Business Services
 min read

Why does the Outsourcing Industry just keep growing?

The global business process outsourcing market size was valued at USD 232.32 billion in 2020 and is expected to register a compound annual growth rate (CAGR) of 8.5% from 2021 to 2028.

The Growth in the global outsourcing industry is accelerating

Outsourcing is a business practice in which a company hires a third-party to perform tasks, handle operations or provide services for the company.

The outside company, which is known as the service provider or an outsourcing partner, arranges for its own workers and computer systems to perform the tasks or services either on-site at the hiring company's own facilities or at external locations.

The global business process outsourcing (BPO) industry was valued at $245.91 billion in 2021 and is expected to grow to $435.89 billion by 2028, with a compound annual growth rate (CAGR) of 8.5%.

But why?

70% of decision-makers cite cost savings as their top reason for outsourcing. Deloitte’s 2020 Global Outsourcing Survey found that “what drives the decision to outsource globally is that if there is no positive cost case, it will not happen.”

Many smaller businesses may not have the financial capacity or operational need to hire a team or outsource locally.

The ability to scale up or down quickly also makes global outsourcing attractive, with 40% of executives stating flexibility as one of the top reasons. A recent study found that 24% of small businesses seek global outsourcing services to improve their work efficiency with 18% for expert advice.

Another major issue impacting businesses across all industries is a global talent shortage. No less than 69% of businesses are struggling to source and retain quality talent, resulting in unrealized annual revenues of U.S. $8.5 trillion.

What are the advantages of global outsourcing?

Cost savings

Global outsourcing can save on costs for your organization by having day-to-day tasks completed in a lower-cost economy, such as India, the UAE, or the Philippines, where employment costs are between 60% and 80% less than in the US, Canada, and Europe.

Hiring new staff is a difficult and painfully expensive process. A popular offshoring model is the “managed operations” model where a third-party provider takes care of recruitment, human resources, office equipment, superannuation, payroll tax, workers compensation, Security, IT, and overall management supervision.

Improved efficiency and quality

Global outsourcing allows you to allocate time-consuming and repetitive tasks to an offshore employee instead of your onshore team. That way, your local team can focus on what they do best and what motivates them, while your offshore team appreciates the opportunity to support your business.

This combination improves productivity across the board. In the long run, global outsourcing also helps increase efficiency and job satisfaction for your employees.

Outsourcing can also enhance customer satisfaction by improving the quality of your interactions, increasing your availability to customers, and providing your customers access to expert services at their convenience. Businesses can even set up a 24/7 customer support line to allow their onshore team to focus their energy on nurturing relationships while the outsourced team expertly handles customer service queries.

Resources, Scalability and business growth

The main reason organizations struggle to grow is a lack of funds to invest in additional resources to support growth objectives. Businesses often don't have the time to recruit new employees to leverage potential growth opportunities. We at Claritel, can have your outsourced team set up in as little as four weeks. That will free up your focus and resources to reinvest into the growth of your business.

With the additional support of a globally outsourced team, you can increase the capacity of your organization to take on more work.

What are the possible disadvantages of global outsourcing?

It’s important to note, to avoid any mishaps or miscommunications, organizations need to do their due diligence and research potential outsourcing providers and locations.

Here are three key areas that can be limiting factors if care isn’t taken in selecting the right outsourcing provider for your organization:

Language barriers

When outsourcing globally many providers operate in low-cost economies. This can directly impact the level of English language proficiency of your outsourced team as English may not be their first language.

However, countries like the Philippines have English as one of their official languages and use it for both verbal and written communication in their educational systems. India has a huge pool of English speakers who have worked in the English language. It’s important to conduct your own research when deciding which offshoring location you will choose to offshore your business needs to ensure that language does not prevent you from reaping the full benefits of global outsourcing.

Social and cultural issues

What may be custom in one country may not be in the next. This rings true to both cultural and social customs. For example, some cultures may be more reserved and may not be as straightforward or open to feedback as you may be used to with your local team.

To avoid misunderstandings, it’s important to establish efficient ways of communicating deadlines, KPIs, or any concerns you may have.

Data security

You will likely be sending confidential company data to your globally outsourced team to perform their role efficiently. This can introduce data security risks and needs to be managed accordingly.

Ensuring that your offshoring provider has cybersecurity protocols and management plans in place to lower any potential data security risks.

Who can benefit from global outsourcing and is it ethical?

Short answer: everyone can and yes.

From CEOs and local staff to consumers and your offshore team, global outsourcing, if done right, can benefit everyone involved.

For organizations, it can help increase efficiencies as well as provide flexibility to scale and grow - allowing many to invest back into other areas of the business.

For your local team, outsourcing just one administrative task frees up time for them to take on other, more high-level tasks. This could be nurturing customer relationships or starting planning on a project that may have been pushed back a few months due to administrative overload. This then has a domino “efficiency effect” down the line, meaning more can be done onshore that isn’t time-consuming and more business growth-oriented.

“Is outsourcing ethical?'' is one key question many organizations ask before engaging an offshore provider. As mentioned above, the short answer is ‘yes’. You’re providing jobs and work opportunities to people in foreign countries with competitive wages. Take the Philippines for example. The Philippines' outsourcing industry has had a significant impact on the local economy, employing approximately 1.2 million people in the Philippines, and becoming one of the country’s biggest sources of employment. Wages paid to Filipinos in the outsourcing sector are competitive internationally, sitting at the lower end of the scale. However, staff in the industry are typically paid more than double the national average and are often provided the added benefit of membership with a Health Maintenance Organization (HMO). To protect the interests of private employees, companies seeking to hire outsourced staff often have to comply with country labor laws that are strictly enforced, further protecting offshore employees.

Offshoring to India has allowed many major corporations to grow dramatically. Many of these companies could not have even survived if they had not outsourced to India. We have all heard of the brilliant IT engineers and accountants in India. As more of them prefer to stay home rather than immigrate to the west, outsourcing to India allows your company to reap the benefits of their strong work ethic and education at a fraction of what you would pay the very same people in the west.

The key to getting it right is engaging the right offshoring provider and following a few basic and routine due diligence processes.

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