BusinessA Short Guide to Types of Outsourcing

A Short Guide to Types of Outsourcing

There’s no modern business world without outsourcing. In the early stages of human society, everyone produced everything their household needed. However, people soon realized that if they specialized and exchanged goods for those that other specialists made, they still get their goods, only with higher quality. Moreover, they waste fewer resources and have more time left.

This is literally the conception of the economy, and as its natural progression, we have outsourced. While individuals can become specialists, so can agencies. Complex business processes require teams, and team building is all but simple and easy to make. This is what makes outsourcing even more valuable.

Still, outsourcing is an umbrella term, and it can mean several things. Here’s a short guide of what you need to know on this subject.

  1. BPO outsourcing

The simplest form of outsourcing is the so-called BPO (business process outsourcing). Here, you’re entrusting one of the non-core processes to another agency, increasing efficiency and cutting costs (and time).

While your company has its sales, services, or manufacturing department as a core, you can feel free to outsource processes like IT, HR, or customer support. This way, you can have all your in-house specialists focus on the tasks related to your main money-making activity. You’re saving money by making more and spending some of this income to pay for an outsourcing firm.

Even if you weren’t saving money, you’re simplifying your administrative process by so much. If you were in charge of the department, you would have to appoint a team leader and monitor the hiring, onboarding, and development of people on this team. You would also have to provide them with office space, buy equipment, and handle all the staff regarding employee management.

The bottom line is that this isn’t worth it unless you’re a massive conglomerate. However, even giant conglomerates outsource some of these departments.

Remember that BPO outsourcing doesn’t have to imply hiring an entire department. For instance, hiring a virtual assistant can also be considered a form of BPO outsourcing.

  1. Professional outsourcing

You just can’t tackle some fields without the right certification. As a decently-sized building, you can’t just handle your own accounting or digital marketing. You need specialists with experience, tools, and practice to achieve the desired results. You also need certificates.

For instance, you could hire a full-time sports medicine specialist in-house while running a sports team. However, having just one specialist may not be enough. The pay is great, but 24/7 for just one person can be too ambitious. Instead, you may outsource this to a clinic. This way, you get the medical care you need at all times, and you don’t have to worry if one of their doctors is occupied – it’s their responsibility to send a replacement.

Another thing that you get this way is a team on your side. This is why businesses hire law firms instead of individual lawyers. Corporate law is incredibly complex, and you need more than talent to handle it. You need manpower that you get from a legal firm. Making your in-house legal team would not be cost-effective, and results wouldn’t be less impressive.

One more department that often gets outsourced under professional outsourcing is R&D. While this may be logical to keep in-house, most firms just can’t do so.

  1. Location outsourcing

The majority of people, when they hear the term outsourcing, immediately envision offshoring. This concept is where you move your production, customer support, or other processes to a different country. This type of location-based outsourcing is called offshoring.

There are many reasons why entrepreneurs choose to do so. First, purchasing power parity in this other country may be significantly lower. Lower standard means lower average wages, meaning you can get the same-sized team by paying much less or a larger team for the same cost.

Moreover, labor laws in these other countries may be laxer. This gives you more maneuvering space to navigate this complex business world landscape. It also gives you more flexibility in the ever-changing business world.

Then, there’s onshoring. This is a concept of hiring local agencies to help you out. Remember that onshoring doesn’t have to be within the same country. For instance, if a company from the US outsourced to a country in Canada or a UK-based company outsourced to a company from France/Germany, this would still be considered onshoring. To clear this up, there’s also the term nearshoring. Generally speaking, offshoring is usually tied to a distant region.

While there’s no standard difference, you benefit from proximity, shared time zone, and cultural compatibility with this team. This makes collaboration easier and risks smaller.

  1. Manufacturing outsourcing

Manufacturing outsourcing is probably the most famous, the most notorious, and the most widespread type of outsourcing out there. Why notorious? Many entrepreneurs did their best to exploit this system and moved their factories to areas with cheaper labor, lax labor laws, and even laxer environmental regulations.

Still, things don’t always have to be exploitative and morally dubious.

There are many perks of outsourcing manufacturing. First of all, no one moves a factory if they aren’t going to save money this way. It’s not just about hiring people to work behind an assembly line. Due to standard differences, you may hire highly-skilled labor for a much lower cost. This would allow you to hire more experts. Following this logic could get a higher-quality product and an improved time-to-market.

Not to mention that you’re placing responsibility for workers’ compensation and insurance onto someone else.

The most important part to mention is that this process is highly scalable. Sometimes scalability is a determining factor. Sometimes, the cost of nearshoring manufacturing is comparable, but the cost starts to break when you consider the idea of a much larger facility.

Wrap up

In the end, while these types of outsourcing are common, there’s no limitation to what kind of deal you can make with another agency or professional. In other words, outsourcing can be whatever you need it to be. By identifying all the strengths of outsourcing, you’ll have an easier job of making an informed decision. The more you know, the better you’ll become at making an adequate strategy. 

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