A company is said to be outsourcing when it lets some external service provider to execute and manage a business process. This is also known as the Business Process Outsourcing or BPO.

In such an arrangement there are mainly two parties – the client who engages an external party to take care of some of its business process, and the BPO service provider which is the external party hired by the client to execute the desired business process.

In case of large and complex BPO projects, brokers are also involved whose task is to hunt for and arrange the right BPO company for the client. Large and respected broker firms are also responsible for the BPO operational management to some extent.

Types of outsourcing

Outsourcing can be classified on the basis of type of work being outsourced and the basis of geographical divide between the BPO services provider and the client.

There are three main categories of work which is usually outsourced:

IT – where affordable design, development, implementation, management of IT products and processes and web services is outsourced to the BPO services provider.

Customer servicing and management – this is usually called voice outsourcing as the major work involves interaction with the existing/prospective customers through voice or web media for the purpose of providing customer support or to handle telemarketing on behalf of the client

Other functions – large companies also prefer to outsource the non-core administrative and backend work such as accounting, HR, marketing etc. to the BPO service providers so as to allow themselves to focus on strengthening their core business areas.

On the basis of the geographical difference between the BPO services provider and the client, outsourcing can again be classified into three categories:

1. Inshore/onshore – outsourcing within the same country

2. Nearshore – when the geographical distance between the client and the provider is not much though they are based in different countries.

3. Offshore – when the geographical distance between the client and the provider is massive and both are based in different countries with huge time differences between them.

Reasons for outsourcing

Companies resort to outsourcing for various reasons; the most common of them are…

•Certain processes can be performed economically from some remote location because of certain local factors such as less expensive but highly skilled workforce.

•For an MNC, customers are scattered all over the world, so to serve them better, local talent is required.

•Because of budgetary or legal or some other constraint it is not possible to build up the necessary capacity for expansion in house.

•Certain non core processes which consume significant resources and time can be gainfully run from outside, thus employing precious resources and manpower to sharpen the core business areas.

Benefits of outsourcing

Outsourcing has considerable benefits for the client companies and some of them are:

Cost cutting

This is one of the main reasons for outsourcing. Certain nations such as India, China etc. are abundant with natural resources, cheap labor, favorable policies for foreign investors etc. All these factors result in considerable savings for client companies particularly in operations such as affordable customer service, IT development, web services, etc.

Bigger pool of talent at a fraction of cost

Countries such as India have made great strides in IT expertise and have become hubs for affordable IT-enabled services and BPO services thanks to their large pools of cheap but highly skilled English-conversant manpower.

Time Zone Coverage

The time zone differences BPO clients and BPO services providers actually works out to be a blessing in disguise, since the BPO companies can serve their clients 24/7 all round the year.