According to Grand View Research, the global business process outsourcing market was valued at $261.9 billion in 2022. At a forecasted compound annual growth rate (CAGR) of 9.4%, it is expected to grow to $525.2 billion by 2030.
There are many reasons enterprises turn to business outsourcing solutions.
One of the most common is the persistent need for better organizational efficiency. Organizations that outsource non-primary business processes can focus all their energies on performing their most critical functions. This concentration improves overall team competencies, leading to better overall productivity.
A quest for agility is another reason enterprises outsource functions to third parties. An organization that needs specific skill sets to accomplish something may need to outsource work to fill skill gaps.
Finally, companies also often outsource to improve profit margins. Done right, outsourcing can yield significant operational cost savings.
Outsourcing is a practical and viable method enterprise can use to achieve business goals. If you are considering utilizing it for your organization, read on, as this write-up talks about the three types of outsourcing based on geographical proximity.
Onshore outsourcing, also known as domestic outsourcing, refers to outsourcing processes to a third party in the same country. It’s a software development company based in Silicon Valley outsourcing its service desk processes to a company in Georgia (the U.S. state) specializing in help desk support. It is also onshore outsourcing if a big U.K. law firm decides to outsource its accounting processes to a U.K. accounting firm and an Australian data processing company outsources its human resources (HR) functions to an Australian HR firm.
Organizations that outsource onshore mainly do so for efficiency and agility gains. Instead of expending resources on forming an in-house HR, customer support, or accounting team, for instance, a company can get these functions — ready to deploy — through outsourcing.
Onshore outsourcing also means almost effortless communication and collaboration between the in-house and offshore teams. The minimal cultural differences between the in-house staff and the outsourced team and their identical (or mostly similar) time zones mean the two groups will have the same public holidays, work the same hours, use the same language, and have the same norms and customs. This should lead to a relatively smooth working relationship between them.
Outsourcing onshore is particularly great for client-facing functions, say tech support. The minimal or nonexistent cultural differences between the outsourced staff and the clients can lead to a high customer satisfaction rate.
However, onshore outsourcing is expensive. It is the costliest outsourcing option since you will hire at a similar rate as your in-house staff. Most of your cost savings, if any, will likely stem from not having to lease office space to accommodate an entire business division in your high-cost commercial location.
Nearshore outsourcing means outsourcing business functions to a team or third-party provider in a neighboring country. Specifically, it’s outsourcing to a country that has the same or a mostly similar timezone as the organization’s home country.
An example of nearshore outsourcing is a construction company in Washington DC outsourcing its billing division to Mexico City, a software as a service company in London outsourcing its back-office functions to Warsaw, or a telecommunications company in Perth outsourcing its customer support division to Manila.
Aside from improved efficiency and agility — outsourcing, whether onshore, nearshore, or offshore can always lead to more efficient and agile operations — time zone overlap and cost-savings are the primary benefits of nearshore outsourcing.
Like onshore outsourcing, the minimal time zone difference means your in-house team and your outsourced staff can remain in contact throughout or for most of your operating hours. Nearshore outsourcing, moreover, can give you more cost savings than nearshore outsourcing; however, it may not be as significant as the cost savings of offshore outsourcing.
Offshore outsourcing pertains to outsourcing business processes and functions to a distant overseas location. An example of offshore outsourcing is an American credit card company or a U.K. hospital network with a customer support arm in the Philippines.
Offshore outsourcing offers unbeatable cost savings and is the main reason enterprises turn to offshoring.
For instance, if a North American company hires bookkeepers in-house or outsources bookkeeping onshore, it must pay a salary of more or less $42,000 annually for every bookkeeper it has on its payroll. However, if the same company offshores the work, it will pay only a fraction of the $42,000 for every bookkeeper it employs.
If outsourcing in the Philippines, for instance, one may need to pay only $17,000 annually for the same role, saving the company $25,000 per person. Imagine how much the salary savings can add up if it outsources even more functions to the same offshore location. The salary of software developers will go down from $100,000 to $26,000, graphics designers from $42,000 to $17,000, and customer support personnel from $37,000 to $13,000.
That’s just salary savings. There are other operational savings, too. Depending on location, office rental or lease costs, plus the equipment and maintenance expenses, can be much more affordable offshore than onshore.
However, offshore outsourcing is not without challenges. For instance, the language and cultural barrier can be significant. The quality of work and service may also be less than ideal if the offshore staff is left unsupervised, and the differences in time zones can be difficult to overcome. That said, all these disadvantages can be resolved or mitigated by working with a reliable and trustworthy outsourcing partner.
For instance, you can create a dedicated team instead of outsourcing to a third party. With the help of an offshore staffing partner, you can recruit the top talents in your target overseas location. This will assure you of an offshore team with superior output and first-rate communication skills (ergo, minimal language and cultural barrier issues). Your team can also work according to your hours to resolve any problems arising from the time zone difference.
Your offshore staffing partner can also take care of everything your dedicated staff needs. It will find your offshore staff an office and outfit it with the latest video conferencing tech for seamless communication and the best-in-class security for data security and compliance. Your outsourcing partner will also equip your staff, pay them, and take care of all their needs.
This will give you the best of both worlds. On the one hand, you will get a dedicated staff that will work only for you, so you can expect maximum efficiency and productivity. On the other hand, you won’t need to take care of onsite operations, such as human resources and building administration.
Onshore, Nearshore, or Offshore Staffing?
If you wish to outsource your business processes, you must decide whether to go the onshore, nearshore, or offshore route.
If you want only efficiency gains, onshore staffing should suffice, but if you also wish to save on some costs, consider nearshore outsourcing. However, if you want considerable cost savings, nothing beats offshore outsourcing.
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