Outsourcing 101: What are the Different Types of Outsourcing

Last updated on 

November 20, 2021

by

The VA Reviewer
Different Types of Outsourcing

The evolution of outsourcing has resulted in a wide range of services available today. Though outsourcing was once unheard of, it now makes more sense than ever in today’s global economy. 

Outsourcing allows you to find a wide range of services to improve your company’s operations without hiring more employees. It may allow you to cover skills that your current workforce lacks. There are numerous types of outsourcing available today that can boost a company’s productivity while lowering costs.

This article listed the different types of outsourcing to help you understand what kind of outsourcing your business needs.

Professional Outsourcing

Any specialized, professional service is covered by professional outsourcing. This type of outsourcing includes legal, accounting, purchasing, and administrative tasks, as well as any other tasks that are too complex for your team. 

Because it is so common to outsource these types of jobs, you may already be doing so or may not even be considering it.

Professional outsourcing can help you access a wide range of services while only paying for those you require. It is ideal for growing your business as well as receiving one-time services. For example, you may need legal assistance to establish your business.

If you have already started a business, you’re probably outsourcing at least some professional services. Because these services are critical, you may not even consider outsourcing.

Business Process Outsourcing

Business Process Outsourcing (BPO) is one of the most popular types of outsourcing. BPO can help you with more menial business tasks like administration, correspondence, and scheduling. BPO can also provide customer service and lead generation. 

If you want more information on how BPO works, click this link.

IT Outsourcing

IT outsourcing is one of the most common services today. It entails contracting an outside organization to handle all or part of its IT needs, ranging from software development to maintenance and support.

Almost every type of business today requires IT or works with technology on some level, making it a frequently outsourced department. Most companies find it is less expensive to hire a third-party IT management team than to build one in-house. 

IT outsourcing is commonly used by enterprises to store and manage data, but most large businesses only outsource a portion of their IT functions. When developing an app, software, or technology, finding the right fit is far more important than finding a developer close to the office.

Manufacturing Outsourcing

In-house manufacturing can be exorbitantly expensive for small businesses, especially as demand grows. 

Indeed, outsourcing is frequently the only way to compete with large corporations. 

Outsourcing lets you access more resources, afford to hire large teams, and have the funds to upgrade equipment regularly.

Furthermore, even large corporations, such as Nike, outsource manufacturing to save money on the costs of a factory, workers, equipment, infrastructure, and raw materials. 

Manufacturing outsourcing is becoming necessary for businesses of all sizes as product life cycles in many industries continue to shorten.

Moreover, because manufacturing outsourcing is so common, it is simple to find a specialist in your industry. It is essential for streamlining production times while maintaining high quality.

Operational Outsourcing

Because it includes services such as equipment repairs, operational outsourcing is widespread in the manufacturing industry. On the other hand, service-based businesses can benefit from operational outsourcing for tasks such as landscaping and delivery.

Project Outsourcing

Companies may experience difficulties managing one of their projects or even completing a portion of a specific project. As a result, many people will outsource the project to a project management firm. 

In some cases, the company may not have enough employees with the necessary skills to complete the project. It is a common strategy when a company lacks the time, skills, or funds to complete a task. Website redesign, large-scale content creation, and marketing campaigns are examples of project outsourcing.

Multi-Sourcing

Multi-sourcing is another method for combining the services you outsource. Multi-sourcing typically provides you with a mix of IT and other business functions. 

It is generally more appropriate for large corporations to outsource various IT operations and infrastructure to multiple vendors. 

However, multi-sourcing is a good option for any company that wants access to top specialists, an outcome-based approach, and transparency in its IT projects.

However, keep in mind that you will need to have a strategy before you begin multi-sourcing. For example, you must understand which metrics are essential to your business and implement a governance system.

Process-Specific Outsourcing

Outsourcing specific operational aspects to other companies or units that specialize in that particular service are prevalent nowadays. Process outsourcing can also refer to the practice of turning over control of public sector services (e.g., fire, police, and armed forces to for-profit corporations).

Process-specific outsourcing is classified into three types.

  • Knowledge-based processes (KPO) are for researching and analyzing data to improve products and services.
  • Legal process outsourcing (LPO) can address regulatory compliance, litigation, and other legal requirements.
  • Recruitment process outsourcing (RPO) encompasses all aspects of recruitment. You can get help with job postings, application shortlisting, and candidate evaluation.

Types of Outsourcing Strategies

Local Outsourcing

Local outsourcing, also known as onshore outsourcing, refers to hiring a provider within your own country. This option has the advantage of speaking the same language, having the same cultural background, and being in a similar (if not the same) time zone. It is also far more convenient to meet in person on occasion.

One significant disadvantage of local outsourcing is that it will almost certainly cost more than outsourcing to another country. It is common in companies based in the United States, Canada, and most of Western Europe. Furthermore, you cannot assume that the quality will be higher because the provider charges a higher price.

Offshore Outsourcing

Offshore outsourcing is another alternative. In layman’s terms, this outsourcing is working with a provider located far away. 

It is frequently the most cost-effective option to save on labor and materials. Furthermore, offshore outsourcing can provide you with access to a specialized skill set that is superior in one country than in another. 

Finally, you might be able to get around regulations in your native nation.

The issue with offshore outsourcing is that it is unreliable, especially if you choose a low-cost provider. By reviewing the provider’s reviews before signing a contract, you can avoid this dilemma. 

You may, however, find that you end up paying more for the services than the inexpensive rates you saw at first. 

Nearshore Outsourcing

Nearshore outsourcing entails contracting with a provider who is located outside of the country but close by. Nearshore outsourcing in the United States would be to Latin America, whereas offshore outsourcing would most likely be to Asia.

Nearshore outsourcing enables you to reap the benefits of both onshore and offshore outsourcing while, to some extent, mitigating their drawbacks. 

For example, you will be in a similar time zone, but you will benefit from lower business costs in the other country. Furthermore, there is a lower risk of product delivery delays. 

Finally, nearshore outsourcing can help businesses enter neighboring markets, which is often the logical next step.

Takeaway

The types of outsourcing mentioned above can cover a wide range of business activities. Once you have determined your options, you’ll need to decide which tasks your company will benefit from the most and select the best services for your needs. 

Then, consider communication, quality, and cost factors to ensure you choose the best type of outsourcing strategy for you.

After learning the different types of outsourcing, it is time to decide which business activities you’d like to outsource. See our Complete Guide on Outsourcing to the Philippines for more information.

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