What is BPO? Benefits and risks of BPO

BPO services (business process outsourcing) have grown in popularity over the last few decades. All types of businesses, from small start-ups to large multinational corporations, have embraced the power of BPO services. The market share of BPO was valued at $245.9 billion in 2021 and is projected to expand with a CAGR of 9,1% during 2022-2030. 

 

Revenue growth forecast in the BPO sector 2016-2025
Revenue growth forecast in the BPO sector 2016-2025

So what is BPO? What are the benefits and risks of Business Process Outsourcing? We will answer these questions down below. 

What is BPO?

Business process outsourcing (BPO) refers to a business strategy in which an organization contracts with an external service provider to outsource business tasks. Services may include software development, accounting, telemarketing, data entry, data monitoring, customer support, and any activities that companies want to outsource. 

So, who uses BPO?

According to Deloitte 2021 Global Shared Services and Outsourcing Report, the top industries with the highest ratio of using BPO services include Payroll, Customer services, Real Estate, and IT. Apart from that, Finance, Procurement, Human resources, R&D, Supply chain & manufacturing support, and Sales & Marketing also leverage outsourcing services to facilitate businesses.

 

Top industries with the highest outsourcing ratio
Top industries with the highest outsourcing ratio

Different types of BPO

When companies consider business process outsourcing, they often divide the outsourced work into two categories: back office outsourcing and front office outsourcing.

  • Back Office: Internal business processes such as order processing, payment processing, payroll, accounting, etc.
  • Front Office: Outsourced tasks including customer service, sales and marketing, and technical support.

The BPO industry can also be categorized based on vendor location. 

  • Offshore: The vendor is located in an oversea country. For example, an American company outsources work to a Vietnam BPO company. Such methods are facilitated by abundant resources, political stability, geographical pricing, various tax savings, etc. 
  • Nearshore: BPO service companies are located in neighboring countries. For example, a Japanese company outsources work to a Vietnam BPO company. This model is prioritized where specialized skills are available in neighboring countries at a low cost, plus timezone differences are not allowed.
  • Onshore: The BPO service company is located in the country. Language barriers and time differences are not a problem for such BPOs, but companies won’t be able to utilize low prices in many developing countries. 

Advantages of BPO

Companies consider outsourcing when they realize that other service providers can overall handle their business tasks better than doing it in-house. So what are the most common benefits companies can enjoy when using outsourcing services? 

1. BPO helps increase business competitiveness

A company’s competitive advantage is reflected in its ability to create high-quality products/services at a lower cost in a shorter period. Using an outsourcing service is one of the perfect options to ensure those factors, specifically:

#1: Increase product quality

Outsourcing helps businesses get high-quality labor and efficient processes for their products/services.

Especially, for specific industries, such as Information Technology, outsourcing to take advantage of high-tech human resources is essential for businesses to keep up with the latest technology trends to improve quality, enhance user experience, and reduce risks.

#2: Reduce costs or ensure predictable costs

The costs for recruitment, labor, management and facilities will be minimized through outsourcing. On average, businesses save 15% of costs when outsourcing. At the same time, the Deloitte 2020 Global Outsourcing Survey has shown that 70% of businesses outsource for the sake of cutting costs.

#3: Reduce time to market

When using BPO, businesses can access the unlimited resources of the vendor companies, thereby increasing their ability to provide products/services to stay ahead of their competitors and meet the market needs. 

2. BPO increases business scalability

Another benefit of outsourcing is that it helps businesses “touch” more processes and facilitates scaling both horizontally and vertically. Especially in small and medium enterprises (SMEs) with limited resources, outsourcing helps the company to perform many activities that are almost impossible with existing internal resources, thereby extending business scope.

3. BPO helps businesses use resources better

More than a quarter (27%) of SMEs primarily outsource to operate more efficiently.

Another obvious advantage when businesses use outsourcing services is resources concentrated on core business areas. These resources include the mind, labor, and other assets of the business. Eliminating concerns about non-essential activities or processes that are beyond capacity will help businesses overcome weaknesses, focus on existing advantages, and operate more efficiently.

Risks of BPO

Despite all of the above benefits, there are also trade-offs when it comes to using BPO services.

1. Hidden costs

Reducing costs is one of the biggest goals companies want when outsourcing. However, companies pay extra for hidden costs such as vendor selection, currency fluctuations, hardware and software upgrades, internal migrations, layoffs, and potential loss of individual worker productivity, etc. This also has a significant impact on the company’s financial planning for the full year.

2. Hidden quality issues

There are hidden issues in product or service quality that companies can’t directly control or detect when delegating business activities to a third party. In another situation, these quality issues are noticed too late when things already become serious. All can cause bad effects on the companies.

For example: Your company outsource a call center and you didn’t realize that some staff perform badly until losing many customers. 

3. Security Risks 

Outsourcing raises security considerations regarding the management and access of sensitive data. Additionally, security becomes more difficult to maintain if the BPO vendor is not located in the same country, especially in countries with different security policies and requirements. Potential data privacy breaches and vulnerability disclosures are real threats, especially given the current hacking epidemic. 

4. Communication Challenges

Communication with internal employees can easily be face-to-face within minutes. However, we often face communication barriers when outsourcing. These problems mainly arise from reasons such as different time zones, language barriers, different work cultures, and inadequate communication methods and processes. These issues can hinder productivity and cause problems relating to the quality of the outcome.

Should I use BPO services?

Whether insourcing or BPO has advantages and disadvantages. Depending on your company’s situation and considering the above pros and cons, you can decide whether to use BPO.

Clearly defining your outsourcing goals, making a detailed plan, and choosing the right BPO service company will help you minimize the risks of outsourcing.

About LTS Group

LTS Group is a global IT services and solutions provider headquartered in Vietnam. With 5 years of experience in the field of IT outsourcing and BPO, we have become a trusted partner for our clients from 9 countries. Contact us to get a consultation regarding Business Process Outsourcing.

Website: https://ltsgroup.tech/ 

Tel: (+84) 24-6660-7474 

Fanpage: https://www.linkedin.com/company/lts-group-vietnam/

 

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