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Offshore Outsourcing

Definition

What is offshore outsourcing?

Offshore outsourcing refers to the practice of transferring some functions of your business to a company in a different geographic location, particularly offshore destinations like the Philippines, India, and Malaysia. Organizations usually do this strategy to access a wider talent pool at a low overhead cost without sacrificing the quality of work done.

Offshore outsourcing helps strengthen a business’s performance and compete with other organizations in the industry. To do this, companies partner with established and trusted outsourcing services providers to ensure high work quality and accountability.

Partnering with a trusted BPO provider assures organizations the following:

  • Employees that underwent a thorough interview process to ensure suitability for the needed role
  • Workers going through proper onboarding, training, and upskilling sessions
  • Satisfied employees, since they will be provided with high-quality equipment and a Class A physical office
  • Accountable and manageable upper management
  • Clear targets and KPIs for the offshore team
  • Efficient processes and standard operating procedures
  • Legalities and other documentation to be well taken care of, among others

Further, offshore employees can help manage essential business operation tasks, which means you and your in-house employees have more time to focus on your own responsibilities. This boosts focus, productivity, and employee fulfillment — all while the company saves up to 70% on labor costs!

This article aims to provide a comprehensive understanding of what offshore outsourcing means and provide examples of its many benefits. We will also discuss the history of offshore outsourcing, learn why businesses resort to offshore staffing, discover its pros and cons, as well as learn the types of offshore staffing.

What is offshore outsourcing?

Offshore outsourcing definition

Offshore outsourcing, also referred to as business process outsourcing (BPO),  is the process of having work done for your business using qualified staffing solutions from countries with lower labor costs.

Commonly, IT, sales, and administrative roles are carried out for businesses across the world from countries such as the Philippines and India.

Companies can benefit from accessing other countries that have more resources for people with specialized skills. At the same time, they get quality work at a fraction of the costs.

Like nearshore outsourcing, companies prefer having minor tasks outsourced to a service provider so that the in-house team could focus on the core business functions. One perk of offshore outsourcing for businesses is that they do not need to think about the overhead expenses when they hire domestically.

Overall, the company could benefit from lower human resources costs, equal or higher-quality outputs, and higher profits.

About offshore outsourcing

  1. Offshoring history
  2. Benefits of offshore staffing
  3. Why businesses resort to offshore outsourcing
  4. Offshore outsourcing examples
  5. Services you can outsource
  6. Offshore outsourcing pros and cons
  7. Offshore outsourcing in the Philippines
  8. Types of offshore outsourcing 

Offshoring history

Deploying manufacturing jobs out of the country has been a common business method since the 1960s.

This well-known business strategy started with outsourcing. Outsourcing is when an organization farms out parts of their business processes to an external company. While it may seem as a current phenomenon to many, the truth is, it has been going on since the 1950s. 

However, it wasn’t until the 1980s that corporations perceived it as an effective business strategy. It was also in that year where companies mainly outsource to allow them to have greater focus on their core competencies. 

Then in the 1990s up to the early 2000s, organizations started to concentrate more on the cost-saving measures of outsourcing. Now, this is the time where strategic outsourcing has emerged and the goal is to gain a competitive advantage in the market industry. 

Fast forward through time, given today’s technological advancements, it is easier for companies to delegate both their core and non-core functions to external workforce in different countries. 

Offshoring revolutionizes organizations and how they perform their daily operations.

It transforms business landscapes into agile structures that boosts its overall profitability. 

Benefits of offshore outsourcing

The world is becoming increasingly globalized. Technology, software, and communications improvements now enable easy access to a globalized workforce. This has many advantages, but the primary benefits of offshore staffing are that:

  • You can significantly cut costs (typically saving 60%-80%)
  • Access large pools of highly qualified and highly capable staff
  • Source staff from across the globe instead of being limited by the local population

The benefits of offshore staffing impact small, medium, and large enterprises across the globe.  These businesses can access more affordable resources to help streamline and grow their business.  This is a win-win for all parties involved.

Benefits of offshore outsourcing

Why do businesses resort to offshore outsourcing?

Companies do not just switch to offshore outsourcing due to its cost-effectiveness. Rather, more and more companies these days are acknowledging the other relevant advantages of offshore outsourcing to the market: 

  • To save up to 70% on labor costs. Businesses always have to look for ways they can obtain a stable stream of revenue while sustaining their daily operations. However, because of the economic fluctuations and its unpredictability, other companies couldn’t afford the costs of local operations. This is where offshore outsourcing can come into handy. 
  • To stand out in a sea of tight competitors. Another reason for offshoring is to stay competitive, especially with the global economy. Like for example with customer service, businesses are able to boost their efficiency and daily operational procedures with this strategic practice.  
  • To keep up with the latest business trends. Entrepreneurs in this day and age know well enough that innovation is one key factor in their overall success. Thus, it is more achievable with offshoring. 
  • To leverage professional and highly competent offshore staff. Other companies also resort to offshoring as a result of the lack of qualified local workers to do specific tasks. Countries like Australia experience skill shortages in the automotive industry. Same as with the United States when Apple had to transfer its manufacturing to China due to the lack of local labor force. 

