Common Misconceptions of Offshoring

Many have heard of outsourcing, but many are also uninformed about it. People judged outsourcing based on the myths they’ve heard from other people. Biased opinions generate more myths about how dangerous or unhealthy is outsourcing for a company. We have recently updated this article for you – enjoy. Common outsourcing myths: We debunk these common outsourcing myths – so you don’t have to: Outsourcing myth #1: Outsourcing makes you lose control of your business Outsourcing myth #2: Outsourcing only an exercise in cutting operational costs Outsourcing myth #3: Outsourcing guarantees lack of product or service knowledge Outsourcing myth #4: Only accessible to big businesses Outsourcing myth #5: Outsourcing will compromise your company’s privacy and security Outsourcing myth #6: Outsourcing means offshoring: there is no difference Outsourcing myth #7: Outsourcing delivers low-quality services and outputs Outsourcing myth #8: Outsourcing weakens the economic status of the country Outsourcing myth #9: Outsourcing contributes to the unemployment rate Outsourcing myth #10: Outsourcing is unethical Outsourcing myth #11: Outsourcing is not a long-term solution Outsourcing myth #12: Outsourcing is only for established businesses Outsourcing myth #13: IT outsourcing is way too complicated for small businesses Outsourcing myth #14: In-house sales force is cheaper than outsourcing Outsourcing myth #15: Outsourcing your sales force destroys company branding A popular misconception about outsourcing is that it only aims to cut costs, and companies who aim for cost leadership are the only ones who avail outsourcing services. If not explained, this misconception can affect a company’s outsourcing-based decisions. Many companies are also scared of outsourcing because it reveals confidential information to third-party service providers. This myth will be discussed further. What does outsourcing do? Outsourcing is a service that enables third-party service providers to perform a certain task for a client. Letting third-party providers do the job creates a concern to most companies. Most companies worry about the quality of work that the outsourcing service providers would render. Are the outputs aligned to the company’s goals? Does the third-party service provider provide high-quality outputs? Are the company’s data safe in the hands of the outsourcing service providers? These are just several questions that will be answered later on in this article. Aside from security and quality concerns, the biggest misconception about outsourcing is its limitations and scope. Is outsourcing only limited to big businesses? Will the company lose control in outsourcing? Is outsourcing only limited to established business? These questions can make or break decisions to outsource, and uninformed decision-makers might just lose the opportunities they can get from outsourcing. This article will debunk 15 myths and misconceptions that plagued the image of BPO companies. If these myths and misconceptions are left unanswered and unclarified, it could affect future of business decision making. Outsourcing myth #1: Outsourcing makes you lose control of your business

Companies, big or small, would let third-party service providers perform specific business tasks – that’s how outsourcing works.

For example, a company might want to outsource accountants for their payroll or receivables. When companies outsource accountants, these individuals would only work on the specific outsourced tasks – no more and no less. They are not given any significant authority for other matters not concerning the assigned tasks. The principal focus here is significance. There are two questions that need to be answered. Do they have significant control over certain business aspects? Do they have significant influence on the upper management? If they do have significant control and influence, then maybe they are not BPOs at all. Companies hire BPOs to reduce the amount of non-value-added workload to the company. Non-value-added activities are activities that do not bring up or enhance the quality of the company’s products and services. Furthermore, non-value-added activities are also called as “non-core activities.” Opposite to non-value-added activities are value-added activities. These activities give value to the product or service of the firm. Aside from that, value-added activities achieve the core goals of the firm. To differentiate value-added from the non-value-added ones, activities that add value to the company’s product or service should possess the following characteristics: Activity can cause a significant change in the product or service Activity is not a rework activity. Thus, it is done right for the first time Customers would pay for this activity Outsource non-core activities Keeping non-value-added activities at minimal levels can help in reducing manufacturing or service costs. However, letting outsourcing companies handle specific non-value-added activities can even help more in reducing costs and keeping the production or service lines moving effectively. Hiring full-time employees to work only for non-value-added activities can be a waste of resources and talents. The main reason why companies hire BPOs is that they want more control over their employees. They want to harness the in-house talent that is stuck in making payroll slips or managing accounts uncollectible. If companies can hire outsourcing companies to perform non-value-added activities, then they can achieve full control of the business since the employees are fully engaged in activities that achieve the company’s mission, vision, goals, and objectives. In fact, the Deloitte 2016 Global Outsourcing Survey found out that 78 percent of the respondents felt positive toward their outsourcing providers. This result indicates that majority of companies who outsource are not suffocated with their outsourcing providers.

