What Is Business Process Outsourcing (BPO)?

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How is defined Business Process Outsourcing?

Business process outsourcing (BPO) is largely applied in today’s business world, literally, it is a method of subcontracting various business-related operations to third-party economic actors. Even if BPO originally applied uniquely to manufacturing entities, such as soft drink manufacturers that outsourced large segments of their supply chains, BPO now applies to the outsourcing of services, as well.

Actual Importance of Business Process Outsourcing (BPO)

Various businesses, from small startups to large companies, benefit from outsourcing processes, as new and innovative services are progressively available in today’s ever-changing, highly competitive business world.

Generally, companies leverage BPO services in the two main areas of back-office and front office operations. Back office BPO refers to a company contracting its core business operations such as accounting, payment processing, IT services, human resources, regulatory compliance, and quality assurance to outside professionals who ensure the business runs satisfactorily.

Conversely, front office BPO tasks commonly include customer-related services such as tech support, sales, and marketing.

[Important: Business process outsourcing is on the climb, evidenced by the fact that in 2017, the estimated global market size of outsourced services was 88.9 billion U.S. dollars, which was up $12 billion from the previous year.]

The broadness of a business’s BPO options depends on whether it contracts its operations within or outside the borders of its home country. BPO is deemed “offshore outsourcing” if the contract is sent to another country where there is political stability, lower labor costs, and/or tax savings. A U.S. company using an offshore BPO vendor in Singapore is one such example of offshore outsourcing.

BPO is referred to as “nearshore outsourcing” if the job is contracted to a neighboring country. Such would be the case if a U.S. company partnered with a BPO vendor located in Canada.

A third option, known as “onshore outsourcing” or “domestic sourcing,” occurs when BPO is contracted within the company‚Äôs own country, even if its vendor partners are located in different cities or states.

BPO is often referred to as information technology-enabled services (ITES) because it relies on technology/infrastructure that enables external companies to efficiently perform their roles.

The Attraction of Business Process Outsourcing For The Business (BPO)

Companies are often drawn to BPO because it offers them higher operational flexibility. By outsourcing non-core and administrative functions, companies can reassign time and resources to core competencies like customer relations and product leadership, which ultimately results in advantages over competing businesses in its industry.

BPO offers businesses access to innovative technological resources that they might not otherwise have exposure to. BPO partners and companies permanently strive to improve their processes by leveraging the most recent technologies and practices.

Since the U.S. corporate income tax is among the highest in the developed world, American companies benefit from outsourcing operations to countries with lower income taxes and cheaper labor forces as viable cost reduction opportunities.

BPO also offers companies the benefits of quick and precise reporting, improved productivity, and the ability to swiftly reassign its resources, when indispensable.

The Disadvantages of BPO

Parallelly with various advantages, BPO has also some disadvantages. A business that outsources its business processes may face data security problems or have communication issues that delay project completion, and such businesses may underestimate the running costs of BPO providers.

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