6 Reasons Why Companies are Outsourcing Services

Outsourcing services could be an indispensable business development process in 2017. It is estimated that global outsourcing grew into a US$548.5 Billion industry in 2016. Outsourcing accommodates 3 specific services:

  1. Logistics, Sourcing and Distribution
  2. Information Technology –  software development, network management
  3. Business Processes – call centers, financial services, resource processes

Several research studies have been conducted to validate the effectiveness of outsourcing as a process improvement measure. Take a look at the following statistics:

  • 53% of marketing executives want to outsource marketing.
  • 78% of small businesses believe outsourcing will help lever growth versus larger competitors.
  • 27% use outsourcing to reduce costs.
  • 90% of businesses believe outsourcing is crucial to achieve growth.
  • Outsourcing will increase productivity by a hundred-fold.

These numbers provide strong evidence on the 6 reasons why companies are outsourcing services.

  • Streamlines Business Costs – Cost reduction remains the number one reason companies adapt outsourcing strategies. There are 2 clear cut reasons why outsourcing lowers business costs:
  • Comparative Cost Advantages – Labor in remote locations such as the Philippines, India and China are significantly lower. By comparison, the average wage rates in the US, UK, Canada and Australia range from US$16 to US$20 per hour.

In the Philippines, average wage rate for an outsourced agent is US$2.20 per hour. On a cost per hour basis assuming labor is managed between 20% and 30% of gross income, cost per hour in the Philippines should range between $8 and $11.

  • Economies of Scale – Outsource service providers operate under the principles of economies of scale. It allows them to give clients greater value while staying within profit margins.

If you start out outsourcing only 10 seats, service providers are open to negotiate their rates when you expand to 20 seats. It effectively lowers your overall cost per hour and improves your operating margins.

  • Access to Experienced Professionals – When you outsource services, you are not contracting fresh graduates. Third party outsourcing companies are manned by people who have accumulated a wealth of experience across diverse industries.

A typical organizational set up includes the following designations:

  • Project Manager
  • IT Manager
  • Workforce Manager
  • Training Manager
  • Quality Assurance Officer
  • Supervisor
  • Team Leader
  • Agent

Outsourcing saves you training time and expenses. The outsourcing company takes care of training and orientation.

While cost savings remain a priority when outsourcing, more companies are looking to capitalize on the availability of talent.

In a study, it was revealed that 36% of companies that outsource did so to collaborate with known innovators in their industry. Meanwhile 37% outsourced in order to improve and develop their own competencies in the industry.

Enhance Productivity

Companies that outsource services are able to enhance productivity almost immediately. There are 3 reasons for this:

  • By delegating non- essential and specialized functions, you are able to focus time, money and other resources on the core functions of your business.
  • Outsourcing companies are constantly evaluated based on their productivity. They will work to consistently meet or exceed established benchmarks.
  • The cost savings generated by outsourcing can be used to fund your other revenue- generating projects.

Provides Feedback

One of the most popularly outsourced services is customer support. Many companies outsource customer support because it costs more to maintain an in-house team. You need to hire agents to cover the different channels of customer support:

  • Inbound Calling
  • E-mail
  • Chat Support

Thus, the outsourced agent is able to engage the customer through high-touch communication channels. He or she is in the front lines of customer support and able to extract information from your end users.

The data collected will provide you the bases for improving the quality of your products and services.

Access to the Latest and Most Updated Technologies

Global outsourcing really has its roots in India when IT companies from Silicon Valley sought their expertise in software development. Not only did the process save money but it improved the end product.

India leads the global outsourcing industry when it comes to IT. Companies continue to seek out IT companies in India to help them advance their technologies. Companies get to utilize the latest technologies which are also very affordable.

Technology exists to make life and business more efficient and greater efficiency translates to greater cost savings.

Opens the Doors to Amazing Talent

Outsourcing is not just an efficient and effective process. Most importantly, it is a sustainable process. Not only does it help businesses achieve profit objectives by reducing costs and improving productivity but it also contributes to the economy of the host country.

Outsourcing is one of the biggest global employment generators. The industry generates 1 million jobs for the Philippines and likewise for India. Every year 200,000 to 400,000 people enter the outsourcing industry.

And it’s not just about providing the necessary stimulus for growth in the economy. Outsourcing is instrumental in finding and developing amazing talent in the industry. It gives a worker in India or the Philippines an opportunity to work with a Fortune 500 company in the US.

It also gives local talent the opportunity to help small businesses grow into big businesses.

Although the outsourcing company attends to all the training and orientation, many big businesses do not hesitate to invest in the development of people. Some will invite key personnel of the outsourcer to train in the principal’s country for a few months.

With changes in political structures worldwide, expect outsourcing to take a larger role in the business development strategies of many companies regardless of size, scale and type.

The benefits of outsourcing are magnified during times of volatility and uncertainty. Organizations will look for a hedge versus an ambiguous global business environment. Outsourcing is that hedge because it addresses both cost and revenue factors which comprise the profitability equation.

As 2017 looms into the horizon, more companies and businesses should consider outsourcing services as the primary strategy to navigate itself through expected economic turbulence.

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