Outsourcing myth #2: Outsourcing only an exercise in cutting operational costs

In the previous myth, it was discussed that outsourcing could help companies control all their talents for the business’ growth. However, BPOs do not only handle tasks such as payroll, customer service, and what not. Hiring BPOs can cut costs, but the cost advantage is not the only star of outsourcing. BPOs do business by performing services and providing talents. Companies can hire BPOs for strategic purposes. For example, they can hire BPOs that offer crisis management that would help them in handling corporate issues or scandals. Outsourcing doesn’t just save costs Cost reduction is just one of the benefits of outsourcing.

Outsourcing myth #3: Outsourcing guarantees lack of product or service knowledge

People who have experienced call center service would often complain about the quality of the service they received, particularly the call center agent’s ability to address the concerns of the callers.

Customer service agents would usually follow a certain protocol in handling the customer’s concern. This style becomes a problem when the concern of the client is not solved. The call center agent’s reliance on formats only show that they lack the knowledge on the services they represent, and this issue creates a negative image for outsourcing in general. Whether it’s a call center service provider or an IT service provider, most businesses are questioning the ability of the outsourcing companies to perform services on their behalf. Starting a BPO company is not easy.

Some may think that one can start an outsourcing firm by gathering individuals who could do a specific task. However, outsourcing is way more profound than that. Outsourcing is not just a performance of services. It is about performance backed with experience and expertise. Outsourcing companies do business by acquiring deep understanding of their services and offering it to companies who need it.

The core of outsourcing is the dedication to its services and customers. The objective of outsourcing for this matter is doing the job right at the best quality. Through this objective, BPOs commit to continuous development and learning. If their knowledge is outdated, they would be entering a battlefield with sticks and stones against tanks and rifles. In the Deloitte’s 2016 survey, over 50 percent of the respondents found out that “third-party advisors added value during strategic assessment, business case development, RFP / vendor selection, and negotiation and contracting.”

Outsourcing myth #4: Only accessible to big businesses

Although outsourcing companies are more attracted to bigger clients, they are not closing their doors to small businesses.

Small and medium-sized entities (SMEs) are the top customers of BPOs. Because of the cost savings that SMEs can get from BPO services, the outsourcing industry chooses no size. SMEs are growing companies. BPOs tend to choose SMEs with potential.

Why? It’s because they want to become the long-term service providers for these growing companies. In fact, 27 percent of companies who outsource have one to less than five billion of annual revenues, according to the Deloitte’s 2016 survey.

The results of the survey also showed that 23 percent of companies who outsource have 25 million of annual revenues. This fraction indicates that big entities and SMEs both play in the outsourcing industry.

Outsourcing myth #5: Outsourcing will compromise your company’s privacy and security

Outsourcing articles mention privacy breach when discussing outsourcing. At a first glance, many would assume that BPOs can see through the company’s true image. It may sound scary, but this is the fear why most companies think outsourcing is a privacy breach. In business relationships, trust is the key to a successful and long-lasting relationship. BPOs operate by earning the trust of their clients, which can then be earned through honesty and integrity. BPO wants the trust of their clients to be strong and firm.

Companies are at risk when exposing financial information to BPOs, and this is a reality that cannot be avoided. Companies need to find the right outsourcing work provider to reduce the risk and worry of giving confidential information. Moreover, it is the BPOs’ responsibility to use this information for the client’s best interest.

The security and safety of a company’s data is the top priority of BPOs. If they mismanage the data of their clients, companies will lose confidence in the BPO industry, and they will be eradicated in the business arena. Of course, BPOs aim for a going concern. The competition among BPOs now is privacy protection.

Companies shouldn’t worry about this as long they choose the right outsourcing company for them. According to the Deloitte’s 2016 survey, only 23 percent of the respondents said that cybersecurity risks affect their outsourcing decisions. This result shows that more companies trust their outsourcing providers to keep their information safe.

Outsourcing myth #6: Outsourcing means offshoring: there is no difference Outsourcing and offshoring are two different teams.

They’re not even related at all. As defined, outsourcing is an agreement between a client and a third-party service provider wherein the latter will provide services to the client.

Business offshoring is just getting a job done in a different country, but the employees are still part of the firm. Offshoring becomes cost advantage since some countries have lower wage rates and tax rates compared to the company’s home country. Access to lower wage and tax rates is one of the advantages of offshoring. Outsourcing vs. offshoring Don’t be fooled. Companies could still hire BPOs from other countries.

