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What is Outsourcing and How Does it Help Businesses?

Updated: Jul 6, 2022


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The term outsourcing first appeared back in 1970 and since then, the industry has continued to blossom. The global market size of outsourced services has reached $92.5 billion whereas Business Process Outsourcing (BPO) accounts for $26 billion, according to Statistia.


Despite immense growth in this field in the last decade, business owners still feel the reservation when it comes to adopting outsourcing or BPO as a business strategy. In this article, we will go through all the aspects which will help you decide whether your business should adopt the outsourcing model or not.


Understanding Outsourcing

Outsourcing is a business strategy that enables companies to seek ‘outside suppliers’ or ‘third-party’ to provide specific goods or services. BPO, specifically, is a term associated with when companies contract out various non-core business activities to a third-party vendor. Initially, the outsourcing was only limited to manufacturing but as time progressed, it expanded to goods and services as well.


The prominence of BPO was primarily due to the realization that one company, no matter how big, cannot do everything by itself. Many major players including multinational companies have adopted this approach. We will go into detail about that later on in the article as well.


Difference Between Outsourcing and Offshoring

Many people still fail to understand the core difference between ‘outsourcing’ and ‘offshoring’. Although both terminologies are related to each other but their concepts are quite different. Offshoring means shifting your company’s business operations to a foreign country; the outsourcing model primarily targeted the manufacturing industry in the early days, which is why it was fairly common back then. However, the trend has changed significantly since then.


Here are some of the common terminologies that people often have trouble differentiating between including outsourcing and offshoring.

  • Outsourcing: Transfer of non-core operational activities

  • Offshoring: Relocation of operational activities to another country

  • Nearshoring: Outsourcing of business operations in nearby countries

  • Onshoring: Relocation of operational activities at a lower cost inside the national border


Benefits of Outsourcing

The fundamental reason why BPO has been implemented globally is due to its widespread practicality. Businesses have benefited massively by outsourcing their non-core activities as it enables them to focus on big picture tasks and growth-related activities. Here are some of the key features which businesses benefit from if they decide to opt for BPO approach.


Reducing Cost Overhead

One of the main purposes associated with outsourcing is cost reduction. For instance, a company might hire freelance resources to carry out their non-core business functions – while the company still gets the job done, they save money by offering the employee benefits and saving office space. Therefore, hiring freelancers can prove to be an effective approach. Similarly, if a company opts to outsource IT-related activities then they will save a significant amount of money as well since they won’t have to purchase any of the IT equipment themselves. Hence, reducing the overhead cost becomes one of the key benefits of the outsourcing model.


Focusing Core Competencies

Companies, that want to progress quicker, always look towards adopting a business approach that helps them move ahead with their business plans seamlessly and promptly. Outsourcing when the demands are high enables companies to focus on their area of expertise to further their revenue generation. This approach is especially attractive for start-ups that often run into roadblocks created by small-scale operations.


Flexible Approach Towards Staffing

Businesses don’t come with any warnings; some weeks and months can prove to be much more challenging in regard to work. This is another place where outsourcing can prove to be a huge help as it enables business owners to temporarily and remotely expand their team to meet the increasing demands. This not only saves time but a lot of the effort as well since no hiring process needs to be initiated. One example of such a scenario could be e-commerce businesses outsourcing customer service during winter holidays.


Hiring Industry Experts

Although companies encourage securing resources that are highly skilled but sometimes it makes much more sense to simply hire industry experts than to spend resources on training the staff. The experts, who might cost a bit more, will be able to carry out the tasks much more effectively and promptly as they possess all the necessary experience that in-house resources might not be able to match.


Logistical Ease

Outsourcing non-core business activities such as shipping and customer support might not have an impact on reducing the costs but it will help abundantly in regards to solving logistical issues. These ‘outsourcing companies’ might be able to provide coverage outside business hours as well, which can be an added benefit while the company remains on track to focus on core business activities.


Different Outsourcing Models

Business owners often require a little help when it comes to what exactly can they outsource. Here are some of the most popular outsourcing categories which businesses can leverage to enhance their operations and provide better overall service to their clients without compromising the quality.


Engineering Process Outsourcing (EPO)

This particular type of outsourcing implies assigning specific engineering responsibilities to an outside team. For instance, an automotive company can possibly outsource their product development which will enable them to access new markets and improve quality.


Information Technology Outsourcing (ITO)

Some business owners prefer outsourcing their IT-related duties which might include software and application development, technical support, or telecommunication. By outsourcing such things, the companies don’t have to keep tabs on the progress of things and instead, they can focus on their core responsibilities and enhance business output. This category also includes the most commonly acquired outsourcing services such as call centers and customer support.


Knowledge Process Outsourcing (KPO)

Although many businesses focus on outsourcing non-core activities but some also rely on third-party services to assist them in their core business activities; this includes bookkeeping, marketing research, data entry, content research, etc.


Legal Process Outsourcing (LPO)

Many companies don’t want to keep a legal team on a retainer. However, there will come a time when they will need legal assistance and that is when companies will seek to hire third-party lawyers; their responsibilities can vary depending on the situation.


