Since the new millennium, outsourcing has been on a steady uptrend. For the past 15 years, the global outsourcing has grown from a market size of US$ 45.6 Billion to US$ 88.7 Billion. It is estimated that the global market value of outsourcing is at US$ 250 Billion. Outsourcing is growing at such a rapid pace because it consistently delivers results.
Here are 7 benefits of outsourcing for your business:
- Reduce Cost of Business. The primary reason why companies outsource is to reduce the cost of business. Outsourcing does this by capitalizing on comparative advantages in costs that exist in other regions.
Foremost to this is the cost of labor. If you are from a developed economy, the average wage rate is $18 to $20 per hour. However, if you outsource to the Philippines or India, the wage rate averages $3.50 to S$7 per hour depending on the position and skill level.
In the Philippines, you can secure complete outsourcing services for as low as $12 per hour and this includes rent, power, utilities and other costs of operations.
- Increase Level of Productivity. Businesses also outsource services in order to increase the level of productivity. Outsourcing does this in 3 ways:
First, the standard arrangement with outsourcing services providers is to be paid based on productive hour. This means for every hour that the outsourcing services provider is logged on, work is being done. If the agent or worker has logged off to take a break, the meter stops running. Thus, you can be assured the outsourcing services provider will work to remain productive.
Second, by delegating non-core functions, your company can focus on activities that are related to its main enterprise. More time and resources can be re-aligned to ensure the productivity of the company.
Third, the cost savings your company realizes from outsourcing can be re-purposed and fund projects that need capitalization. These may include departments such as Research and Development or programs by Marketing and Promotions.
- Increase Profit Potential. We’ve discussed how outsourcing lowers your cost of business and improve productivity in 3 ways. When you improve productivity, you increase the probability of generating higher revenues.
Cost and revenues are the 2 variables of the profitability equation. Outsourcing is one of the few strategies that improves your business’ position on both variables.
It is a double-edged sword that also acts as a hedge during times of economic turbulence or uncertainty. If you have difficulty improving your level of revenue, you still have the cost reducing advantage of outsourcing.
- Introduce Flexibility to Business. If you are working with remote outsourcing services providers, you have to deal with time zone differentials.
It can be difficult to work with providers that are on shift while you are asleep but done properly, it will be a huge advantage for your business.
For example, if you want a customer support group that can attend to after office inquiries or concerns, hiring an outsourcing services provider with a 12-hour time difference will work in your favor.
This assures you have a team online that can address customer service issues at least 12 hours before you get to the office. It also improves the response rate and your business reputation.
Another example is if you want surveys to be taken by telephone. You can simply schedule 2 groups each working only 4 hour shifts. By limiting the work hours to only 4 hours, you do away the 30 minute break time and generate 11 hours more of productive time.
- Capitalize on World Class Talent. Global outsourcing in the United States was triggered by the Silicon Valley technology companies that were initially outsourcing small services to India.
As they got deeper into the engagement with India, the US-based tech companies realized how talented the people of India were in IT. Soon, more Silicon Valley companies signed up India-based outsourcing companies.
In 2015, the Philippines was declared as the premiere destination of outsourcing services. Although India remained dominant in IT and back office operations, the Philippines was number one in telemarketing and customer support services.
The Philippines at 98% has one of the highest literacy rates in the world. It is also widely reputed for its excellent command of the English language. As a matter of fact, in 2012, GlobalEnglish ranked the Philippines as number 1 in terms of Business English.
- Minimize the Risks of Business Expansion. If you are planning to expand your business, outsourcing is the safest option to consider.
First, outsourcing lowers your cost of business. You generate cost savings which can offset potential business losses if your expansion plans do not deliver results as expected.
Second, outsourcing can accommodate expansion according to scale. By focusing on diminishing returns and determining ROI per additional increment of manpower, you can gauge how fast or large you should expand.
Finally, if the outsourcing services agreement fails to deliver or falls short of expectation, simply terminate the contract. There are exit clauses in the Service Level Agreement or SLA that protects each party from business losses.
- Develop Strategic Partnerships. Outsourcing has evolved from strict Client –Service Provider arrangements to strategic partnerships. This is because both parties eventually realize that the best way to protect individual interests is to work with a shared interest.
For the client, as long as work is delivered consistently on time without compromising quality, the Client will retain the contract.
For the outsourcing services provider, as long as the client takes care of their needs and pays its services on time, they can continue to render excellent service and high quality deliverables.
Outsourcing is a proven strategy that will continue to flourish in the next few years. Whether economies remain turbulence or find stability, there will always be benefits to outsourcing services.