Too Much Time Onboarding?
While organizations continuously look for novel approaches to achieve sustainable growth, they face two major challenges.
Increasing operating costs and
The desire to scale without compromising on quality.
Even the most well-established businesses may fail to explore new markets and invest in their core capabilities due to rising costs.
This is where global outsourcing comes in.
By leveraging global employment outsourcing, businesses can access a vast talent pool from around the world for a lesser cost than building diverse in-house teams. Additionally, outsourcing lets the business scale its operations rapidly while maintaining cost-effectiveness.
An Australian study of 7500 public organizations found that outsourcing resulted in cost savings of about 46% compared to in-house work.
Whether you are a startup seeking to establish a strong foundation or an enterprise aiming to scale cost-effectively, this guide will help you understand how global outsourcing can help.
What is Global Outsourcing?
Global outsourcing, also known as offshoring, is a strategic business practice where organizations assign specific jobs, projects, or business processes to third-party service providers in other countries. It involves the transfer of operations and duties from an organization's employees to specialized offshore partners.
Top 3 Reasons for Global Outsourcing
Over time, businesses across industries have adopted global outsourcing as a means to improve productivity, save costs, and streamline operations. In fact, in 2022, businesses spent over $700 billion on outsourcing.
Here are the top 3 reasons why businesses choose global outsourcing:
1. Significant cost savings
One of the primary drivers behind global outsourcing is significant cost savings. The Deloitte Global Outsourcing Survey 2022 mentions that around 59% of organizations listed cost saving as their main reason for outsourcing. Businesses can reduce their operational expenses by leveraging competitive labor costs and favorable economic conditions in outsourcing destinations.
For example, hiring software developers locally is expensive for a software development company based in the United States. By outsourcing their development operations to countries like India, they can access the same expertise at significantly lower costs, resulting in substantial savings.
2. Access skills unavailable in-house
Global outsourcing allows organizations to tap into a vast talent pool worldwide, accessing skills and expertise that may not be readily available in their local workforce. A study by Statista revealed that 46% of companies choose to outsource IT services as they get access to diverse skill set. This provides a competitive advantage, enabling businesses to take on specialized projects and stay at the forefront of innovation without investing in extensive training or recruitment efforts.
For example, a marketing agency may require niche skills in graphic design and animation, for a specific project. Instead of hiring full-time employees for these specialized tasks, the agency can partner with an outsourcing firm with a team of experts, ensuring top-quality deliverables.
3. Cybersecurity & data analytics
Global outsourcing allows companies to work with businesses experienced in various fields, including data analytics and cybersecurity. According to the Deloitte report, 81% of executives rely entirely or partially on outside providers to deliver their cybersecurity capabilities.
For example, in 2006, Starbucks outsourced its cyber security to Unisys, a leading information technology services company, to streamline and enhance its IT infrastructure services. As Starbucks aimed to expand from 3,600 to 20,000 stores globally, it recognized the importance of a robust IT infrastructure. The contract included the provision of help desk and service desk services, data center services, network and server monitoring and support.
Is Global Outsourcing Beneficial?
The rapid adoption to global outsourcing indicates that it is beneficial for businesses. But here’s the question entrepreneurs often ask - Is global outsourcing beneficial for businesses of all sizes?
Here’s how global outsourcing benefits businesses regardless of their size.
Global Outsourcing Benefits for Large Enterprises
Cost Efficiency and resource Optimization:
Large enterprises often face complex operations requiring diverse skill sets. Global employment outsourcing allows them to optimize resources and reduce operational costs by delegating non-core tasks to specialized outsourcing partners. Also, outsourcing operations helps enterprises reduce the workload of in-house teams, preventing burnout.
Scalability and flexibility:
Global outsourcing provides the scalability needed to expand operations efficiently. Outsourcing also allows enterprises to quickly adapt to changing market demands without the delays associated with hiring and training in-house teams.
Case Studies (Large Enterprises)
Google started as a search engine but expanded into a massive organization offering hardware, software, and advertising services. Completion of all tasks internally wasn’t possible. Hence, Google outsourced non-core functions like admin and IT, as well as development work and customer support.
Google has also outsourced email support and development work for services like AdWords. They expanded outsourcing to include call assistance from employees scattered globally as a strategy to improve customer service. By smartly integrating global outsourcing, Google achieved efficiency, scalability, and exemplary customer service, setting an industry benchmark.
Alibaba emerged as a significant player alongside Amazon and eBay, but the Chinese eCommerce giant faced outsourcing issues, unlike its competitors.