Recruitment Process Outsourcing (RPO)

Companies often outsource the most tedious process of recruitment to third parties as it takes up a lot of time. The recruitment companies will work on identifying all the right candidates for your desired job posting and they will then go through the process of screening, shortlisting, and then arranging interviews with suitable clients.


Human Resource Outsourcing (HRO)

By outsourcing Human Resource activities, companies can significantly cut down their workload and invest the saved time in a more meaningful way. The services that are often provided under this umbrella are managing payrolls, background checks, updating employee information, offboarding, and more.


Outsourcing Examples of Big Companies

Almost all of the leading companies leverage the outsourcing model to further their business development and here are some examples of that.


Google

Google remains one of the biggest names in the world and it started off as a simple search engine. However, as time has progressed, the company has expanded in various related fields including hardware and software services along with advertising services. NixUnited summed up Google’s importance beautifully, “Today Google is almost a proverb for the internet itself, and its name has become a verb used by everyone when talking about searching online.”


Despite such immense growth and after employing 140,000 employees, Google is still utilizing the outsourcing model to keep up with the increasing demands of the industry. The multi-billion-dollar company has been outsourcing development work, AdWords email support, and more. In addition to this, Google has also outsourced a huge chunk of their phone support with staff placed around the world to ensure 24/7 coverage for all customers.


WhatsApp

In 2014, Facebook (now Meta) acquired WhatsApp for $22 billion. However, back in the day, WhatsApp had only employed 30 full-time employees and five part-timers. Understanding the requirements, the company identified Russia as the country to which they outsourced their services and only paid a fraction of what they would have had to in the States. Gradually, as the company grew, WhatsApp added more staff members while retaining the outsourcing model as one which played an integral part in its growth becoming a multi-billion-dollar company later on.


Apple

Apple has paved the way for revolutionary technologies to come in and set a standard. Starting off as a desktop, the company has now become one of the key innovators in the mobile phone and music industry. Becoming the first company to hit a $3 million trillion market value, Apple is another example that has built a huge userbase by leveraging the outsourcing business model. The company has its business partners in the U.S., Asia, and across Europe producing hardware and software services. Apple focused on its business strength by designing aesthetically pleasing products while they outsourced their supply change and manufacturing facilities.


Opera

The web browser industry has remained a competitive one since the very beginning. Opera, however, has always posed a great challenge to all its other competitors which include Google Chrome, Microsoft Edge, and Firefox. Renowned for being a lightweight browser, Opera has continued to excel by adding cutting-edge features and more. The company was initially a project under Telenor’s umbrella but was eventually acquired by Oracle Software. The company relied on outsourcing while expanding as it solved a lot of its development concerns.


Skype

Skype was one of the first companies to take an extensive lead in the online video field. Similar to WhatsApp, Skype also identified that its key to success did not hinge on product development; it identified Estonia as its choice of country for outsourcing. With time, Skype brought the entire development team on board and cemented their relationship. Eventually, through various business advancements and leveraging outsourcing, Skype was able to complete a deal with Microsoft for $8.5 billion in 2011.


How Zag Global Can Help

At Zag Global, we aim to provide a complete BPO experience to not only our existing clients but also all potential customers. We have industry-leading experts who are collaborating with us to ensure seamless services are provided to you.


Here is a list of services that Zag Global is currently offering:


Outbound Sales: At Zag Global, we have employed sales experts which are well-versed with industry jargon and understand the importance of catering to all the needs of the clients. We use proven sales systems and processes to generate real results. Your customer acquisition solutions will go well beyond telemarketing and demonstrate better conversion rates, increased sales, and higher profits.


Inbound Services: Although the trend of outbound sales has reduced with the rise in importance of inbound services but for many companies, it still remains an integral part of operations. Our customer support staff is highly professional in their approach and have an impression conversion rate through inbound queries. Rest assured, your business will be in safe hands.


Consultancy Services: In order to run any successful business, you need assistance and Zag Global does exactly that. We lend you a helping hand by offering premium consultancy services that can serve as a stepping stone for your business to blossom.


Backoffice Services: These include all the non-customer facing or administrative tasks. Zag Global offers all Backoffice services, which include:

• Payroll and Accounting

• Data Management Services

• HR and IT Functions

• Quality Assurance and Reporting

• Email / Web / Chat Support

• Remote Monitoring and Management

• Financial Analysis, Auditing, and Reporting


Software Development: Zag Global offers industry-leading technical experts to cater to your needs. They specialize in offering tailor-made and customized softwares which have the potential to completely transform your business. From laying the groundwork for the software development to perfectly executing the plan, our developers ensure complete customer satisfaction.


Call Analytics: Many businesses often ignore the importance of analytics as they help in making informed decisions. Zag Global has specialized staff members who will compile a report of all your calls which will give you clarity on which business ventures are performing well and what requires more work.


Transcription Services: Assign our team of experts to recorded phone calls or any audio and they will transcribe them for you in a manner that will add value to your business. We have expertise in general audio transcription, legal transcription, business transcription, and medical transcription.


Zag Global understands the needs and limitations when it comes to company expansion, which is why we are in a position to guide you better. Enhance your business operations by leveraging our customized solutions. Our team of highly trained professionals will guide you through the tedious process and simplify things for you. Get in touch with us today!




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