Business process outsourcing allows businesses to offload time-consuming tasks from their plate so they can focus on their core business. By contracting a third-party vendor, you save on labor costs as well as on salaries and benefits. Every business is aware of how difficult it is to run a company. Sometimes as a business owner, you are forced to become hands-on with running your business and forget about your main responsibility which is to grow your business.
Partnering with an outsourcing company allows you to focus on being “on” your business instead of “in” it. Understanding the different types of BPO companies will help you determine which is the right one for you. It helps you streamline your business by letting you and your team do what you do best. So read on and find out the different types of outsourcing and which will work best for you.
Types of BPO Companies
- Offshore BPO
- Pros of Offshoring
- Cons of Offshoring
2. Nearshore BPO
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- Pros of Nearshore BPO
- Cons of Nearshore BPO
3. Onshore BPO
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- Pros of Onshore BPO
- Cons of Onshore BPO
Which Type Of Outsourcing Is Best For You?
Types of BPO Companies
There are different types of outsourcing companies out there. This makes choosing the right one a daunting task. When delegating certain aspects of your business to a third-party vendor, you need to look at certain factors before deciding which BPO company to work with. Let us take a look at the different types of outsourcing and the pros and cons of each.
Offshore BPO
As the name implies, you outsource functions to a provider located in a different country from yours. For example, a US-based company outsources its IT functions to an overseas provider in the Philippines or India. This will allow your business to expand its market reach at a lower cost. Outsourcing to an offshore provider allows a company to make the most of its resources and reduce operating expenses while retaining control over workflow and service delivery.
Pros of Offshore Outsourcing
Here are the advantages of offshore outsourcing:
1. Cost Savings
One of the top reasons companies choose to outsource is because of the potential cost savings it offers. However, don’t expect a dramatic increase in savings. Experts reveal that companies can expect an average of around 15% savings from offshore outsourcing. The savings could come in the form of reduced labor costs, cheaper materials, greater efficiency, and increased service offerings that can generate revenue for your business.
2. Access To Specialized Expertise
Specialized labor like IT or financial services can be expensive and competitive when hired locally. Offshore outsourcing gives you access to workers with specialized skills at lower rates and less competition. This segment of outsourcing known as Knowledge Process Outsourcing (KPO) is expected to hit $165 billion with a 14.8% CAGR.
3. 24/7 Business Operations
Outsourcing allows your business to operate beyond regular office hours. Since the outsourcing provider works in a different time zone from your company, it becomes possible for you to cover customers who will reach out to your customer service department after your 9-5 workers have already gone home. This means you can offer 24/7 technical and customer support. Customers do not have to wait the following day for their issue to be resolved.
4. Focus on Core Business
Another major benefit of offshore outsourcing is that it allows your team to focus on their main responsibility. It frees them from doing time-consuming tasks which can reduce their productivity. Things like reviewing resumes, collecting data, and administrative tasks can be delegated to an offshore partner so that your in-house team can focus on tasks that contribute to business growth and productivity.
Cons of Offshore Outsourcing
Offshore outsourcing is not a perfect solution. It also has its disadvantages.
1. Security Risks
One huge disadvantage of offshore outsourcing is that it can be a security concern. You will be sharing confidential information with your offshore partner which increases the chance that it can be compromised. It is important that you keep customer data classified to protect yourself and your customer from being exposed to security risks. Thus, you want to make sure that your potential partner has security measures in place for protecting confidential information.
2. Language and Culture Barrier
Another issue you have to deal with when outsourcing offshore is the potential language barrier and cultural differences. Although English is the universal language of most countries, the depth of understanding of the language may be different in other foreign countries compared to the US. Also, there might be cultural differences such as in the way they tackle projects and in decision-making.
3. Payroll and Tax Implications
Dealing with America’s tax system is already complicated enough. Understanding a new set of tax laws adds to the challenge of finding an offshore partner. You do not want to get into trouble when it comes to payroll and tax issues with your offshore partner. Thus, you should partner with a provider who knows their way around payroll and tax laws in their country.
Nearshore BPO
Nearshore BPOs are outsourcing companies that work in the same time zone, speak the same language, and operate on a similar timezone as the contracting company. A software company in the US outsourcing its software development function to a company based in Canada or Mexico is an example of nearshore outsourcing.
Pros of Nearshore BPO
Nearshore outsourcing presents a wide range of benefits for most businesses.
1. Timezone
Unlike offshore outsourcing, nearshore BPOs remove the concerns of having a different timezone. This makes it easier for both parties to manage transactions since they operate at the same time. It can be easy to track the progress of projects and schedule meetings. You do not have to worry that your sleeping patterns will be disrupted because your meeting with your offshore partner is at a time when you should already be asleep.
