What is Business Process Outsourcing (BPO) and How Does it Work?

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What is Business Process Outsourcing (BPO)?

Business process outsourcing (BPO) is widely used in many different industries. In short, it’s where a company will choose to outsource a process to another company rather than doing it in-house.

There are many ways to outsource business processes, and many places to find companies providing services that could be useful for your business. This article wil talk about the following:

We’ll also cover a global payment solution, Wise, for your accounts payable and receivable that’ll cut your cost on international money transfers and give you access to 45+ currencies.

Why do companies choose to outsource work?

Business process outsourcing offers a range of essential ‘back office’ services that enable other companies to function. This can be particularly helpful for small and startup businesses, offering the following benefits:

  • Cost-saving – with BPO, there’s no office rental to pay or staff to train up, keeping additional operational costs to a minimum. So many wildly successful companies have grown off the back of shrewd outsourcing. WhatsApp¹, for example, relied heavily on outsourcing in the early days, sending much of its development work to Russia for a fraction of the cost of doing the same work in the U.S.

  • Access to new skill sets – if your team lacks skills, expertise or even technology that you need, you can plug this capability gap by outsourcing to a specialist.

  • The opportunity to grow and innovate – scaling up can be tough, but outsourcing can be the ideal way to access new skills while taking the pressure off your in-house team. A prime example of this in action is the project management software Basecamp¹, which took advantage of BPO to sort out chaotic internal processes so that the development team could focus on crucial tasks as the company grew.

  • Convenience and speed of implementation – if you can access and start benefiting from an innovative new service right away, you can maximize profits and provide customers with an improved offer.

  • Improved productivity – when you outsource, you may be able to extend the productivity of your working day. While your team sleeps, another external team can be working away through the night.

Of all these factors, cost is arguably the most crucial. But while you can potentially save with BPO, there are other important considerations to bear in mind – including how you’ll run international payroll to freelancers and carry out B2B transfers to companies you work with.

Wise Business

If you’re paying freelancer invoices and B2B companies in other countries, your ordinary business bank account or even services like PayPal aren’t really up to standard. They’ll simply cost you too much. Get a free Wise Business account instead and paying companies you use for outsourcing becomes a breeze.

A Wise Business account is 19x cheaper than PayPaland offers fast, low-cost international transfers. You can send money to over 70 countries with tiny fees, send batch payments easily and automate payments to save time. You can even integrate it with an accounting service like Xero, so everything’s neatly in one place.

Now that you have the lowdown on easy, affordable ways to pay for outsourcing, back to what you came to read.

Types of outsourcing

Onshore outsourcing

Onshore outsourcing is where a company will outsource work to an individual or company in their own country, rather than looking overseas.

  • Pros: If you’re looking to access new skills, expand and have the budget to pay for specialist expertise, onshore outsourcing is a good choice for your business. It’s convenient and relatively simple, as there’s no language barrier.

  • Cons: Outsourcing within the U.S. tends to be more expensive compared to offshore outsourcing. If you’re considering BPO to save money, or you’re a tiny business with limited funds, this isn’t the cheapest choice.

Offshore outsourcing

Offshore outsourcing is where a company pays an individual or team in a foreign country to complete work for them.

  • Pros: It’s often much, much cheaper than onshore outsourcing. Offshore BPO tends to happen with countries where the cost of living is lower, so the same work can be done at a lower cost.

  • Cons: You may face language barriers or cultural clashes when working with overseas teams. If you need a large quantity of low to medium-skilled work completing at low cost, offshore BPO could be a good option.

Nearshore outsourcing

Nearshore outsourcing is where work is outsourced to a team or freelancer located in a country near to your own. For U.S. businesses, nearshore outsourcing could involve hiring a team based in Mexico, for example.

  • Pros: If you need access to specialist skills with less risk and a smoother experience, and even the chance of saving a little money, nearshore outsourcing could be a good mid-way option.

  • Cons: You may not always get a cheaper price, and it can occasionally be complicated to manage. If cost is the biggest concern, nearshore BPO is not always the most cost-effective solution.

What is the difference between onshore and Offshore outsourcing?

In a nutshell, the difference between onshore and offshore outsourcing is where the individual or company you hire is located. The main implication of this distinction is the currency you’ll be paying in. Offshore outsourcing exposes you to currency fluctuations, onshore doesn’t. Though businesses using borderless accounts such as those provided by Wise don’t have to worry either way - as you can send and receive money like a local.

How to get started on BPO?

Business process outsourcing can be hugely beneficial, but it can also be complicated to set up. It’s very important to keep your needs and goals in mind before starting the search, as well as choosing the outsourcing model that works for your company.

Identify your outsourcing needs

First things first, what and why do you need to outsource? You need to determine the exact tasks and processes for outsourcing, along with your goals for BPO. It could be that outsourcing will enable you to offer a new service, grow your business, save money or bring in new profits. Lastly, consider how outsourcing will work for your company – how will it integrate with your existing processes?

