There are many reasons a business may decide to outsource some of its processes. According to PolitiFact, the notion that businesses outsource overseas because they are after the tax break is flawed. Additionally, it claims that there is no loophole or a specific tax break related to outsourcing in the USA tax code. The claim that the US has the highest corporate income tax among first-world countries is relevant. Hence, the United States companies benefit from outsourcing operations to countries with a lower income tax. This is because the company pays the rate of the host country.
Why do business processes outsourcing?
To enable them to concentrate on the key functions
Through outsourcing, businesses can direct their efforts to the major functions that make the core of the business. For instance, the company will not do things like monitoring payroll performance. Instead, it focuses its energy on identifying the critical differentiator in the business and maximization of overall growth. As a result, these activities can boost the company’s competitive advantage and how it interacts with the value chain. Therefore, there is improved customer satisfaction and a rise in profits.
To achieve better results in non-key functionalities
Since outsourcing companies specialize in non-core functions belonging to other businesses, they deliver high-quality capabilities to their clients. Outsourcing companies that have specialized processes and innovative technologies hence deliver innovative breakthroughs for a business. For instance, a company dealing with the design of games may not want to pay for the attest payroll program, but an outsourcing company that offers the payroll services is likely to make that investment. It is for its benefit and that of the clients. Therefore, the business can achieve better results in that function, and the company can concentrate on the core function, designing the games.
To reduce costs
By business process outsourcing, the cost of in-house labor is reduced. The minimized expenses include staffing, training, and creating a workspace to accommodate the in-house employees. Because many are in developing countries, outsourcing companies leverage the low-cost labor markets in search countries. Finally, through outsourcing, a business can offer variable-cost models. Instead of providing fixed-cost models required to keep local employees, a company offers a fee-for-service plan. Therefore, by paying only for the service, a company minimizes the costs.
Expanding their global footprint
Outsourcing companies can offer their services in various languages in real-time, relieving the company of such a responsibility. To keep the local company’s redundant divisions at a minimum, the outsourcing companies leverage their presence in multiple countries. This has an effect or cost reduction in the subcontracted company.
Improve speed and efficiency
Subcontracting companies opt to let the specialists handle the tasks they specialize in. It allows them to save time, increase their capacity, and improve their accuracy. A business process outsourcing company dealing with records management can index the documents automatically. It makes their retrieval easy. It has the advantage of allowing the company to operate in legal compliance because they can now perform issues like tax filing quickly. Business process outsourcing companies like Oworkers specializing in data entry can help a company move from manual data entry and storage to digital file storage.
There are merits and demerits of business process outsourcing. It is an advantage that BPO saves you time and effort. This likely saves a business from incurring some costs. Because the business has outsourced, it can use the many hours of the day to concentrate on other activities that ensure the highest return on investment (ROI).
In addition, because most subcontracted companies specialize in various services, there are better chances that they have better equipment and skill set for a specific goal. It allows a business to be more productive and competitive. Therefore, the business can now grow faster.
However, everything has its shortcomings, and business process outsourcing is no exception to this. Through business process outsourcing, you leave a business exposed to external actors. What happens if the subcontracted company pulls away? What if they decide to take your business idea to your competitor? It is likely to hurt your competitive edge or even bring you out of the market.
What services do subcontracted companies support?
Unlike in the past, today, Business Process Outsourcing companies support several services. They help fill the gaps within the subcontracting companies. Among the industries that subcontract are energy, business services, health care, pharmaceuticals, telecommunications, e-commerce banking, insurance, supply chain, among other sectors. The following subspecialties have emerged because of business process outsourcing.
Knowledge Process Outsourcing (KPO)
KPO has changed business process outsourcing a bit. They provide functions considered core to the business, although they may not be core to the particular enterprise that hires them. Besides process expertise, KPOs offer other services like business and domain-based expertise. Examples of Knowledge process outsourcing services include analysis, research, or Microsoft word and excel work. KPOs can make low-level business decisions if they do not conflict with the higher-level ones, though the managers can undo the decisions easily.
ITES business process outsourcing
Information technology-enabled services (ITES) use information technology on the internet to deliver services. ITES business process outsourcing jobs include production support analysts, service desk analysts, and information technology analysts.
Research Process Outsourcing (RPO)
It is a subset of knowledge process outsourcing that specializes in research and analysis operations. RPO services providers perform analysis and research functions that help businesses, biotech, marketing, and other various forms.
Legal Process outsourcing
It is among the most outsourced services. Legal Process Outsourcing (LPO) encompasses a vast range of expatriate legal work. LPO firms draft patent applications, legal agreements and perform legal research. They can also advise their clients.
Each business process outsourcing company specializes in a specific service. These services include:
- Back office transactions: They include collecting and processing the checks, debit, and credit cards, direct and indirect procurement, surveys in telemarketing, payment processing, and various others.
- IT and software operations: These include things like the development of applications, testing, and implementation. Other things like data entry which Oworkers specialize in, are under this category.
- Finance and accounting services: The functions under this category that a BPO offers include accounts payables, receivables, regulatory compliance, general accounting, and auditing.
- The customer interaction services: A BPO company covers schedules, emails, marketing, surveys, order processing, quality assurance, warranty administration, customer support, and other issues relating to customer interactions.
There are various reasons a business may decide to outsource its processes. Although outsourcing has many benefits, the subcontracting company should take care not to divulge information like proprietary data because the subcontracted company may fall out, leaving the subcontracting company at risk of exposure. With the growing trends and technology, BPO companies have also expanded the services that they offer.