7 Types of Outsourcing: What Suits Your Business Best?
There are various types of outsourcing out there which can help you find business success, but what type of outsourcing will work best for you?
It is an important question that you need to answer before setting out to find an outsourcing partner, and we’ll help you make a wise decision with this quick and practical guide.
Outsourcing is an industry that has significantly evolved over the decades, adapting to new technologies and trends to provide timely business solutions. And because of this evolution, different types of outsourcing have also emerged, catering to specific chokepoints in various business processes.
Depending on your industry or the pain points you want to resolve, one type of outsourcing may do you better than the others. Knowing the types of outsourcing will allow you to identify what you believe will solve your issues and make the most out of this business solution.
Don’t make the same mistake as other companies that just dive into outsourcing head-on without truly understanding the variety of solutions it can provide. Not only will it be a missed opportunity but choosing the wrong type of outsourcing can also be costly in the long run.
So, without further ado, let us examine the different types of outsourcing and discuss how they can work for your business.
Business Process Outsourcing
Perhaps the outsourcing industry is best known for Business Process Outsourcing (BPO), which refers to contracting an external provider to handle mundane business activities, like administration, correspondence, customer service, lead generation, or scheduling.
Companies that partner with BPO providers usually need a hand in doing repetitive tasks so they can focus on core business activities, like drafting strategies and making sound financial decisions. Not only does BPO save them time, but they also get more savings on overhead costs.
If you need virtual assistants to help you in scheduling customer appointments and meetings or just responding to emails, data entry clerks for bulks of information you need to analyze, or a dedicated customer service team that can handle technical or sales support, then BPO is the one you need.
In today’s world, a robust IT system is required to have an overall efficient business operation. But IT is a business function that requires experience and expertise that most companies in other industries do not necessarily have.
Enter IT outsourcing – the process of contracting an external service provider to handle large or specific IT needs, such as data security, software development, data centre operations, network management, or even whole IT infrastructures.
If you are a startup or a medium-sized business that needs to improve certain IT functions to be able to compete with bigger rivals or just adapt to the changing business landscape in terms of innovation, then IT outsourcing is the one for you.
Simply put, professional outsourcing services allow businesses to contract external parties to provide licensed professionals to do important functions. Companies usually rely on professional outsourcing for sophisticated business activities that require a certain level of expertise.
For example, some companies would need additional certified public accountants to do seasonal work during tax season, but hiring even one can be difficult, time-consuming, and expensive in their area during this season. They would rather outsource accountants who are ready to do the work.
Other than accountants, you can outsource licensed health professionals, CAD operators, and engineering outsourcing for complex business tasks. If you need licensed professionals in certain fields in an area with talent shortage, then professional outsourcing might just be able to help you.
When a company outsources related business functions to multiple providers and combines their services to build a specific product, it is called multi-sourcing. In this model, the company acts like a project manager that integrates the separate services of its providers.
A company may have its whole IT department completely outsourced but with different providers. One vendor may be in-charge of data centre operations, another one handles IT security, another one takes on network management operations, and so on.
Most of the companies that delve into multi-sourcing are the big ones that need to diversify the supply chain and gain more flexibility. Unless you are a large organization that can handle the admin work for multiple vendors, you are good with all the types of outsourcing in this list.
Manufacturing outsourcing is one of the most popular types of outsourcing where a company relies on an external provider, which is often offshore, to manufacture parts of or the whole product. We have seen this work with Apple, Nike, Ikea, and H&M, and that’s why we know it works.
Partnering with a provider in countries with lower costs of labour allows a company to reduce the cost of manufacturing, from infrastructure, manpower, and equipment. Some companies even get access to cheaper raw materials needed for their products through their outsourcing partner.
Most people think that manufacturing outsourcing is only for large companies. However, if you look at it closely, even small and medium-sized companies can outsource manufacturing to reduce costs and compete with their much bigger rivals in the market.
Process-specific outsourcing happens when a company contracts an external provider for specialist or niche services. Like BPO, process-specific outsourcing allows leaders to centre their attention on core business activities for faster growth.
This type of outsourcing has three forms: Knowledge process outsourcing for functions like research or data analysis for product improvements; legal process outsourcing for legal functions like litigation and regulatory compliance, and recruitment process outsourcing for end-to-end recruitment functions.
Contracts under process-specific outsourcing are usually detailed from end to end, allowing a company to focus on its core products. If you are a company with needs that fall in one of the above mentioned categories, then process-specific outsourcing is for you.
There will always be a time when a company has to launch a new project that runs simultaneously with other campaigns. Managing this new project would often be hard, so the company would rely on project outsourcing to manage this until completion.
The project can be a new website, a long series of content, a marketing campaign, or anything else. The outsourcing provider helps the company create a team with a manager to ensure that the project progresses and finishes on time.
If you are a company that has been hesitating to proceed with certain projects because you lack in-house employees or because you lack the time and focus needed to manage the project, then project outsourcing might be of big help.
Outsourcing strategies: Onshore vs Nearshore vs Offshore
Another crucial factor when looking for an outsourcing provider is location. Outsourcing onshore, nearshore, or offshore has its own advantages and disadvantages, but all of them work depending on your need. Let us examine which one would be better for you.
Outsourcing to a provider within the same country is called onshore outsourcing. It works best for companies looking for partners with expertise in certain fields without sacrificing ease of control, speed, and cultural alignment.
Because the third-party provider operates within the same jurisdiction, there will be no language barriers and time zone differences. Chances are your onshore partner is also operating on the same quality and standards in terms of data security.
However, because the provider operates within the same jurisdiction, the cost of its services may not translate to huge savings. You will also be limited to the local talent pool. Onshoring is best if you want to try outsourcing for the first time to ease you into the process.
When you outsource to a provider from a nearby country, usually within the same continent, it is called nearshoring. Like onshoring, outsourcing to nearby countries also lessens language and cultural barriers, making it easier for you to align with your partner.
There could be a few tiny differences in time zones and regulatory compliance, but it would not be too big to disrupt the process. One advantage of nearshoring over onshoring is the cost, especially when you choose a partner in a nearby country with lower labour costs.
If you are outsourcing primarily for cost savings but you are not yet ready to deal with the complexities of managing a team offshore, then nearshoring is the best option for you. You may encounter limitations when it comes to the talent pool, but with a good partner, it can work very well for you.
Offshore outsourcing is when you partner with a provider from another part of the globe. Out of the 3, offshoring is the best when it comes to cost-efficiency. The significant differences in labour costs allow companies to access talent at more than half of the usual price.
Moreover, top outsourcing destinations like India and the Philippines, offer a diverse range of talent, including niche roles, that can otherwise be hard to find in your locality. Some people are afraid of the quality of talent, but a lot of companies are surprised to learn that offshore talent is far from poor.
There are, however, drawbacks, when it comes to offshoring, such as language and cultural barriers, as well as time zone differences. But all of these can be easily resolved by finding a partner with established practices and procedures when it comes to integration.
Most offshoring firms have also been compliant with international standards when it comes to data security and IT management, as more countries across the globe are enjoying their own technological renaissance.
Overall, offshoring is the best option if you are looking for cost efficiency, flexibility, and access to talent. There is a certain curve to make it work, but with an experienced partner with a good client track record, offshoring will work best in the long run.