The global market size of outsourced services is expanding. In 2019, global services were valued at 92.5 billion U.S. dollars, a figure which continues to increase steadily. Why is business process outsourcing growing? Because it is a cost-effective solution to filling skill gaps which provides flexibility and enables global expansion.
As an alternative to engaging contingent workers in-house, businesses are capitalizing on the expertise and financial advantages provided by outsourcing both front-office and back-office processes. By understanding the different types of Business Process Outsourcing (BPO), businesses can identify which services to outsource and how to cut costs by filling specific roles and acquiring unique skills.
What is Business Process Outsourcing?
BPO is the practice of contracting the services, business-related operations, or work processes of an external, third-party vendor. The umbrella term BPO covers a number of subcategories describing the location and function of the service provided. These subcategories include:
- Front-Office BPO
- Back-Office BPO
- Offshore BPO
- Nearshore BPO
- Onshore/Domestic BPO
Business Process Outsourcing Types: Supply Chain and Services
Back-office business process outsourcing involves contracting services that are not customer-facing. These services include IT, accounting, business process automation, human resources, quality assurance, and more. Subtypes of BPO have emerged, including IT-Enabled Services (ITES) BPO, such as IT analysts, Legal Process Outsourcing (LPO), such as paralegals or advisors, and Knowledge Process Outsourcing (KPO), such as outsourcing an individual who understands and can implement/manage a specific program. By outsourcing these tasks, businesses can focus on their core mission rather than engaging in time-consuming and expensive internal training and onboarding.
This term refers to customer-facing services, including tech support, customer service, sales, and marketing. These services are frequently outsourced due to technical knowledge requirements and can be accomplished off-premises. By outsourcing web development, customer support lines, or any front office services, businesses can benefit from specialized talent with unique knowledge and cut costs.
Business Process Outsourcing Types: Location of Vendor
Offshoring occurs when services are outsourced overseas. This is incentivized by available resources, political stability, lower labor costs, various tax savings, and more. A common example is companies outsourcing their customer service departments by contracting with call center vendors across the world. As result, businesses can access qualified labor and services at a lower rate, which helps reduce overhead costs, and potentially lower product or service prices for the end-user.
Nearshore business process outsourcing is the act of contracting the services of vendors in countries that are geographically closer. For businesses in the US, this could include Canada and Mexico, as well as Central America. This form of outsourcing usually occurs when specialized skills are available at a lower cost in a nearby nation, but certain factors, such as timezones or language proficiencies, need to be taken into account. An example of this is when a Silicon Valley company outsources IT and coding services to specialists in Canada, or when a Canadian company outsources marketing services from a marketing firm in the U.S.
Domestic outsourcing is exactly as it sounds: the act of outsourcing and receiving services within the boundaries of a country. In other words, a vendor in one city, state, or province can be contracted for services provided to business in another city, state, or province. This can be prompted by a number of factors, such as the availability of specialized skills in certain regions, or local differences in rates and costs.
Managing Outsourced Vendors
While acquiring and managing outsourced vendors can be accomplished in-house, working with a Managed Service Provider (MSP) as part of your workforce management strategy can help streamline the approach. HCMWorks is a neutral third-party that provides expert advisory services to streamline, simplify, and manage the contingent workforce supply chain from requisition to payment. To learn more about our services, contact one of our specialists.