Offshore outsourcing examples

Businesses of all sizes rely on offshore outsourcing to delegate tasks to lower-cost countries but of equal expertise. Just like nearshore outsourcing, companies prefer having several roles outsourced so that the in-house team can focus on the vital functions of the business.

Here are some of the most popular offshore outsourcing examples:

Customer service departments through outsourced call centers

One popular example of offshore outsourcing is customer service through call center companies. Every company needs a customer service department to cater to customers’ needs, but these operations can get very pricey.

As a business grows, more people are needed to handle queries and maintain customer satisfaction. Having an in-house customer service team may not be the best decision.

From coming up with standard operation procedures to staff and management training, running a customer service department alone can take so much time, effort, and not to mention resources.

This is why offshore outsourcing of customer service roles and departments has become the norm

Virtual assistants

Almost anything can be done online.

Need to book personal appointments or work meetings? It can be done online.

Need to delegate social media posting and graphic design activities? Do it virtually.

Need to develop codes for your website and/or mobile app? Outsource it online.

Almost everything can be done online, so business owners and companies offshore outsource tasks to general Virtual Assistants (VAs). 

Offshore outsourcing tasks to general VAs has been a major game-changer, especially for small businesses. This is because outsourced staff ensure quality work while saving a lot of resources.

Offshore outsourcing examples

What services can you offshore?

Aside from manufacturing, organizations these days are able to farm out both their core and non-core functions to offshore providers. 

One example of this is foreign companies that have been offshoring their call center in the Philippines. We all know that the country is known as the Business Process Outsourcing (BPO) capital of the globe, and is well known for call center services. 

However, aside from customer service and support, Information technology (IT), related job functions are also some of the leading offshored services. In fact, according to statistics, the global IT outsourcing market is expected to be worth $98 billion from 2020 to 2024. 

A lot of foreign companies have also tapped into offshoring their human resources tasks such as sourcing, hiring process, and more. More so, finance and accounting-related tasks like bookkeeping, tax filing, procurement processes, etc. 

In terms of sales and marketing, offshore outsourcing companies like Six Eleven BPO offer global strategic solutions for different types of industry sectors.

Part of their services may include, lead generation campaigns, industry and market research, and search engine optimization, among others.  

Basically, companies can offshore nearly every part of their daily business functions to offshoring providers from around the world. This has been made even possible with the help of our modern-day’s technology and the availability of the internet. 

Pros and cons of offshoring

Naturally, offshoring will always have its mix of advantages and disadvantages. Having said that, let’s see whether the benefits of offshoring outweigh its downsides:

Offshoring pros

Reduced labor costs

One good example of this is US companies that offshore to developing countries like the Philippines.

This allows them to reduce their overhead costs as Filipino workers have low compensation as compared to them hiring local in-house employees. 

The availability of a skilled workforce

As we have mentioned earlier, one of the reasons why organizations offshore is the lack of skilled labor. Offshoring to countries like the Philippines and India grants international companies access to a skilled talent pool.

Both these countries have seasoned global talents that are English proficient and college degree holders.

24/7 operations

Foreign companies that offshore to another country with major time differences allow them to have their daily operations overextended hours. Like in most cases customer services, these foreign companies are able to extend their contact center services even up to twenty-four hours. 

Pros and cons of offshoring

Increased focus on the business core

As businesses free up more on their job loads, this gives more time for leaders and in-house staff to focus on improving their core functions.

You can rely on a trusted outsourcing partner like HireSmart Staff to build a highly-skilled team to perform other tasks needed in your company.

It is also important to note that organizations that offshore are not just on the receiving end of this practice’s perks. In terms of the Philippines, the BPO industry in the country plays a huge role in terms of its economic growth.

The country’s BPO industry employs a lot of the working population in the Philippines.

Offshoring cons

Language barriers

This is perhaps one of the major drawbacks in offshoring. Usually in countries like India and China, English language isn’t the locals’ first language.

Another factor is when the offshoring provider comes from a region with a strong local accent. 

Cultural differences

When offshoring to different countries, cultural and social differences are unavoidable.

For example, US business leaders may talk in a straightforward and candid manner, while a Filipino remote staff may be more reserved. 

Quality control

Another concern for foreign companies is that offshoring also means that they will be giving up control over their offshored tasks.

Even if these clients provide quality guidelines, there will still be differences in terms of the working culture and environment. 

Despite these cons, businesses still consider offshoring as a good business model to organizations of all shapes and sizes. Going back to offshoring to the Philippines, the country has ranked second among Asian countries with the highest English speaking population.

More so, the country is also heavily influenced by the Western culture as it has been colonized by the US and Spain for years.  

Pros and cons of offshoring

Offshore outsourcing in the Philippines

The Philippines is the leading offshore outsourcing destination in the world. With 1.3 million BPO workers and counting, large corporations and even small to medium-sized enterprises all over the world trust that their Filipino workers and remote teams can provide excellent outputs, customer service, or IT assistance at a cost-effective price.

Outsource Accelerator provides you with the best customer service outsourcing companies in the Philippines, where you can save up to 70% on staffing costs. We have over 5,000 articles, 350+ podcast episodes, and a comprehensive directory with 2500+ BPOs… all designed to make it easier for clients to learn about, and engage with, outsourcing.

