How Outsourcing Transformed to a Key Business Strategy
Outsourcing is a means of fulfilling internal business functions using external resources. It is a business strategy developed early on by merchants and businessmen to expand the functionalities of their business. As a result, early adopters were able to provide end to end products and services to their customers.
The term we know today as outsourcing is more closely associated with its strategic purpose in the late 20th century – cost savings. Managers looking to improve their bottom line figures moved ancillary services from an internal role to third party providers, thereby reducing labor and overhead costs.
More recently, outsourcing has evolved into a partnership driven dynamic. Companies recognized the exceptional talent pool overseas and wanted their contribution in improving its core competencies. Instead of focusing solely on cost reduction, companies highlighted the need for effective results.
Digitization of services/processes and significant advancements in communications technology were among the key drivers of outsourcing growth and evolution. Advancements made ease of implementation available for virtually every company regardless of size – SME or multinational.
Businesses today outsource for a host of reasons to either meet a single objective or a combination of them. Whatever the reason behind implementation, the fact is that outsourcing has proven to be one of this century’s key business strategies.
Onshore or domestic outsourcing is a type of outsourcing strategy in which the service provider is doing business in the same country. Meanwhile, offshore involves cross border fulfillment of work. The provider is usually located in Asian countries like the Philippines and India.
The two types of outsourcing strategies have their own merits and are often applied on a case to case basis. However, offshore outsourcing is generally a more desirable alternative if the option to do so is available.
How Offshore Outsourcing Reduces Cost and Fuels Business Growth
Companies engaging in offshore outsourcing do so mainly to save on labor and overhead. Outsourcing cost savings have been projected to as much as 70% when outsourcing to the Philippines as opposed to onshore outsourcing. Onshore prices cannot compete in any way with offshore prices.
The service fee is influenced by the country’s lower cost of living. Offshore outsourcing businesses operate with exponentially lower costs, thus allowing them to price their services for less.
Since many of the outsourced work rely heavily on the number of working people on them, a high base salary environment can quickly compound labor and overhead costs. At the end of the day, these costs may have shaved off profit margin to a meager amount that is inadequate for any business growth.
Reducing costs do not solely impact bottom line figures. Having more profit also means greater reinvestment potential for growth and expansion. The compounded savings in the long term create avenues for accelerated growth and open up opportunities to build economies of scale against competitors operating in a high cost environment.
How the Philippines Addresses the Limitations of Offshore Outsourcing
The physical distance in offshoring serves as its major hindrance. Although seemingly easy to overcome, it has profound effects on the way outsourcing strategy is operated. If left unchecked, these effects can undermine the success of even the best offshore outsourcing strategy.
Operating in different time zones is one of the major roadblocks for companies deciding to offshore. That in itself discourages many from pursuing the strategy, and their reservations are well founded. Time zone difference makes communication difficult. Companies and offshore service providers are often left scrambling to find 1 to 2 hrs of overlapping periods in a day.
Despite time differences, Philippine outsourcing companies generally adapt to the timezone of their client. This forces employees to work graveyard shifts and alter their lifestyle. Although seemingly difficult, no complaints are heard from the Filipinos. Their primary directive is to deliver exceptional output and they do so with a smile on their face regardless of the circumstance.
Local knowledge and connections are also lacking for offshore outsourcing providers. In most cases, they won’t be needed. However, certain location relevant services like tax assessment depend highly on local know how of regulations. Onshore outsourcing clearly outperforms in this regard by having business operations in the same locality.
The only workaround to enjoy the cost saving benefit of working with an offshore team is to partner with an offshore provider with multinational exposure. Their experience working in the global environment will guarantee adaptability and ease of learning foreign practices.
Language fluency is another source of concern. An onshore provider is naturally more fluent in the local language, thus less susceptible to misunderstanding and misinterpretation. Communication efficiency is enhanced when both are equally versed in the same language.
The Philippines uses English as one of its primary languages. The country is widely recognized in the outsourcing space for the population’s English proficiency. The lack of a thick accent and ability to converse make the country a top choice for companies with English speaking requirements.
Distance also affects the level of control over processes available to companies. The impracticality of visiting overseas outsourcing providers limits monitoring and progress tracking to online solutions. There is also little to no assurance of strict adherence to standards on internal operating procedures.
When outsourcing offshore, best practice is to only partner with providers having a proven track record. This ensures proper fulfillment of your tasks and minimizes unnecessary micro managing. Having reliable partners helps to create an environment where expectations are likelier to be met.
Offshore Outsourcing Business in the Philippines
Companies hesitant in pursuing an offshore outsourcing strategy have well founded fears – time zone differences, language fluency and loss of control. The uncertainty in working with an outsourcing provider miles away in itself puts off many business owners.
The sentiment is not new. Any business owner will agree that it’s not worth risking the legacy of the business over reducing operating expenses. The trade off is just not worth it.
To address the pitfalls of offshore outsourcing and reap its benefits at the same time, companies have opted to set up their own offshore outsourcing teams overseas. It is an unconventional strategy used by multinational companies like Shell and Citibank among others.
Routine and labor intensive tasks are delegated to their respective Philippine offshore teams, whose only responsibility is serving the needs of overseas headquarters. This is an effective way of maintaining control while enjoying the benefits of offshore outsourcing.
Rocky Chan is a lawyer and business consultant who excels in corporate formation, immigration procedures, and client relations. In the last 7 years, he honed his craft in the field of foreign investment consultancy.