Determine what type of outsourcing best fits your needs

Which type of outsourcing you choose depends on your priorities, your budget and your attitude to risk. If your immediate concern is cost, offshore outsourcing is the ideal choice, provided you can handle some element of risk (plus language barriers and other obstacles).

Access to particular skills is also an important consideration. Where will you find the people who can do exactly what you need? It may be that the specialist team you need is based in Sweden, or even in the next state over, so onshore or nearshore outsourcing will be the best choice for you.

Choose the best way to outsource

At this stage, it’s time to consider whether you need a BPO Commercial provider, want to hire freelancers, or are able to build your own offshore team. This should be tailored to your main priorities.

Use a BPO Commercial provider

BPO companies are set up specifically to provide services to other companies. They often specialize in a particular area, offering experts and professionals in a particular field. For example:

  • IT and software development
  • Accounting
  • Customer support.

Many companies prefer this option because it’s so easy – all the talent you need is there waiting for you. The BPO industry also tends to offer a certain standard of work, along with guarantees, so it can be a low-risk option. This option helps companies focus more on the core business functions and still be able to guarantee good results on the noncore business functions. However, if cost is the main priority, this may not be the best option for small businesses. Employing a BPO company also comes with a long-term contract.

Hire freelancers

Hiring a freelancer involves working with an individual with a particular set of skills, to carry out a particular task, support your existing team or fill a gap in capability. Companies commonly hire freelancers for:

  • Content writing and marketing
  • Video editing
  • Web design and development.

One of the main benefits of working with freelancers is flexibility. You can scale up or down and hire freelancers for specific projects depending on your needs, accessing specialist skills for far less than recruiting and training in-house. Companies opt for freelancers because it's less expensive compared to employing a BPO company but it doesn’t quite guarantee good results. But this all comes down to how thoroughly you assess the candidates. This is ideal for short-term projects and doesn’t bind you to a long-term contract.

Build your own offshore team

Building your own offshore team involves creating dedicated teams of skilled professionals in another country. They are still integrated into the business, but they can often be paid less as they are based in a country with a lower cost of living. This approach is often used for:

  • IT
  • Software development and engineering
  • Consumer goods manufacturing.

‘Offshoring’ has two main benefits – cost and control. Compared to outsourcing to an offshore company, it can be considerably cheaper to have your own team overseas in the long run.

You will be responsible for operational costs, but like with employee salaries, these can be much lower than building the same team in the U.S. You will also get full control over factors such as quality, reliability and team management.

Weigh the costs vs. the benefits

After you’ve identified your company’s BPO needs, you’ll need to weigh the benefits of outsourcing against other factors such as cost, convenience, and practicality.

If you can access the skills you need at an acceptable price, and you’re comfortable with the risk and other factors involved, you have found a solution that works for your business.

Take your time with the decision, crunching the numbers carefully to determine the overall cost and comparing all the different routes to outsourcing we’ve mentioned here. It’s also important to ask for a professional advice on tax implications and do an extensive research on economic interventionism in the country you wish to outsource in.

Reduce cost and increase convenience with Wise Business

Once you’re ready to get started with outsourcing, you’ll need to check that you also have other systems in place to handle the new way of working. One of the most crucial is how to pay companies, freelancers or even your own offshore staff without wasting money unnecessarily.

Banks are not usually the best solution. Transfers tend to be slow, incur international transfer fees and give you terrible exchange rates. This is why companies are increasingly turning to alternatives such as Wise which offer many more business-friendly benefits.

Convenience

Wise Business makes international transfers easy and convenient, which is how it should be. Take advantage of the benefits of a global account giving you access to 45+ different currencies. You can also use it to collect accounts receivables in 6 different currencies - all in the one account.

Wise also offers an alternative payroll solution where you can create up to 1,000 transfers with a single file so instead of employing a third party payroll service, you can do most of your major financial operations in one place.

If you use an accounting tool like Xero, you can connect your Wise account right to it. This saves a huge amount of time, as all transactions are synced with Xero and there’s no need to enter data manually.

Cost

The biggest concern when making international transfers is cost. Make a payment from the U.S. to a BPO company abroad using your Wise account and you’ll find it much cheaper than using most banks or other services.

There’s only a small, up-front fee to pay, absolutely no hidden fees – so you’ll know exactly what you’ll be paying before you hit ‘send’ – and you’ll benefit from the real exchange rate. This is the mid-market rate without any mark-up (often added by banks and providers).

If you plan to build your own offshore team, use your Wise borderless account to hold, send and receive funds in different currencies. This can help with foreign exchange hedging and make payroll far easier. Small companies will find this particularly cost-effective, as it helps them to avoid the high monthly costs and restrictions of other payroll services.

Have freelancers to pay? Send quick, low-cost individual payments or use the Wise batch payments tool to easily make multiple payments in one go.

Now that you have the full lowdown on business process outsourcing, including essential tools like Wise Business, you’re all set to transform the way your company works. Good luck!

👉 Looking to learn more about ERP tools? Find out more below!

Sources used:

  1. Time Doctor Blog

Sources checked on 24-October 2019.


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