The word ‘outsourcing’ can sometimes be such a confusing word when it is bandied around by anyone remotely interested in business. Just what do people mean when they say outsourcing? Sometimes it seems that no one person uses the word the same way as another. The reason for that is because are many different types of outsourcing.
One person might say that hiring a freelancer on Upwork is outsourcing. Another would say that outsourcing is hiring a foreign workforce. Another would say having a virtual assistant from the Philippines is outsourcing. All of these count as types of outsourcing.
This guide is to clarify what outsourcing means and all the different ways to categorize it. Read on to find out what are the different types of outsourcing and which is the right combination for you.
Dictionary.com defines outsourcing as:
“1. (of a company or organization) to purchase (goods) or subcontract (services) from an outside supplier or source.
2. to contract out (jobs, services, etc.): a small business that outsources bookkeeping to an accounting firm.
3. to obtain goods or services from an outside source: U.S. companies who outsource from China.”
The origin of the word outsourcing is a shortening of ‘outside resourcing’ and dates back to the early eighties.
Outsourcing just means contracting services from outside your business or country. Some people think that outsourcing is synonymous with offshoring. This isn’t really true, you can outsource to your own country. If an American blogger contracts an American freelancer to create a logo for her site, that’s technically outsourcing.
It’s just that offshoring has become very popular in recent years as a way to reduce expenses that when people usually say outsourcing they mean offshoring, but this isn’t the only type of outsourcing.
There is no universally agreed method for categorizing outsourcing. Some people prefer to categorize by location and others by the services offered. We’ve compiled a list of the most common ways that outsourcing is categorized so you can easily form an idea on how to outsource your business.
The easiest way to categorize outsourcing is by location, meaning where you choose to outsource to. There are three types: local, offshoring, and nearshoring.
This means you contract services outside of your business but still within your own country.
Local outsourcing has the advantage of having similar time zones and ease of communication. However, the obvious disadvantage is the price. Countries in North America and Western Europe generally have very high costs of living, therefore the cost of labor is much higher than those in Eastern Europe, South Asia, and South-East Asia.
Of course, there are other benefits to local outsourcing that have nothing to do with your business directly. You could be helping your country’s economy by outsourcing domestically. In the United States, a bill was introduced entitled “Bring Jobs Back Home Act” that would fight the growing trend of offshoring.
The process of bringing back operations to one’s own country is called Reshoring.
This is the type of outsourcing that has become very popular with businesses big and small for many years now. Offshoring means outsourcing to a different country.
Offshoring is typically done to reduce labor expenses. The most popular offshoring destinations are India, Indonesia, China, Malaysia, Thailand, and the Philippines. The lower costs of labor in these countries make them attractive outsourcing destinations for businesses in western countries.
Ever wonder why if you call Google customer service an Indian guy answers? This is because large corporations usually hire a workforce outside their own country to reduce costs.
With the rise of the internet, small businesses have also been given the ability to outsource offshore to hire high-quality talent at affordable prices. The popularity of hiring virtual assistants and other online workers has skyrocketed in the last decade.
An often-cited disadvantage to offshoring is communication issues. Only a small percentage of people in India and China are able to speak English with aptitude. In a country like the Philippines though, such a disadvantage is non-existent considering that English is an official language.
Nearshoring means outsourcing to a country neighboring your own. For example, a company in England outsourcing to Poland. Nearshoring almost always means outsourcing to Eastern Europe.
But wait… isn’t nearshoring also offshoring? It’s outsourcing to a different country! That’s true, but nearshoring is a newer term created to differentiate it from common outsourcing destinations like India, China, and the Philippines. The idea of it is that it’s technically outsourcing to another country but it’s still part of western civilization.
Proponents of nearshoring cite ‘cultural closeness’ as the advantage of nearshoring. Hourly rates for software development in Eastern Europe are typically around $25-$50.
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Here we have types of outsourcing categorized by what services are outsourced.
ProfessionalProfessional service outsourcing is the most popular type of outsourcing in this group. It is the act of outsourcing specialized services.
Services outsourced in this category include:
Professional service outsourcing allows businesses to access white-collar skillsets while saving on overhead expenses. Small businesses often benefit from this type of outsourcing. Hiring someone to make a website or market a product has never been easier in the digital age we live in.