Although cost is a key driver for outsourcing, Alibaba encountered an unusual scenario. They lacked scalable expertise despite local production costs being lower. Then, Alibaba teamed up with US web development outsourcers to accelerate their growth, which led to a phenomenal expansion.
Global Outsourcing Benefits for Startups
Access to expertise
Since startups frequently work with limited funding, they might not have in-house expertise in all areas. Global outsourcing lets startups access expertise, enabling them to offer quality services.
Startups are constantly pressured to innovate and differentiate themselves to sustain the competition. Global outsourcing of specific operations like IT, marketing, and HR, allows startups to allocate their limited funds more strategically, investing in core innovation while maintaining overhead costs.
Case Studies (Startups)
At its startup stage, Slack (now an enterprise), a popular communication and collaboration platform, outsourced its mobile app development. Thanks to outsourcing, Slack became a startup unicorn in 2014 after gaining 15,000 members in the first two weeks of its launch. This decision allowed the startup to launch its product faster and with a superior user experience, contributing significantly to its early success.
A project management software company, Basecamp used global outsourcing for customer support services. The company's founders realized that failing to address larger issues like workflow management and client assistance could impact their business growth. Hence, Basecamp outsourced its main development tasks, allowing its employees to work on primary company operations.
Lessons to learn before planning global outsourcing
Define clear objectives
Before embarking on global outsourcing, companies must clearly define their objectives and identify operations suitable for outsourcing. A well-thought-out outsourcing strategy ensures alignment with business goals.
Choose the right partner
Selecting the right outsourcing partner is crucial. Companies should conduct thorough research, assess the partner's capabilities, and consider cultural compatibility for effective collaboration. For instance, if you plan to build an international workforce, Gloroots’ global payroll services will be ideal for handling your multi–currency payments.
Communication and collaboration
Effective collaboration is vital for successful global employment outsourcing. Companies should establish strong communication channels, exchange regular updates, and maintain transparent reporting to ensure seamless operations.
Reducing the risks connected to global outsourcing is crucial. Businesses should have mitigation plans and ensure that confidential information and innovative ideas are well-protected.
When do Enterprises Need Global Outsourcing?
Here are the primary reasons why enterprises need global outsourcing:
1. Global Talent Access
Businesses can access a vast talent pool through global outsourcing. Companies can access specialized talents with expertise from all around the world. This makes it possible for enterprises to pick the right talents and explore foreign markets. Businesses can engage with specialists who might not be available locally.
2. Economies of scale
Global outsourcing offers enterprises the advantage of economies of scale. By tapping into lower labor costs and favorable economic conditions in outsourcing destinations, enterprises can significantly reduce operational expenses. This cost-efficiency enables them to allocate resources strategically and invest in core competencies for sustained growth.
3. Reducing costs
Cost reduction is a primary driver for enterprises to consider global outsourcing. Enterprises can save money by getting the resources at a lower cost. Hiring offshore employees for certain tasks offers flexibility and cuts down on extra expenses like hiring and maintaining office space.
When do Startups Need Outsourcing?
Here’s when startups need outsourcing:
1. Addressing capacity issues
As growth startups expand, they often face limitations in their internal capacity to handle growing demands. Global outsourcing allows them to access diverse talents, thereby eliminating capacity restrictions. This enables them to take on more projects and meet customer demands effectively.
2. Focus on priority tasks
With limited manpower and time, startups must prioritize their core business activities. By outsourcing non-core functions, they can focus on key tasks that directly contribute to business growth and development.
3. Reduce infrastructure cost
Startups often face budget constraints, making investing in costly infrastructure and equipment challenging. Outsourcing certain tasks eliminates the need for extensive infrastructure, enabling startups to save costs and allocate resources more efficiently.
Make Global Outsourcing Effortless with Gloroots
Global outsourcing is taking the limelight for companies around the world. It enables businesses to succeed in an increasingly competitive marketplace through significant cost reductions, access to specialized talents, and scalability.
If you’re planning an expansion, Gloroots can be a trusted partner. You can easily navigate the complexities of international employment, compliance, and payroll, with our EOR services, including global payroll management.
Whether you’re a startup seeking specialized skills or a large enterprise aiming for cost-efficient scalability, Gloroots' expertise can help you create sustainable success.
- manage all your compliance and payroll needs,
- speed up your onboarding
- make timely payments to your global workforce in multiple currencies, and
- maintain transparency through detailed reporting on employer liabilities, FX rates, and other important information.
Book a call to learn more about our services.