Different types of outsourcing that you need to know

Different types of outsourcing that you need to know

UPDATE: Coronavirus (COVID-19) is forcing a lot of companies to review their traditional staffing, offshore, and Work-From-Home (WFH) options.  Outsourcing enables businesses to slash costs whilst at the same time maintain and rebuild their companies. Read our dedicated COVID-19 articles here: COVID-19 Business Recovery Action Plan

 

Outsourcing can help you keep up with the demand for workforce and services for your business. Despite disruption and force majeure situations, it can be a strategic way for business continuity since you don’t just put your resources in a single location.

Despite the situation today, outsourcing still sees a future at hand. Companies still plan to increase outsourcing this year. BPO companies successfully continue their operations remotely and ensure they follow regulations for your security. 

Different types of outsourcing

Outsourcing can serve in different forms depending on the needs of the business. Aside from knowing and understanding what is outsourcing from both outsourcing jobs definition and how it works, it is also necessary to have an idea of the different types of outsourcing.

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Business Process Outsourcing

Business Process Outsourcing is the most common type of outsourcing. It refers to contracting any business process to a third-party service provider. This type usually deals with repetitive tasks such as customer support and administrative roles.

Business process outsourcing examples

  • A realtor hires a virtual assistant to help them schedule client appointments and respond to emails regarding customer inquiries.
  • Telecommunication companies such as Verizon and Sprint hire customer service teams to handle technical and billing support.
  • Small businesses outsource lead generation to gather more customers locally and overseas.

Professional Outsourcing

Some tasks can be too complex for entrepreneurs or their small team. It either requires additional training or a professional license to accomplish. Hiring locally may cost them a lot due to scarce demand. 

In these cases, professional outsourcing can be a viable option. This helps them save on costs while getting a high-quality talent for their operation. 

How professional outsourcing works

  • Accountants and bookkeepers are hired to help comply with annual tax filing and income statements.
  • CAD operators and engineers can do building layout, including floor plans and mechanical designs.
  • Businesses can outsource marketing to professionals who can manage their promotions and marketing strategies better.

IT Outsourcing

Offshoring IT services are among the common types of outsourcing these days. It pertains to contracting technology-related services and resources for a part or the entirety of an information technology business function. Every business, whether it is a start-up or a large corporation, has IT needs as it deals with technology on a certain level.

Example of IT outsourcing

  • Since Alibaba can’t get software developers locally at first, they decided to outsource to the USA.
  • Slack’s platform interface is outsourced to a software development company in Canada.
  • Telecommunication companies have been outsourcing IT infrastructure to India and the Philippines to improve their capacity and better their services.

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Multisourcing

Multisourcing can be applied to any business area but is most common in outsourcing IT services. Simply put, multisourcing combines outsourcing IT services and other business functions from external service providers.

Multisourcing forms the best-of-breed teams to achieve business goals. It operates in a manner where the business creates a partner relationship with other providers and is outcome-focused.

This type of outsourcing mostly requires a business to have a comprehensive strategy and a network of governance and relationships.

Manufacturer Outsourcing

The cost can be extremely expensive if you decide to make your own products in-house. Aside from the high cost of the raw materials, paying for the factory workers can also be massive, as well as the capital for infrastructure and equipment you need for manufacturing.

However, if you outsource the manufacturing process of your business, you can significantly reduce your cost as you don’t need to worry about infrastructure and equipment, as well as labour costs. 

Manufacturing outsourcing examples

  • Apple outsources product manufacturing to China for mass production once they are done designing their products.
  • Fashion companies such as H&M and Zara contract clothing factories in Bangladesh to produce their products worldwide.
  • Ikea, the biggest furniture company, outsources the manufacturing of their furniture to China to save on costs and increase profitability.

Process-Specific Outsourcing

There are outsourcing processes that are specific to a certain task or an internal procedure, something more known as process-specific outsourcing. It has become common in the industry to contract an external service provider that specializes in a particular service.

For example, a retail service can outsource their delivery services to a particular company, especially for their international shipping. This type of offshore outsource method usually has a very comprehensive contract which includes detailed things like the delivery timeline, product costs, and customer contacts.

Process-specific outsourcing provides businesses with the means to not only cut costs but to also have the time to focus more on their core business functions, saving the time it usually takes to fulfil customer orders.

Types of process outsourcing

  • Knowledge process outsourcing (KPO). This deals with outsourcing knowledge development for product improvements, such as research and data analysis. 
  • Recruitment process outsourcing (RPO). All aspects of outsourced recruitment, including management of posting, application tracking, and evaluation, are covered in RPO.
  • Legal process outsourcing (LPO). All legalities including litigation and regulatory compliances fall in this category.

Project Outsourcing

When companies are juggling with several projects, it can usually be tedious, and the quality of the output can be compromised with the lack of time to focus on each one of them. In this case, a business can outsource a project to an external service provider.

There are various reasons why a company outsources a project, but the most common one is the lack of available people to do and finish the task or the lack of skills for the job. 

What projects can be outsourced

  • Legal firms with a high demand for cases at hand hire contract attorneys to keep up with their workload.
  • Promotions and advertisements that are contracted to companies for on-demand projects.

Offshore Outsourcing

Offshoring or offshore outsourcing simply means contracting a part of your business process in another country, which is a strategy to lower labour expenses. There are other countries that require cheap costs to finish a certain task compared to doing it locally. In addition, offshoring is also done to tap the global skills offered by other countries as well as enter new markets in the hopes of becoming global.

Offshoring has also become an accepted idea to overcome local regulations that prohibit particular activities.

Examples of offshore outsourcing

  • A part of Amazon’s operations, particularly customer service and logistics, are offshored to the Philippines as part of their customer-focused service offering.
  • One of the largest IT network giants Cisco offshore their IT services to India and the Philippines for 24/7 technical support.
  • American Express, to provide extensive support to their clients, offshore their back office to India.

Onshoring

While there are companies that find hiring offshore labor a cost-effective move, some find it the opposite and they start to bring back offshoring activities locally. It is commonly known as onshoring (or reshoring), which can simply be described as outsourcing business operations in the same country as your headquarters.

Onshoring can have several advantages, one of which is having a similar or identical working culture and time zones. One disadvantage is that it has small to no cost savings since salary will also be relatively similar to in-house staff.

Nearshoring

Nearshoring lies between offshoring and reshoring business functions. Instead of bringing back the outsourced services from a far-away country locally, some companies choose to move their business operations to the geographically close countries. Its main purpose is to improve services by lessening the allotted time for shipping and time delays, which are common issues in offshoring, while still cutting costs by finding the nearest country where labour services are cheaper than doing processes locally.

Basically, this type of outsourcing combines the benefits of reshoring and offshoring, as well as combating the risks of both.

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