2. No Cultural or Language Differences
Cultural and language differences will not be an issue with nearshoring. Your potential offshore partner may be sharing the same culture with the outsourcing provider. Cultural and language similarities could lead to a more cohesive and effective team which could lead to more productivity and better results.
3. Quicker Response Time
Nearshore outsourcing facilitates quicker communication and problem resolution. This could lead to increased productivity, lower downtime, and reduced losses. When the outsourced company is in close proximity to the contracting company, processes can be easily monitored and controlled. Both parties can make quick adjustments to their strategies to meet their growing needs.
Cons of Nearshore Outsourcing
Here are some of the drawbacks of nearshore outsourcing:
1. Legal and Regulatory Issues
Your partnership with a nearshore partner could be slowed down by issues with laws and regulations. Even though the other company may be on a similar border, they may have different rules and regulations related to business operations. For instance, data protection laws in the outsourced country may be different from your country. It may be difficult for businesses to meet local requirements in that country.
2. Political and Economic Instability
Another potential challenge of nearshoring is coping with political and economic uncertainty in the outsourced location. It could disrupt outsourcing processes if government policy suddenly changes or if there is an economic crisis in the outsourced country.
3. Quality Concerns
Despite the cost savings it offers, nearshoring may be prone to some quality issues. This type of outsourcing may backfire if the outsourcing provider does not have the same quality standards as your company. It could badly hurt customer retention and loyalty. Thus, you need to make sure that there are quality control mechanisms in place.
Onshore BPO
Onshore BPO means that the potential partner is located in the same country as the contracting company. A company with a business address in San Francisco enters into a partnership with an outsourcing firm in New York. In these cases, issues like time zone and language barrier will not be an issue.
Pros of Onshore BPO
Aside from the provider being located in the same location as the contracting company, onshore outsourcing also offers other benefits:
1. Improved Communication
With offshoring and nearshoring, communication may become an issue. On the other hand, onshore outsourcing allows better communication. You speak the same language and any form of miscommunication can be minimized. In addition, you can get an easy response to your concern.
2. Cultural Similarities
Another huge advantage of onshoring is that there is no cultural difference to worry about. It may be easier for the provider to understand the nuances and preferences of your target market. This is not the case with offshoring and nearshoring wherein there might be some cultural differences.
3. Synchronized Time Zone
Since both parties operate in the same time zone, you can count on easier collaboration and communication, especially for time-sensitive projects and tasks. This ensures that your staff will not miss out on important details and ensure quick resolution of concerns.
4. Better Data Security
The onshore company follows the same rules and regulations concerning intellectual property rights, service level agreements, and others so that means you will encounter few legal hurdles. Both you and your onshore partner will be bound by common security laws.
Cons of Onshore BPO
However, onshore BPO also has its own share of drawbacks.
1. Limited Global Reach
One major disadvantage of onshore outsourcing is that you only have access to domestic markets. The onshore provider may not have a global presence or lack knowledge about foreign markets and audiences. Ensure that the onshore company is well-established and offers global services.
2. Small Talent Pool
The country you are planning to outsource may be experiencing a scarcity of professionals in a particular sector. If there are available professionals, they may be highly skilled graduates. Due to this shortage of labor, competition may arise and there could be an increase in employee wages. Eventually, you may not be saving on costs.
Which Outsourcing Is Best For You?
Whether it’s nearshore, offshore, or onshore, outsourcing offers a lot of benefits to your business. As each one has its own pros and cons, it all boils down to your priorities. Are you looking for the best customer experience? Are you looking for security and the lowest cost? There are certain things to consider when choosing a suitable outsourcing.
If you have some budget constraints, offshore outsourcing is the best option if you are still looking for quality employees. Offshore is recommended if you want to scale tasks within your budget. It is also recommended for projects that require little communication or do not need your team to be available at a certain time.
On the other hand, if you have a larger budget, onshore or nearshore is the best choice. Nearshore is preferred if you are looking to balance cost and quality of work. Onshore is the ideal choice if you are looking for quality work. It is also great if you want to integrate with the core team without any time zone or cultural differences.
Whether it’s offshore, nearshore, or onshore, there will always be benefits for your business. Always do your due diligence in finding the right BPO partner. Outsourcing will always help streamline your work using the best people, processes, and technology.
Why Outsourcing with airisX Makes Sense?
Outsourcing allows you, as a business, to focus on your main competencies and operations and forget the hassle of sharp learning curves when the task falls outside your company’s core area of business.
By outsourcing to a leader like airisX, you will be able to scale up quickly by getting the right resources, processes and technological infrastructure. No matter what your scaling requirements are, airisX will give you the best optimized solution and you will be able to focus on delighting your customers. Your back office operations will be simplified, giving your users a high-quality experience. Contact us at contact@airisx.com and we will get back to you with a customized solution tailored to your needs.