What is BPO (business process outsourcing)?

Business process outsourcing, or BPO for short, is when a company contracts with a third party service provider to do business operations that the company needs in order to function. In other words, when a company hires a third party to take care of its non-core businesses, they’re engaging in business outsourcing.

Outsourcing has been around for centuries, but it wasn’t until the early 21st century that business process outsourcing (BPO) really took off. In 2022, BPO is a USD330 billion industry and is expected to grow at a rate of 6.7% annually.

Why companies outsource processes

1. Focus on core business functions

According to Digital Learning, being able to focus on core procedures is the number one reason businesses outsource processes to a BPO company. By outsourcing non-core tasks, companies can free up time and resources so that they can concentrate on their strengths. This can be extremely beneficial for businesses that want to grow and expand their operations.

2. Save money

59% of businesses outsource to cut costs. By contracting with a third party to do specific tasks, companies can save on overhead costs like salaries, office space, and equipment. In some cases, outsourcing can be cheaper than hiring in-house staff.

3. Get expertise

Approximately 26% of small businesses outsource to get help from an expert. This is especially true of small businesses with ten or fewer employees. When a company contracts with a BPO, they’re getting access to a team of professionals who have years of experience in that particular field. This can be extremely valuable for companies that don’t have the time or resources to do everything in-house.

4. Increase efficiency

24% of small businesses outsource to improve efficiency. (Fortunly, 2021). This is because outsourcing can help businesses streamline their operations and get rid of ineffective processes. In some cases, it can even help businesses automate tasks so that they can get more work done in less time.

5. Global expansion

Outsourcing can also help companies expand their operations into new markets. By contracting with BPO providers that already has a presence in the desired market, companies can get a head start on their expansion plans.

The different types of BPO

Based on where the provider is located, BPO may be classified as follows:

1. Onshore outsourcing: When the provider is located in the same country as the company that’s outsourcing.

2. Nearshore outsourcing: When the provider is located in a neighboring country.

3. Offshore outsourcing: When the provider is located in a different country, often one that has lower labor costs.

4. Multi-sourcing: When a company outsources to more than one provider, often in different countries.

5. Hybrid outsourcing: A combination of onshore, nearshore, and offshore outsourcing.

Most common outsourced business processes

1. Human resources

Some companies outsource their human resources because it can be a lot of work to do it in-house. By contracting with a third party, companies can get help with things like payroll, recruiting, and benefits administration. This can save the company time and money, and it can also help them expand into new markets.

2. Customer service

Outsourcing customer service is a way for companies to get help with their customers. Sometimes companies don’t have enough people to answer all the questions people have, so they get help from an external service provider.

3. Accounting and finance

A common area where small businesses outsource is accounting. It can take a lot of time and skill to learn all the processes and compliance standards your company must follow if you’re not a financial expert. A skilled accountant, however, may be able to handle this area for more than one business simultaneously. Other examples of tasks handled by accounting and finance include payment processing, bookkeeping, invoicing, and tax preparation.

4. Marketing

Due to the ever-changing landscape of marketing, many businesses choose to outsource this area as well. Tasks like social media management, content creation, and lead generation are often outsourced to marketing agencies that specialize in these areas and are up to date with current trends.

5. Information technology

Because of its rapidly evolving landscape, information technology is another common area where businesses outsource. Companies will often contract with third parties to help them with things like website development, software implementation, and data backup and recovery.

6. Manufacturing

The manufacturing industry involves complex processes that often requires specialized knowledge and equipment. For this reason, many businesses choose to outsource their manufacturing needs. This can help companies save on costs, increase efficiency, and improve the quality of their products.

7. Legal services

Businesses of all sizes often need legal assistance. But small businesses may not have the resources to hire an in-house lawyer. So the turn to legal process outsourcing, where they contract with law firms or individual lawyers to get the help they need. This can be a cost-effective way to get legal assistance when you need it.

8. Research and development

Many businesses opt for research process outsourcing as an effective way to access new research ideas and technologies. And it can also help companies save on costs, since they won’t have to pay for the infrastructure needed to do the research in-house.

Concerns about outsourcing

1. Job loss

One of the biggest concerns about outsourcing is job loss. When a company outsources a process, it often means that they’re eliminating jobs in-house. This can be a major concern for companies that are looking to reduce costs.

2. Loss of control

Another concern about outsourcing is the loss of control. When a company outsources a process, they’re giving up some degree of control over that process. This can be a major concern for companies that want to maintain tight control over their operations.

3. Quality issues

Another concern about outsourcing is quality. When a company outsources a process, they’re often sacrificing quality for cost. This can be a major concern for companies that place a high value on quality.

Summary

The future of BPO looks bright, with the global market expected to continue growing in the coming years. This growth is being driven by the need for companies to save costs and improve efficiency. As more companies look to outsourcing as a solution, the market is expected to continue growing.