For example, businesses in the United States can hire BPOs in the Philippines and India for customer service jobs. Now you might say, “That sounds like offshoring for me.” The focus in determining whether it is outsourcing or offshoring is to identify the status of the party providing the service.

Here’s a guide to help you understand.

STEP 1: Does the company elect other entities to perform a specific business task?

IF YES, STEP 2: Is the entity located in another country?

IF YES/NO, STEP 3: Is the entity a subsidiary or a partner company?

IF YES, Then, it is offshoring.

IF NO, Then, it is outsourcing.

Although outsourcing and offshoring are two different things, there is a thing called “offshore outsourcing.” It is a hybrid of outsourcing and offshoring, and it relatively combines the benefits of the two. Offshore outsourcing is hiring a third-party service provider from another country to perform services for the company.

Thus, it is guaranteed that service is done in a foreign country and the service provider is a third-party. To sum it up, offshoring and outsourcing are not the same. The two share characteristics only when combined through offshore outsourcing. The defining point in between offshoring and outsourcing is the status of the service provider.

Outsourcing myth #7: Outsourcing delivers low-quality services and outputs

The main focus and objective of outsourcing is ensuring quality and integrity of their outputs to clients.

To illustrate, take for example, an accounting firm. One of the service areas of an accounting firm is financial statement (FS) preparation. Publicly-listed companies need outsourced financial accountants to prepare their financial statements. Publicly-listed companies are companies that are listed on the stock exchange. With that kind of status, these companies have public liability to stockholders. Since some stockholders don’t get involved in the internal operations of the company, FS is the only way that they could assess if the company is doing good.

Aside from that, future investors also use FS for financial analysis. Since a lot is at stake, accounting firms need to send the cream of the crop. These financial accountants are experts in the FS preparation. They are updated with financial standards, particularly IFRS for most countries and GAAP for the United States.

With this knowledge and talent outsourced, companies are assured that their FS is prepared carefully and correctly. Should the accounting firms deliver low-quality services, their credibility would go down. In fact, the Deloitte’s 2016 survey compared data from 2014 and 2016. Survey results found out that concern on poor service quality plummeted to 20 percent. The 2014 data showed that 48 percent of the respondents report poor service quality. This significant decrease shows that outsourcing industries are now improving and innovating.

However, a hasty generalization that outsourcing delivers low-quality services and outputs is fallacious on all counts. The best way to reduce the risk of getting low-quality output is to choose the best outsourcing service provider among the rest.

Outsourcing myth #8: Outsourcing weakens the economic status of the country

Uninformed individuals tell that outsourcing is nothing but a killer to the economy. That viewpoint is fragmented and biased. In an economist’s point of view, outsourcing strengthens the economic status of a country. Recall that outsourcing is a cost advantage for companies. Aside from that, companies can refocus in-house talents to work on the important goals that would lead to the company’s growth and development. Combining cost advantage and refocusing company talents, this combination increases productivity and efficiency. Productive and efficient companies provide better goods and services to the market.

As a result, the effect of better goods and services is a healthy market, wherein goods and services are offered at better prices without sacrificing profit goals. A healthy market gives birth to more investments and employment. If companies are improving, the country can assure the long-term existence of companies. Thanks to outsourcing, the longevity of businesses secures more tax revenues and employment opportunities for skilled individuals.

Outsourcing myth #9: Outsourcing contributes to the unemployment rate

The driving force behind this myth is that jobs are lost when a company outsources jobs especially if it was an offshore outsourcing. Unemployment in the United States dropped. Jobless claims are now 10 percent lower than the 25-year average. Statista presented that annual unemployment in the United States is at 4.4 percent. The household survey in the United States also found out that there are 2.2 million Americans who are employed compared during the recession.

If outsourcing creates unemployment domestically, how come unemployment rates are lower?

In fact, outsourcing helps a company expands. When companies expand, more jobs are created. Cutting costs through outsourcing makes a company expansion possible. However, outsourcing does not immediately equate to offshore outsourcing. There is this branch called “onshore outsourcing.” For example, U.S. companies can use onshore outsourcing by hiring BPOs in the United States. Outsourcing Is Not a Long-term Plan

Outsourcing myth #10: Outsourcing is unethical

In many Western countries, offshoring has become a dirty word that is nearly synonymous with job loss – but also there is concern for the welfare of the outsourced workers. People are concerned for the conditions that the outsourced workforce is working under – and they are concerned for the relatively low pay that they receive.

