Outsourcing Decoded: 6 Types of Outsourcing you Should Know About

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Types of Outsourcing

In the present business scenario, where time is scarce and finding the right human resources is a big challenge, businesses are struggling with balancing operational efficiency and maintaining a healthy workflow.

This is especially common among large-scale businesses, as they often suffer from compromised process efficiency due to a lack of right human resources.

But what’s the solution to this problem? Well, you can easily go with the outsourcing option and get external help for your requirements. In this blog, we have provided in-depth information on what outsourcing fundamentally is and have covered different types of outsourcing that businesses can go for. Let’s start the blog by understanding more about the popularity and scope of outsourcing.

Global Outsourcing Market at a Glance

Businesses planning expansion and upscaling have two options to choose from, which are hiring in-house staff and outsourcing. While the former option might appear to be more common, it is not always practical or feasible. This is because not every business will have the resources and capabilities to hire and manage more employees.

This is the reason why the second option, which is outsourcing, is a better choice. In lay terms, outsourcing is the process of taking the help of an individual, a team of individuals, or an agency to get work done without actually hiring employees.

Speaking in numbers, the global outsourcing market is expected to reach $731 billion by the end of 2023. These figures are a result of the great potential and exquisite benefits that outsourcing offers to businesses and individuals.

However, despite being full of exquisite potential, outsourcing services still come with certain challenges and limitations. In the upcoming section, we will take a look at the various benefits and drawbacks of outsourcing.

The Goods and Bads of Outsourcing

The Goods and Bads of Outsourcing

To thoroughly understand outsourcing, we must take a look at the concept’s pros and cons. Let’s start with the pros of outsourcing.

Benefits of Outsourcing

1. Reduced Costs

One of the main reasons why businesses outsource their services is because outsourcing enables efficient cost savings. This is because by outsourcing your requirements, you can easily avoid spending additional capital on processes like hiring, human resource management, employee training, etc.

To add to that, outsourcing can help businesses avoid incurring infrastructural costs. This is commonly the case when you avail outsourcing services from a company that works in different premises than yours. These factors make outsourcing a great option among businesses looking to cut down on capital investment and achieve cost efficiency.

2. Improved Business Planning

In most cases, businesses are barely able to balance workforce management with optimal business planning. In this case, hiring more human resources will leave your management with even less time to focus on core business activities like strategic planning and management.

You can overcome this challenge by outsourcing certain requirements. This way, businesses can get the desired results without having to manage additional human resources, therefore leaving them with more time to focus on revenue-generating activities.

3. Diverse Mindsets

Many times, businesses suffer from reduced efficiency and compromised quality due to limited talent availability. When this happens, not only does a business lose on output, but it also compromises its brand value and market position.

In this case, it is essential to ensure that you are working with the best talent from your industry to ensure optimal results. However, it might not always be possible to recruit the best talent due to certain constraints like geographical distance and limited time availability.

Here, you can easily overcome this challenge by outsourcing your requirements. Outsourcing will expose you to a global talent pool and will make it possible for you to hire the best talent from the market. This way, you’ll be able to not limit your human talent to locally available resources and get desired results for your business.

4. Operational Flexibility

Flexibility is a paramount factor for high-end business efficiency. In simple words, flexibility ensures that your business is capable of adjusting to the dynamic market environment and changing requirements.

Outsourcing is known to be one of the most flexible options when it comes to getting a certain task accomplished or achieved. This is because outsourcing makes it possible for businesses to effortlessly scale their processes, team, and operations.

These were a few of the many benefits of outsourcing your requirements to an external partner. Moving further, we will take a look at the limitations of outsourcing.

Challenges of Outsourcing

1. Diluted Control

One of the major challenges of businesses outsourcing their project is loss of control over the process. This is because when you outsource your requirements, you will not be able to supervise the way the processes are conducted.

This way, outsourcing can often result in compromised quality of the final output. This aspect of outsourcing can be especially harmful to businesses where following standard practices and protocols is essential.

However, you can easily regain this control by laying down guidelines for standard processes and taking steps for their reinforcement.

2. Compromised Security

In certain cases, working on a requirement exposes the employees to certain confidential information about the business. Maintaining the integrity of this information is highly important for ensuring your business’s sustenance. Doing so is easy with in-house employees but can be a tremendous challenge in outsourcing.

