A guide to outsourcing models by location: which one is your perfect fit?
Companies usually start an adventure with outsourcing when seeking additional efficiencies, planning to increase competitiveness, or growing business abroad without taking significant investments in their human resources or costly infrastructure. With outsourcing, organizations can focus on the development of their core activities instead of fighting with the day-to-day running of their business operations. However, to do it effectively and successfully, companies need to align the outsourcing model with their strategy, vision, and policy and choose the one (or more) which helps fully realize planned objectives, gain desired outcomes, and ensure preferred geographical presence.
With this comes a challenge. Regarding outsourcing concepts, there are plenty of possibilities. With different options available, understanding the ins and outs of each one, as well as its impact on your business, is crucial to take full advantage of the outsourcing initiative.
In this article, we present the characteristics of the most common outsourcing types like onshoring, nearshoring, offshoring, and the recent right shoring. All of them focus on the destination where the BPO services are located. We show the differences between the models, as well as the benefits they bring to your business. We also explain the opportunities and limitations related to each of them. All to give companies a comprehensive overview of every concept and help them make the right choice when selecting the model corresponding to their needs.
We also include and summarise a new disruptive concept such as right sourcing, which evolved from more traditional outsourcing and become the next-level sourcing opportunity allowing you to receive even more value to your organization.
Location-based Outsourcing Models: On-shoring, Nearshoring, Offshoring
There are three common models of outsourcing, that take into account one key principle in the first place, such as the geographic distance between the client and the BPO provider. Following the approach, buying companies allocate outsourced services in the regions or countries with higher potential, lower labor costs, or easier access to skilled agents. However, localization is not all the models can offer.
Onshoring
Onshoring refers to the collaboration with the BPO partner inside the same country and the execution of the company’s business processes in a more cost-effective location. Moving operations onshore offers the benefits like working in the same time zone and limited risk of misunderstanding due to the use of the same language and having the same cultural background. However, it is usually more costly than, for instance, nearshoring or overseas offshoring. It is also not a solution when the lack of talented employees is the whole country’s problem.
Nearshoring
Nearshoring is another outsourcing concept, where a business moves its operations to a nearby country or region due to lower labor costs. For example, the companies operating in the USA can nearshore to Colombia or Mexico. Other ones, for instance, from Germany, can decide to use nearshoring in Poland or Romania. The pros are indisputable, like the ability to ensure operational success and maintain smooth communication for being most likely in the same time zone and having similar cultural or linguistic linkages. On the other hand, it is still far from offshoring regarding cost optimization and does not guarantee access to the entire global talent pool.
Offshoring
The offshoring model removes all the restrictions referring to the geographical range. It is the practice of outsourcing operations overseas. Offshoring is preferred by firms focused on expense decrease primarily. For that reason, they choose regions where labor costs and costs of living are significantly lower when comparing it to the situation in the more developed ones. Offshoring expands at full speed in Asia, South America, Africa, and Eastern Europe. Except for cost-effectiveness, it provides many more business enablers. These include, first and foremost, the ability to ensure process continuity with a talented global pool and provide 24/7 customer support thanks to execution in many time zones. It is, however, related to the restrictions like cultural and language barriers and impaired communication
Right shoring, a new way to get the best out of your shoring initiative
The right shoring concept is about ensuring proportionality between the outsourcing projects executed inside the country, as well as the closer-to-home localisations and the overseas ones. The model offers full flexibility regarding the destinations. With the right shoring, it is possible to include and mix the geographical aspects of onshoring, nearshoring, and offshoring at the same time, with a focus on the best combination of cost and efficiency.
For example, if a globally operating organization wishes to increase control over a more complex and priority process, it can shore nearby to improve communication and reduce security risk. It can simultaneously delegate very specific processes to localization, which requires expertise and specialization. Last, but not least, it can allocate some other non-core business aspects overseas to reduce expenses, when being sure that the quality remains at a sufficiently high level.
What is important, when analyzing the pros and cons of right shoring, it is quite difficult to indicate and collect the weaknesses of the whole initiative together. When it is done wisely and thoroughly then the appropriate balance between the destinations is kept and all the benefits covering each destination are achieved. The greatest threat of right shoring is then poor and ill-considered allocation of the processes, lack of access to up-to-date feedback, and limited ability to shift the strategy accordingly to the situation.
Right sourcing, a marriage of costs and efficiency to meet new expectations
When considering the types of outsourcing, the new overall concept like right sourcing cannot be missed. It is another step forward against slightly limited right shoring which takes mainly the geographical factor into account or more traditional and cost-effective outsourcing.
The Idea Behind Rightsourcing
The idea behind right sourcing is to keep a balance between productivity and profitability. In other words, right sourcing implies cost optimization, but approaches the most effective task completion, without compromising on quality and performance standards. What is important, it offers full flexibility regarding the sources and destinations. It allows you to mix vendors, split services, and cover many locations. Therefore, right sourcing is not subjected to any strict framework. It is a tailor-made and customized model which rather remains an outsourcing “menu card” that offers you plenty of options, solutions, and elements that you can select and combine according to your needs or changing circumstances.
How did it all begin?
The right sourcing concept is a consequence of the appearance of the factors that influenced our lives over the last few years and contributed to the changes in the outsourcing industry. These include, for instance, the economic crisis, growing labor costs, social turbulences, or shifting consumer behaviors. Right sourcing becomes an opportunity for companies to follow a new flexible and freer-of-choice way when relying on external sourcing. It removed limitations of the traditional outsourcing models and provided individual services which turned out to be more efficient to meet business goals. For that reason, right sourcing started to play a significant role as a revenue and efficiency enabler helping organizations successfully grow in the more and more competitive environment. Right souring brought disruption to the company’s outsourcing strategies.
How does it work in practice?
Following the right sourcing approach, some organizations, for instance, move selected operations from overseas to nearby and relatively more expensive countries to diversify talented resources. Other ones accept the idea of spending more money on multi-channel outsourcing services to deliver a higher quality customer experience or go digital to enable closer contact between consumers and a brand. In another case, firms assign a larger budget to hire more agents whose skills and knowledge are constantly developed by the BPO provider. The other option can be splitting outsourcing services to a few providers to gain access to a talented pool worldwide, and also including the specialist BPO in the outsourcing portfolio strategy to collaborate with a trustworthy counselor having specific domain understanding.
“A good example of these is the case of one of Conecty’s outsourcing partners, which specializes in providing very luxury brands for demanding consumers. Therefore, the quality of customer service has a critical role. For the client, maximum cost-saving is not as important as the ability to ensure the highest possible CX standards. For the company, cutting costs by, for example, 10-20 % does not make sense. They prefer to pay more but maintain the quality so that the end feels that they’re getting a real value of CX” – Iulian Bacain, Sales and Marketing VP at Conectys says.
Right sourcing vs Outsourcing
Both right sourcing and outsourcing have been created to delegate the selected processes, like, for instance, customer and technical support, to a third-party company. Frankly speaking, those two concepts do not differ a lot regarding the initial idea. What makes right sourcing special and disruptive is the new perspective it brings to identify and deliver the services tailored exactly to the company’s needs, regardless of the existing rules and practices.
With the right sourcing, all the sources, solutions, destinations, and technologies used, are appropriately evaluated, estimated, combined, adapted, and balanced to ensure maximum impact on business.
