Everything You Need to Know About Different Types of Outsourcing

The global market size of outsourced services has reached a staggering 92.5 billion USD. Even before the pandemic, the trend has been enjoying a steady increase in popularity. Now, as work-from-home and hybrid environments became the new norm and people got to see that employees can achieve (or exceed) expected productivity levels, managers couldn’t help but wonder – should I give outsourcing a try?

It can help save costs, approach foreign markets, and test a wider pool of potential candidates. However, if poorly organized, you can stumble upon a ton of problems: miscommunication, misunderstandings, missed deadlines, incorrect deliverables, to name a few. Determining which outsourcing model best suits your business can only be done from practical experience. So which one do you test first? 

What follows is a brief overview of the several outsourcing types, with key information required to finalize your decision. 

Business Process Outsourcing 

BPO is a traditional type of outsourcing, where a part of the company’s operations is delegated to a third party. Primarily, companies relied on business process outsourcing to delegate repetitive and unvarying tasks to a remote team without having to make any greater investments. For this reason, BPO is usually implemented to relocate administrative roles, customer support and virtual assistance services.

PROS: Time and cost-savings, flexibility, scalability, skilled manpower

CONS: Miscommunication, loss of control

Offshoring

When a company decides to off-shore its services, they employ a person or a team in another country with lower labor expenses. In order to produce the expected profit, offshoring requires a great deal of planning and research of potential markets. In addition to cost saving benefits, this model enables companies to tap into remote markets, be it for the purposes of acquiring new customers or employing remote, qualified employees. 

PROS: Lowered costs, flexibility, greater focus, 24-hour availability, more resources, skilled manpower

CONS: Training and setup challenges, miscommunication, loss of control, cultural differences

Nearshoring

Like offshoring, nearshoring as well refers to the assignment of work to a person or a team in a different country. However, as its name suggests, nearshoring means you will not go that far from home. Most frequently, it entails outsourcing to neighboring countries to minimize costs and evade difficulties associated with offshoring (language and cultural barriers, different time zones, etc.)

PROS: Lowered costs, flexibility, more resources, skilled manpower, easier access to remote team, accelerated decision-making processes, better cultural understanding

CONS: Lesser control, miscommunication, smaller talent pool, costlier than an offshoring alternative, cultural differences (though they share borders, there can be a huge language gap between two countries, along with different holiday and work hours)

Onshoring

Finally, a company can decide to relocate their business processes and still remain inside the national borders. Working in close proximity allows managers to remain in direct contact with their team and actively engaged with their work. When is onshoring a viable option? When a company needs a larger, more adequate space to perform certain activities or when it is possible to find lower cost operations in a different but near location. 

PROS: Lowered costs, flexibility, more resources, greater control, better understanding due to cultural similarities, same time-zone

CONS: Costlier than an offshoring or nearshoing alternative, less certified applicants

Multisourcing

Unlike all of the above outsourcing models which rely on just one vendor, multisourcing refers to hiring multiple vendors to complete the company’s business processes. This particular model is most popular in the tech, auto, avio and space travel industry, where key operations are completed inhouse and all other processes are delegated to outside partners. 

PROS: Greater resources, scalability, larger teams, greater talent pool

CONS: Management and team monitoring difficulties, higher risk factor, greater chance of misunderstanding

How do you decide?

As you can see each of the above-listed outsourcing models comes with its advantages and disadvantages. Times ahead of you might be challenging but if you know how to pick your battles, you might just come out victorious.  

Ultimately, it boils down to several questions:

  • What is your primary business objective?
  • How much flexibility do you need?
  • How much do you want to save?
  • How much time do you have to devote to a remote team?

Once you have answers to all of those questions, most of the things will align and the decision you have to make will be much easier. 

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