This is a common misconception of outsourcing, and it could not be further from the reality. The outsourcing workforce in Philippines is paid very well, compared to other members of their community, and economy as a whole. They can often be paid 100%-200% more than people in similar, but non-outsourcing roles.

Also, The Philippine government is generally very protective of their labor-force, and very pro-labor when it comes to regulation and policy. The outsourcing industry offers people a great environment to work in, fantastic facilities and training, and an exciting career ladder. The money that they earn is a good salary, relative to their costs of living.

Outsourcing is a win-win This is such a hot topic, that we have written numbers papers on the topic: Outsourcing is a Win Win Solution – a white paper How a USD $300 Monthly Salary Supports Decent Living Standards in the Philippines Comprehensive Guide to Payroll Salary Compensation, Benefits, and Allowances in the Philippines

Outsourcing myth #11: Outsourcing is not a long-term solution

People think outsourcing is for short-term only because they look on the outsourced tasks that are non-value-added. As a recall, outsourcing companies also offer strategic services such as financial consultancy, supply chain services, and enterprise resources planning, to mention a few. BPOs want long-term clients.

Long-term clients secure a long-term source of revenue and cash flow. For the clients’ perspective, companies should go for long-term contracts with BPOs. Through long-term agreements, BPOs can fully understand the structure of the company. By learning the client’s business goals, strategies, and vision, BPOs can come up with solutions that are aligned with the client’s ideas.

However, BPOs are trained to offer business solutions that are aligned to the client’s wants. Through a long-term agreement, these business solutions will be more accurate and more reflective of the client’s ideas. Entering into a long-term partnership with BPOs can enhance the quality of outsourced services where both parties would gain.

Outsourcing myth #12: Outsourcing is only for established businesses

A common myth in outsourcing is that only the “big guys” can use it. That might sound true at first, but that’s absurd. The target market of outsourcing does not depend on the business’ existence. Whether the business is starting or not, outsourcing is not biased in this matter.

In fact, small businesses are in need of outsourcing companies. BPOs can provide consultancy, advisory, and other services to keep the business growing. The main challenge for small businesses is longevity. Most business failures are due to mismanagement, complacency, fraud, and decreasing customer loyalty. BPOs can offer solutions for that. These solutions are not just for a short-term plan, but also for a long-term.

For mismanagement, outsourcing companies can send management experts to evaluate the business plan and offer solutions to keep it viable. Common mismanagement problems are due to agency problems. Agency problems arise when there is a conflict of interest in the management, particularly in the key personalities running the firm. When agency problems arise, there will be agency costs. These agency costs damage the business as a whole.

In an agency problem, there is a conflict between increase shareholders’ wealth and managers’ wealth. When such problems start to develop, the interest of the business as a whole – which refers to the cooperative effort between shareholders and management – is not followed. Outsourcing can help by re-aligning the interests of the individuals to the best interest of the company as a whole. Financial and management advisors can help in assessing the problems of the company. This scenario shows why outsourcing is helpful.

If you examine, hiring third-party advisors and consultants promotes integrity and neutrality. In this manner, the third-party advisor can fully assess the status of the organization and propose solutions that would be for the best interest of everyone. Outsourcing a powerful tool for small business Outsourcing can help startup business identify their market properly. Backed by experience from other clients, BPOs can help startup businesses create a viable and feasible marketing plan that matches their capability as a startup. Since BPOs are designed for services such as marketing, a startup business need not to worry about everything. BPOs do their job, while the owner keeps the business running smoothly. Outsourcing can be the key for most companies to be established.

Startup businesses are still learning and experiencing almost everything. For example, startup businesses are still learning how to control costs, especially how they could achieve their breakeven point in the first months of operations. The learning and application of management principles take time. Outsourcing companies can help these businesses make better decisions, improve processes, and secure a future for their products or services. A startup business’ goal is to continue operating business in going concern. Third-party experts guide the startup management based on the client experience and the business expertise. With advisors and consultants, the startup business can learn from them and can soon stand on its own.

Lastly, most startup businesses need to keep their finances and internal control strong. Hiring accountants from accounting firms can help in designing an accounting system that is fraud-resistant. As a startup business, employees who steal money from the company are not good. Having strong and firm internal control procedures can help startup businesses protect its financial resources from theft or fraud.

Outsourcing myth #13: IT outsourcing is way too complicated for small businesses

The Deloitte’s 2016 survey showed that 72 percent of the respondents answered that they currently outsource IT. This information shows that IT is evolving and there is a need coming from it. In the age of the internet and communication, businesses can access data from any part of the globe. Businesses can transfer tons of data from point A to B in less than an hour.

