes considered core and crucial to the business’s success should not be outsourced. For example, strategic decision-making, like the overall business strategy or investments, should be kept in-house. These processes are directly related to the company’s competitive advantage and should not be delegated to external parties. You should keep the company’s selling point in-house, to maintain greater control and ensure data security and confidentiality.
Second, we advise to keep processes related to branding and reputation management within the company. Processes related to building and managing a company’s brand, reputation, and public image are better managed internally since they require a deep understanding of the company’s mission and values.
Finally, we recommend keeping intellectual property development processes in-house. These are usually the processes related to research and development, innovation, and design. We advise to avoid outsourcing these processes to protect the company’s valuable assets.
Conclusion
What is global outsourcing? This phenomenon happens when companies outsource tasks and operations to a third party based outside the country. Outsourcing is important in modern business because it is beneficial for companies.
By outsourcing, they can save on certain non-core activities and maximize companies’ profits. Global outsourcing gives companies access to specialists and experts who can perform certain tasks at lower cost.
Among the reasons outsourcing is attractive to businesses are time zone advantages and the ability to stay competitive. Global outsourcing enables companies to be available 24/7 and increases their productivity.