If you are a business exploring and contemplating outsourcing and offshoring, this blog is for you.
Global outsourcing is a term specifically reserved for situations when companies outsource operations to a third party based outside the country. It is also called offshoring.
Global outsourcing is eliminating the barriers between businesses located across countries; it enables borderless selling of products and services.
According to a research, the global business process outsourcing market size was valued at US$ 268.21 billion in 2021. By 2030, the market is estimated to reach US$ 576.98 billion.
In this blog, this blog will learn about global outsourcing solutions – its top reasons behind it, its pros and cons, who benefits from global outsourcing, etc..
Top 4 Reasons for Global Outsourcing
More businesses are adopting international outsourcing because it allows them to find strategic partners in new markets. The global outsourcing agency executes some business processes (financial or operational) and cuts down the overall cost and efforts of the company.
In a way, global outsourcing solutions also allow businesses achieve their overall growth and expansion objectives.
Check out the top 4 reasons why organizations opt for global outsourcing.
1. Cost savings
Unsurprisingly, most businesses outsource business processes to cut down on labor and operational costs.
Global outsourcing statistics say that cost reduction is the top reason for outsourcing (70%). In the US, around 300,000 jobs are outsourced annually, reducing the employment rate in the economy.
For example, suppose a US business hires a third-party global outsourcing agency in India to carry out a specific business process. In that case, it can save costs like office space, new in-house team hiring, training, office supplies, utilities, etc. Moreover, the overall cost of the Indian agency will be much lower as the labor cost is low.
2. Better scale-up opportunities
Global outsourcing also enables businesses scale quickly in a low-cost economy. Companies can make strategic partners in an economy that can help them explore the market and enter when feasible.
Small businesses opt for global outsourcing solutions to improve their work efficiency. Further, companies also outsource to gain expert advice and access to specialized skills to do the work.
3. Better digital security measures
The global IT outsourcing market is huge. IT processes are most commonly outsourced by businesses.
In 2019, the global IT outsourcing market was valued at $66.52 billion. Then, with the trending digital transformation since 2020, in 2021 the global IT outsourcing market was valued at $526.6 billion. This massive growth indicates a further increase in the value of the global IT outsourcing market.
One of the reasons behind the huge global outsourcing growth is managing security threats that have cropped up due to the unexpected digital shift. It is seen that 83% of IT companies consider partnering with global outsourcing services to manage cyber threats.
4. Global talent access
Talent shortage has been a real problem across industries. Several businesses struggle to find and retain quality talent. Hence, they invest in global outsourcing agencies to access specialized skills and expertise.
Instead of exploring the local talent pool, global outsourcing companies can access the global talents across countries.
How Global Outsourcing Helps Businesses Gain more Market Share?
Apart from cutting down on labor and operational costs, businesses across countries adopt global outsourcing for their market share benefit.
Here are a few ways how global outsourcing is helping businesses expand their market share in international territories.
Filling in the skills gap
Companies are trying to fill in the skill gaps through strategic partnerships with third-party agencies in other countries. In a way, companies are trying to hire talents who can add value to the company, eliminate resource wastage, streamline processes, and help the company achieve maximum efficiency.
As mentioned above, partnering with an offshore team leads to cost savings. These savings can be invested in allocating resources to other business operations. For instance, marketing is a good avenue to invest in. With the cost savings, you can extend the marketing budget, and double your digital marketing efforts to boost your overall revenue.
Global outsourcing can rebuild your customer service delivery and help you gain a strong foothold in international markets. For instance, if a US company outsources its customer support system to the Philippines, the company can serve customers 24/7. Employees on shift schedules can manage the customer service desk at all times. Therefore, the overall service delivery will be much better, ensuring high customer satisfaction and revenue.
Diverse customer base
Global outsourcing can open doors to engaging a diverse customer base. For instance, when you outsource to a multilingual call center, you get access to a team that can attend to English-speaking as well as non-English speaking customers.
Hence, the number of customers you can serve doubles or maybe triples because of overcoming the language barrier. If you are planning to explore a diverse customer base, ensure to outsource your customer support to a multilingual call center services provider.
Advantages of Global Outsourcing
Now that you are familiar with the reasons for global outsourcing, take a look at a few of the global outsourcing benefits.
One of the top benefits of global sourcing is saving on costs. Instead of hiring and training in-house staff, companies can outsource the process to save money and time too.
Consider this global outsourcing example: A US company outsources its customer service process to a third-party organization in the Philippines. The employment cost in the Philippines is much lower than in the US. Hence, the company can save on hiring and training a new customer service team in the US.
Improved employee satisfaction
Global outsourcing enables companies to assign time-consuming and repetitive tasks to a third-party or offshore team instead of the in-house team. This way, the internal teams can take on high-level tasks.