This is because, in outsourcing, a business hires external resources to work on its requirements. Of course, this will require you to share your company’s critical information with outsourced resources, placing you at risk of compromised security.

Some of the most common security-related threats that such businesses face are IP theft, data breach, and leaked trade secrets, among many others. However, you can, by large, avoid this from happening by binding the outsourced partner with a legal contract.

3. Instability

Stability is an important criterion for businesses to operate seamlessly. This includes stability in the team and processes that the employees follow while working on a certain requirement.

By choosing the outsourcing approach for your business, you are likely to suffer from unstable and inconsistent operations. This is because, in most cases, outsourcing is not bound by a time contract and can be aborted at any time.

There are numerous cases when outsourcing partners abandon the work amid its tenure, leading to a loss of stability and increased chances of failure. This is a critical factor and needs to be thoroughly considered by businesses planning to go with the outsourcing approach.

4. Limited Responsibility

Responsibility and accountability are two very critical factors for all businesses, irrespective of their niche. When an employee is allocated certain tasks, they are given the responsibility for their outcome and held accountable for the results.

While this factor applies to in-house employees, it is often missing in the outsourcing approach. This is because most outsourcing partners consider their responsibility and accountability as soon as they deliver the required work.

In many cases, this can lead to compromised operation efficiency and reduced productivity.

These were a few cons of outsourcing your requirements. It is commonly understood that the pros of outsourcing outweigh the cons. Moreover, the cons that do exist can be easily tackled, further proving the scope of outsourcing.

If you, too, want to leverage outsourcing for your business, keep on reading to find out more about the different types of outsourcing and their uses in different industries.

Types of Outsourcing

Types of Outsourcing

Today, a business can outsource almost any and every process, service, and operation. Owing to this factor, today, numerous types of outsourcing functions exist in the market. Here is detailed information on each type for your easy understanding.

1. Business Process Outsourcing

BPO (Business Process Outsourcing) is a rapidly growing sector and is expected to reach a market value of $293.650 billion by the end of 2029. This type of outsourcing is also known as process-specific outsourcing and, as the name suggests, involves outsourcing a particular process or a function to an external resource.

In most cases, BPO acts as an aid to a business’s existing team and helps brands achieve efficiency, cut down operational costs, and reduce the chances of employee burnout. However, it is essential to carefully examine the process that you outsource.

This is because, by outsourcing processes like sales or customer support, you might potentially end up putting your brand’s image at risk, as the outsourcing partner will be handling everything at its level and capabilities.

2. IT Outsourcing

The growing demand for IT solutions and increasing investment in digitalization is making more and more brands want to explore the potential of technology for their business. Owing to this factor, numerous brands are investing in IT product development and are coming up with new and innovative IT products.

To do so, you will require a development team for your project. While you can recruit your in-house team for this purpose, let us tell you that hiring developers from a development outsourcing company is an excellent approach in this matter. This is because in-house development is not only a capital-intensive affair but also requires dealing with various technological nits and grits of the development process.

Naturally, most business owners are not aware of how technology works and end up making wrong decisions. Development agencies, on the other hand, are capable of making powerful decisions that add to your IT product’s value, therefore making IT outsourcing a great option for businesses.

3. Professional Outsourcing

Professional outsourcing is the approach of hiring a single individual specializing in a particular field to handle a task or project. This type of outsourcing is commonly adapted by businesses to get certain professional work done, which often requires having skills and qualifications in a certain background.

Some of the most common areas where professional outsourcing is common are legal services, accounting services, and marketing services, among others. One of the most noteworthy advantages of this approach is that you do not need to provide any additional training to the outsourcing partner to get work done from them.

However, it is also essential to understand that without having the appropriate information about the service being outsourced, it is challenging to determine whether or not the outsourcing partner is providing optimal services.

4. Manufacturing Outsourcing

It is a commonly known fact that out of all the business processes, manufacturing is the most cost-intensive one. This is because to manufacture a certain product, you need not only the right raw material but also the appropriate human resources and, most importantly, the right machinery.

All of these factors collectively contribute to the manufacturing cost of a product. In many cases, this cost can turn out to be unfeasible for businesses, especially startups. This is where manufacturing outsourcing comes into the scenario. Here, a business can get either some parts of a product or the entire product manufactured externally.