With this kind of technology, many businesses can see its potential in improving business processes. Small businesses, unfortunately, are often disregarded when talking about IT application. Though big or small, every business has its own data needs. Small business are still growing and in need of careful monitoring. IT applications can help in simplifying complicated business processes.

Small businesses can start with using bookkeeping software or spreadsheet programs. Also, they can have their own program specifically designed for the needs of the business. This is the reason why IT outsourcing is also important for small businesses. Small, medium, or large businesses need IT outsourcing. Size is not the question here. IT outsourcing companies do business by knowing the company’s needs and building an IT infrastructure for those needs. With an IT system built for the business, work efficiency and effectiveness are expected to increase. Accuracy and security of information are also assured.

Outsourcing myth #14: In-house sales force is cheaper than outsourcing

An in-house sales force is way deeper than the false assumption that it is cheaper than outsourcing a sales force. The truth is that an in-house sales force is not cheap at all. If a sales force is established internally, this means that the company would hire full-time employees to work on the marketing plan. It sounds good, but the costs attached to that do not figure.

First of all, the company would pay an average of $70,000 per year. That’s just the basic salary. There will be employee benefits involved. Vacations, holidays, and sick pays also add to the cost of an internal sales force. Roughly, that would reach $90,000 per year, and that’s just a large amount of money. Entry-level marketing graduates are inexpensive to hire, but inexperienced as well.

On the contrary, professional marketers are experienced but expensive. The buy-or-build decision in this depends on the business’ ability to finance. However, the benefits that companies would receive from insourced sales force versus an outsourced sales force are relatively the same, considering that the people in the sales force are competent and experts. But, the price difference is the ultimate deciding factor.

Outsourcing labor, such as sales force, grants the company access to a wide range of marketing solutions. Outsourcing companies offering marketing assistance are backed by experience and knowledge in preparing marketing plans and implementing them. Aside from that, an outsourced sales force can work faster since the company has a competitive knowledge base that could help the sales force make better solutions, while an in-house sales force may have a difficult time to gather information.

However, service providers are made available of acquired knowledge and experience in outsourcing companies. Outsourced personnel can consult experts in their company. This knowledge cannot be easily achieved internally. It would take years before an organization can establish a knowledge base in marketing and sales. Outsourcing your sales team can be a game changer The sales force is tasked to solve marketing problems.

Competitors will always be the number one hindrance to similar products and services. With the experience outsourcing companies have, short-term and long-term solutions can be implemented to ensure that the product or service remains competitive. Branding is a shared effort between the client and the service provider.

An outsourced sales force is present to translate the message the client wants to tell the customer through its products and services. The bottom line is choosing the best outsourcing business. The best option for companies is to choose the outsourcing company that has been a leader in marketing and promotion.

However, an in-house sales force is not discouraged. Startup companies are encouraged to avail sales and marketing outsourcing services so that they can be guided properly. Established companies with established brands can also hire sales and marketing outsourcing companies. Outsourcing can be useful for every company, not just for the established ones.

Outsourcing myth #15: Outsourcing your sales force destroys company branding

People say, “Only you can sell your product better.” However, that’s not the case at all times. Even though the product or service is irrefutably marketable, having a sales force build the product’s brand can sustain the product in the market.

A marketing mix is vital for product or service branding. The four Ps of a marketing mix are Product, Place, Price, and Promotion. An outsourced sales force can have help in developing a better product in the market. The leverage that outsourcing companies have is their knowledge base.

Outsourcing can help in establishing a well-crafted marketing plan. This plan starts with the selling proposition. Outsourcing companies must have data from customer surveys in the past. This knowledge acquired from previous clients can help in forming better marketing solutions. Understanding competition and customers rely heavily on data.

An in-house marketing team would be spending more time in conducting surveys, interviews, and research.

However, service providers are made available of acquired knowledge and experience in outsourcing companies. Outsourced personnel can consult experts in their company. This knowledge cannot be easily achieved internally. It would take years before an organization can establish a knowledge base in marketing and sales.

Outsourcing myths dispelled

Outsourcing has become a major player in the growth and development of most companies worldwide, but myths and misconceptions plagued the image of outsourcing. Outsourcing has its strengths and weaknesses. However, companies who want to outsource should use outsourcing services to their advantage.

One thing that companies should remember is that outsourcing is a choice. It is not inevitable. Companies should make a cost-benefit analysis before engaging in outsourcing or hiring a third-party advisory.

However, in these changing times, one challenge remains. Outsourcing companies should innovate to offer better services for their clients.