Moreover, they are motivated to give their best in the jobs that they like to perform. Meanwhile, the offshore team carries out the administrative tasks to support the business.
Global outsourcing facilitates business growth by helping businesses explore new markets through strategic partnerships with third-party agencies. Furthermore, businesses can access a wider talent pool and specialized skills at affordable rates. This helps them increase efficiency in different business processes.
Several foreign countries like the Philippines, India, Africa, etc., offer tax incentives and benefits for Foreign Direct Investment (FDI). They attract companies to invest in their economy. Hence, if a US company opts for global outsourcing, it can benefit from the tax incentives of many countries.
Disadvantages of Global Outsourcing
Global outsourcing has downsides too. Hence, companies must consider the cons of the process before choosing the outsourcing destination.
To avoid misunderstandings and mishaps, companies must do their homework on the potential challenges and the ways to overcome them.
The customs in a country may be different from another. This includes both cultural and social customs. For instance, while one country may have the custom of shaking hands on the first meeting, another may not. Similarly, some cultures may be more reserved and traditional, while others may be straightforward, open, and modern.
Thus, depending on your outsourcing location, you must chalk out efficient ways of communication with the offshore teams. It will help to avoid misunderstandings.
Not all low-cost economies have an English-proficient workforce. For instance, while India and the Philippines have proficient English speakers, Africa or China don’t. Hence, it is crucial to research the outsourcing destination you pick. Ensure that language barriers do not prevent you from making the most out of the global outsourcing strategy.
In global outsourcing, it is likely for businesses to share confidential information with an offshore partner to help them perform efficiently. This can lead to data security risks. Hence, before you start data sharing ensure to take security measures.
Further, ensure that your offshore team has the proper cyber security protocols in place to lower the data security risks.
Laws and regulations
When you opt to outsource globally, you must comply with the regulations and laws of the outsourcing destination. It can be complex to abide by the tax laws and trading regulations in different countries. Thus, you can hire Professional Employer Organization (PEO) like Multiplier to manage your compliances.
Who Benefits from Global Outsourcing?
Considering industries, all businesses (across industries) benefit from intelligent global outsourcing. Regardless of the outsourcing levels, using global outsourcing solutions helps businesses achieve their strategic goals.
Among all industries, the ones that derive the most benefits and competitive advantages from outsourcing are;
- Information Technology
- Real estate
These industries outsource services like R&D, finance and accounting, customer support, manufacturing, product development and testing, and other related processes.
Further, coming to the organizational level, it would not be wrong to say that everyone benefits from global outsourcing.
From company CEOs, local staff, and consumers to offshore teams, everyone involved in global outsourcing benefits from the process.
Businesses get to increase their efficiencies using global outsourcing solutions. Moreover, they get the flexibility to grow as many businesses can invest back their savings into different business areas.
For the in-house team, outsourcing frees up their time. They are no longer required to look into mundane administrative tasks and can utilize the time to focus on higher-level jobs.
How does Domestic Outsourcing Differ from Global Outsourcing?
Domestic outsourcing is when companies hire a third-party organization to handle some of their business operations. This third-party agency usually belongs to the same country as the company.
But, in global outsourcing, companies hire third-party agencies located outside the country to handle their business operations. Most companies outsource their IT processes, manufacturing, customer support, etc.
In certain aspects, global outsourcing works better than domestic outsourcing. They are;
While businesses can certainly opt for domestic outsourcing, it will not give them as much cost savings as global outsourcing. As mentioned earlier, global outsourcing enables businesses to finish their work at considerably low operational and labor costs.
Diversification & Innovation
A domestic outsourcing strategy is like putting your eggs in the same basket. That means that if the US economy goes down, the company and the third-party agency will face challenges. But in global outsourcing, the third-party agency will not face the same challenges as the company.
Moreover, when you implement a global outsourcing strategy, you can get access to new talents and perspectives. For instance, most people in the US may be trained and skilled in the same way. Hence, getting fresh perspectives and ideas is difficult. But when you outsource globally, you get new ideas and approaches to business activities.
Global outsourcing helps you to expand quickly. Unlike domestic outsourcing, it allows exploring new markets and making business processes more efficient.
Get Ready for Global Outsourcing with Multiplier
Are you eyeing India or Africa for your global outsourcing needs? No matter the destination, you can always choose to outsource your specific business processes to get the work done more efficiently.
However, before choosing your outsourcing destination, ensure that you are familiar with the market— its talent pool, employment, costs, etc.
To make the entire global outsourcing process easy and hassle-free, try partnering with an experienced PEO/ EOR like Multiplier.
The platform can facilitate your expansion by helping you with compliances, employee onboarding, benefits, payroll management, insurance, and multi-currency payments.