Today, China and India are two of the most common locations among businesses looking to outsource manufacturing. This is because of the low manufacturing costs that the manufacturing outsourcing companies in these countries provide. Nonetheless, product quality is also a critical factor in this type of outsourcing and needs strict regulation to ensure optimal brand value with cost efficiency.

5. Project Outsourcing

As a company upscales and grows, it becomes challenging to handle multiple requirements and projects from the client. This is especially the case among companies with limited human resources. Moreover, many times, businesses end up taking on projects only to realize later that the requirements fall out of their skill capabilities.

In this case, such companies can choose to outsource certain projects to an external partner to reduce their own team’s workload. Some of the most common implementations of this type of outsourcing are legal project outsourcing and IT project outsourcing.

6. Multi-sourcing

Multi-sourcing is the type of outsourcing where a business outsources its requirements to multiple outsourcing companies or partners. This is usually the case with IT processes and operations, where each process requires a different set of skills and expertise.

Since it is challenging to find a single agency that excels in all the required skills, businesses choose to hire multiple outsourcing agencies for different skills. This type of outsourcing is highly outcome-focused and requires the outsourcer business to have a robust governance infrastructure to effectively coordinate with multiple agencies and streamline processes.

These were all the major types of outsourcing to exist in the market. However, this is not it. The way you outsource your requirements also depends on the location of your business and the outsourcing partner. Moving further, we will take a look at different approaches one can pick from for business outsourcing.

Types of Outsourcing Approaches

Types of Outsourcing Approaches

Primarily, there are three approaches to outsourcing, which are onshore outsourcing, nearshore outsourcing, and offshore outsourcing. Let us tell you that the type of approach that will be ideal for your requirements will, by large, depend on the type of process you wish to outsource.

Moving further, let’s understand each of these approaches one by one and understand their potential for each type of project.

1. Onshore Outsourcing

In onshore outsourcing, the outsourcer and the outsourcing partner are located in the same country. This factor makes it easier for businesses to communicate with the outsourcing partner as, in most cases, there are low to no language barriers and time zone differences.

Depending on the process that you wish to outsource, you can choose to hire an outsourcing partner from a similar city or even from any other part of the country. For example, if you wish to outsource legal services to a law firm, it is ideal that you choose a law firm from your city.

2. Nearshore Outsourcing

Nearshore outsourcing is the approach where businesses appoint an outsourcing partner not from their own country but from their neighboring countries. The geographic proximity of this approach reduces the chances of communication gaps while ensuring optimal delivery.

This approach is usually preferred by businesses looking to manufacture goods cost-effectively. For example, various prominent India-based fashion labels outsource apparel manufacturing to Bangladesh-based companies to get cost-effective and high-quality products.

3. Offshore Outsourcing

Offshore outsourcing is an approach where the outsourcer hires an outsourcing partner from anywhere in the world except for its own country and neighboring countries. Let us tell you that offshore outsourcing is one of the most underestimated yet highly efficient approaches to outsourcing.

One of the best examples of this approach is visible in the IT sector, where tech businesses outsource their requirements to developers based in countries with exquisite IT infrastructure and low development rates. This is usually the case with US-based businesses outsourcing their IT projects to India-based development companies.

These were the three approaches to outsourcing business processes. You can research more about these approaches to find out which of them is the best fit for your requirements.

Final thoughts

Outsourcing is an excellent option for businesses with limited resources and tremendous operational requirements. Owing to this factor, more and more businesses are looking to outsource their processes and improve their cost-efficiency, optimize resource allocation, and improve business planning.

However, it is also important to note that outsourcing can sometimes lead to diluted control over the process and the quality of the final output, and can cause compromised security, instability in the process, and limited responsibility. Therefore, you need to carefully weigh down the pros and cons to find out whether or not outsourcing is the ideal option for your requirements.

Nevertheless, by understanding the different types of outsourcing that are available in the market and selecting the right outsourcing approaches, you will be able to leverage the concept’s tremendous potential and harness maximum benefits.

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Roy M is a technical content writer for the last 8 years with vast knowledge in digital marketing, wireframe and graphics designing.

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