Manufacturing service outsourcing is when a company outsources the manufacturing of goods to a third party. Maintaining a factory and paying workers can be very costly, so companies often outsource the manufacturing of products to another company or offshore.
Concerns about quality are the primary deterrent to manufacturing outsourcing. Some businesses worry that subcontracting their manufacturing out to a different company will decrease the quality standards. Yet manufacturing outsourcing has been practiced for a long time by large, corporate businesses.
The outsourcing of specific tasks not included by a company’s core activities. A common example of this is when Company A hires Company B to deliver the products that Company A sells.
This allows a company to focus their efforts on doing what they do best by letting a third party handle specific processes.
A type of outsourcing common in the manufacturing industry.
Services outsourced in operational service outsourcing include:
Once you’ve decided where and what you want to outsource, all that remains is the ‘how’. This is perhaps the most important part in the list because it demands the most action on your part.
Determining the best method of outsourcing will depend on your time, budget, and the tasks you need to outsource. Are you doing a one-off project? Does your site need constant maintenance? How much time can you invest in your outsourced worker? How much money are you willing to spend?
You have three choices:
Outsourcing companies have the advantage of already having a team of skilled workers ready to handle your project. The procedure can sometimes be as simple as submitting a brief and then simply wait for results. However, it is far more expensive than other choices.
The time saved by hiring an outsourcing company is a double-edged sword. On the one hand, you save time in recruitment, training, and supervision, but on the other hand, you let go of control.
The finished product might not be what you intended, or if an error occurs it will be harder to pinpoint how it happened. Of course, the most efficient outsourcing companies will avoid these errors, but their price might be above your budget.
Although if you have enough money, pick the right outsourcing company, and you have a complicated project needing an entire team of experienced specialists, then outsourcing companies might be your best option.
Small businesses hire freelancers all the time to perform a variety of duties. Design artwork, write an article, build a website, etc.
The price to hire a freelancer can range from really expensive to ‘dirt-cheap’. Freelancers can usually be found on freelance sites like Upwork, Freelancer, and Fiverr. Experience typically scales with the price. If your business needs aren’t too demanding or you’re strapped for cash, you can get a freelancer on Fiverr for $5 a project.
You pay a freelancer per project and it is up to you if you want to continue the working relationship. Successful jobs usually result in repeat hires.
Outsourcing an online staff may be the right balance between price and quality. There are very skilled individuals in a country like the Philippines that can do high-quality work at a much lower price.
Having an online employee with a regular salary could save you money when you need constant work done. What if you want to have content written every day on your site? Paying a freelancer every day would be too expensive. With an online employee, you can pay twice a month.
There are also the advantages of being in control and having more stable communications. An online employee works for you and only you. Your needs are their primary focus, you are their boss, not only their client.
With this approach, you will need to spend more time with training and supervision, at least at the start. You can think of the time you spend orienting your workers as an investment. If you thoroughly train them, they could run your business by themselves and you will have more time to relax.
Like freelancers, the level of experience typically scales with the price. In the Philippines, you can hire an online employee for as little as $2 an hour.
There are other ways to categorize outsourcing, but the three most important ways to categorize the types of outsourcing are again: the where (location), the what (services), and the how (contracting).
So what is the best combination of where, what, and how? What is the right approach for you?
Of course, we don’t know the kind of business you run or your needs, but for businesses looking for the right balance between cost-effectiveness and quality, we recommend this combination: offshore professional services to Filipino online employees.
In this way, you can reduce your expenses yet still gain access to high-quality skills. The Philippines has the allure of low labor costs like other Asian countries, yet also the advantage of the cultural closeness to western nations. Filipinos’ English language skills make them the perfect outsourced workers. A language barrier is almost never a problem when outsourcing to the Philippines.
In the Philippines, you can find programmers, SEO specialists, virtual assistants, copywriters, graphic designers, accountants, and any other job position you want to be filled. Hiring online Filipino workers is a very effective business move.
To find some qualified applicants for the outsourcing positions you may need, you can utilize onlinejobs.ph to find an employee. This is the largest Filipino site for finding quality applicants. Think of it as CareerBuilder or Monster.com in the Philipines.
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