Types of offshore outsourcing

Here are some types of offshore outsourcing, as listed by Rezaid:

There are many popular approaches and solutions that are used by businesses today – each with its own benefits and drawbacks. The right offshore outsourcing type will depend on your specific requirements as well as the nature of your project.

Here are four different types of offshore outsourcing:

Production offshoring

The actual movement of the physical manufacturing process overseas, generally at a significantly cheaper cost in terms of personnel and materials, is known as production offshoring.

Front-office and back-office processes and functions are the two primary types of offshored processes and functions. Customer service, inbound and outbound telemarketing, virtual assistants, and technical assistance are all examples of offshore.

HR and recruiting, accounting and bookkeeping, mobile and web development, and design and graphics are other examples of production offshoring.

System services offshoring

Information technology (IT) will be a key subject to get right given the multiplicity of procedures and minute-by-minute activities of any corporate operation.

In the 1990s, a huge amount of communication infrastructure allowed nations like India, which has a big pool of English speakers and a technically skilled workforce, to lead the sector by luring companies like HP, IBM, Microsoft, Oracle Corporation, Intel, and Cisco.

Innovation and software offshoring

In computer science and software development services, Asian countries lead the world. High-tech product companies, including those in Silicon Valley, have begun to offshore innovation work to Colombia, Belarus, South Africa, Mexico, and Ukraine.

Using these countries’ highly trained labor pools results in considerable cost savings and faster production cycles.

Reshoring

Reshoring, also known as back shoring or inshoring, is the opposite of offshoring. Companies like Google, Facebook, and Amazon have been criticized in Europe for allegedly concealing income and avoiding taxes. They reportedly did this by booking non-US earnings from major advertisers through its Dublin branch in low-tax havens like the Republic of Ireland.

As a result, it started in January 2018 that it would book those earnings and pay the taxes on those profits in the countries where they were generated.

Want to learn more about outsourcing? Check out the Inside Outsourcing book as well as the Inside Outsourcing book review today!

Queries related to offshore outsourcing

How do you determine if you should outsource?

Outsourcing has its disadvantages (time zone and cultural differences, possible disclosure of confidential data), but more importantly, it has lots of advantages (massive employment savings, minimal supervision, proficient and experienced employees and team leaders).

Companies should have a deep and thorough analysis of their business. Take the pros and cons, think of a plan on how to apply it to the business, and analyze if the pros of outsourcing outweigh the cons. If you think outsourcing will help your team more efficient and can help you save on employment costs in the long run, then it’s time to take a shot.

What is the difference between outsourcing and offshore outsourcing?

Outsourcing is the business practice and more general term of hiring a third-party provider to perform tasks and functions that were normally done in-house. Usually, companies outsource to save up on labor costs, and so their core team can focus on their more vital responsibilities.

You can either outsource onshore or offshore, and offshore outsourcing is an area of outsourcing. Offshore outsourcing is when the third-party or outsourcing provider is located in a far-off country, usually in top outsourcing destinations like the Philippines or India. These job functions can be outsourced either through a company or directly with an individual (though this way is much riskier).

Who uses outsourcing?

Contrary to popular belief, businesses of any size can benefit from outsourcing. Large corporations like Google, AT&T, JP Morgan & Chase, Canva, and many others have offices operating in the Philippines for several years now, and it looks like they’re not leaving anytime soon.

Further, there has also been record numbers of small to medium-sized enterprises turning to outsource in the Philippines in recent years. In fact, Outsource Accelerator focuses and helps SMEs to save 70% on staffing costs while getting world-class services from their remote teams. As long as the company is willing to outsource their teams, they most definitely can. No questions asked.

Why do we need outsourcing?

Companies need outsourcing in order to flourish while saving on employment costs. Offshore services providers or business process outsourcing firms can provide you access to the manpower and resources you need for your company, all while giving you options that are fit for your budget.

Outsourcing has proven itself to be a necessity, especially during tough times. With outsourcing, the remote team leaders will take care of staff training, as well as payroll, benefits, and other administrative tasks so your core team can focus on their essential responsibilities. You also could not go wrong with the quality of manpower that you’ll work with, outsourced employees are equipped with the right experience, skills, and educational background for their respective roles.

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About OA

Outsource Accelerator is the trusted source of independent information, advisory and expert implementation of Business Process Outsourcing (BPO).

The #1 outsourcing authority

Outsource Accelerator offers the world’s leading aggregator marketplace for outsourcing. It specifically provides the conduit between world-leading outsourcing suppliers and the businesses – clients – across the globe.

The Outsource Accelerator website has over 5,000 articles, 350+ podcast episodes, and a comprehensive directory with 3,000+ BPO companies… all designed to make it easier for clients to learn about – and engage with – outsourcing.

About Derek Gallimore

Derek Gallimore has been in business for 20 years, outsourcing for over eight years, and has been living in Manila (the heart of global outsourcing) since 2014. Derek is the founder and CEO of Outsource Accelerator, and is regarded as a leading expert on all things outsourcing.