c.

onshoring
In BPO (Business Process Outsourcing) is like getting
help from the internet instead of hiring a single

FUNDAMENTALS
OF OUTSOURCING
Fundamentals of Business Process Outsourcing 101
Module 2
MEMBERS:
Raya Mae Dela, Hannah Abigail Jagolino, Angela De La Cruz, Xenia
Kim, Jelliane Navarro, Antoanete Noelle Acelar, Kate
Alessandra Hofileña, Joshua Nathaniel Alera
d. nearshoring
TOPICAL OVERVIEW:
I. The 2 types of Outsourcing
II. Outsourcing as a Business Strategy
III. Outsourced Activities/ Processes
Core versus Non-Core Processes
VI. Technologies and trends
Business Process Outsourcing (BPO) involves
subcontracting or outsourcing some business operations
mainly consisting of customer related services such as
marketing and technical help.
I. THE TWO (2) TYPES OF OUTSOURCING
Third party
owned by a service provider, a local entity or part of
a global group.
providing services to clients of the service provider.
Examples: Web development, customer support, data
services, virtual assistant
Shared Service Center
owned wholly by the mother company, a unit
responsible to do specific operations to the company.
funding and resourcing of the service is shared and
the providing department effectively becomes an
internal service provider.
II. STRATEGIES FOR OUTSOURCING
A. Multisourcing
b.Crowdsourcing
c.Onshoring
d.Nearshoring
e.Offshoring
A. MULTISOURCING
Involves partnering with multiple multiple
specialized companies for different tasks instead of
one all-in-one provider.
Advantage:
Reduce cost: Choose the most affordable
provider for each task, potentially saving
money.
Expert power: Each company specializes in
something unique,
Disadvantage:
More complex:Managing multiple vendors
requires more communication and effort.
Security concerns:Sharing data with multiple
vendors requires strong security measures.
B. CROWDSOURCING
In BPO (Business Process Outsourcing) is like getting
help from the internet instead of hiring a single
company.
company.
Advantage:
Makes quick responses possible: product
designers in the same country address to
market feedback quickly
Local Contractors' Communication: share the
same market knowledge, culture, language,
and communication style and reduce cultural
issues
Disadvantage:
Risks of Inadequate Staff Selection: has
inadequate training and less skilled workers
since contractor staff are lower paid.
Risks of Higher Attrition: internal staff
reduction and reduced motivation for quality
delivery.
The transfer of business to a nerby country, often
sharing the same border.
Advantage
Variability in service fees:
Variable costs go up and down with your
level of business activity unlike fixed
compensation costs that have to be paid
even if a business doesn’t do any trade for
the day.
Significant difference in labor costs:
The labor cost or wages are cheaper than
its previous location or country.
Disadvantage
Coordination Complexity:
While nearshoring can reduce geographic
distance, it does not automatically resolve
operational and cultural differences. The
assumption that proximity equates to
similarity can lead to underestimating the
challenges in communication and
management.
Proximity does not equal similarity.
Nearshoring can bridge distances but not
always differences. For instance, a
company in the United States nearshoring
to Mexico must navigate a distinct business
culture, language barriers, and differing
legal frameworks, which requires careful
planning and clear communication
strategies.
Increased Management Overhead
Nearshoring might require additional layers
of management or specialized teams to
handle cross-border operations. This can
lead to increased expenses and resource
allocation that might not have been
necessary for domestic operations.
Nearshoring can sometimes be a trade-off
between reduced labor costs and increased
management costs. To ensure smooth
operations, companies like our Hong Kong
retail example must invest in local
management teams that can bridge the
parent company's practices with the unique
aspects of the nearshore location,
effectively balancing cost against control.
Financial Implications
Transfer pricing involves setting prices for
transactions between company divisions
located in different countries. Tax margin
requirements refer to the profits that must
be reported and taxed in the country of
operation, which can impact overall cost
savings from nearshoring.
Financially, nearshoring is not just about
finding cheaper labor. Companies must
navigate the intricate web of transfer
pricing and tax regulations, which can be as
challenging as strategic chess moves. For
our Hong Kong firm, this means ensuring
that their pricing strategies are compliant
with both local and international tax laws,
which is crucial for maintaining
profitability.
e. offshoring
Vendor and client in different countries.
Advantages
Core Business Focus
Offshoring enables companies to delegate
non-core activities to external vendors,
often in different countries, allowing them
to concentrate on their primary
competencies such as product design,
innovation, and strategic growth
Consider Apple’s strategy: by offshoring
chip manufacturing to Samsung, they can
invest more in what they do best—
developing cutting-edge technology and
user-centric design
Scalability
The flexibility to scale operations up or
down without committing to long-term
capital investment is a significant benefit
of offshoring. This elasticity allows
companies to adapt to market demands
and economic changes more effectively.
Offshoring provides a buffer for fluctuating
demands. Companies can ramp up
production quickly in peak times without
the need for extensive local investment,
and similarly, scale down when demand
wanes.
Cost-Effective Expansion
Offshoring can reduce the cost of entering
new markets by leveraging the lower
operational costs in other countries, which
can include lower wages, cheaper raw
materials, and reduced regulatory
expenses
Expanding into new territories doesn’t have
to be prohibitively expensive. Offshoring Business Process Outsourcing (bpo):
opens doors to global markets with a
leaner investment approach, making
international business ventures more
accessible.
Disadvantages
Data Security
Data privacy and confidentiality are
paramount, especially when company data Business
Process
crosses international borders. Offshoring
necessitates stringent data security
measures to protect intellectual property Resources (HR)
and sensitive information.
With data breaches posing a serious risk,
companies must enforce strict data
security protocols with their offshore
II1. outsourced activities/processes
2 types of what to outsource
Core Activities - Tasks - Processes:
Primary process or product of the business
Tasks that deliver the primary product, the
unique value proposition of the company
“Essential, defining activities of an
organization”, what it needs to keep enhancing
to improve competitive advantage
Non-Core Activities - Tasks - Processes:
Support activities, processes, functions
What NOT to outsource:
Core Activities - Tasks - Processes
Design
Product Development
Process
“Recipe”
What to outsource:
Well-defined/documented tasks, standard
outputs
SUMMARY OF What to outsource:
BPO
IT OUTSOURCING
SUPPORT FUNCTION
ROUTINE ACTIVITIES
SEASONAL REQUIREMENTS
PART-BASED ACTIVITIES
This is the practice of outsourcing non-core
functions like accounting and customer support.
BPO companies usually have large teams of
skilled workers who can handle these tasks at a
lower cost than in-house staff.
Companies that
outsource the Companies that caters tothe function
function
Human Shell SSC, Deutsche knowledge services, Coca
Reebok
Cola Bottlers Business Services
Washington Mutual,
Financial Salle Mae and
Aegis, DSM “Manila” LLC, Du-Baladad &
Associates
Expedia

partners to safeguard their intellectual

property and customer information. Payroll and Del Monte Manulife Financial, DKS, BPO International Inc.

Market Knowledge
Accounting Philippines

There's a risk that offshore vendors may

not possess in-depth knowledge of the
client's target market, which can lead to a it outsourcing:
disconnect between product offerings and This is the practice of outsourcing computer-
market expectations. related functions like software development,
It's essential to bridge the knowledge gap. network maintenance, and IT support to an
Offshoring requires a transfer of market external provider.
insights to the vendor to ensure the IT Technical Support
products developed resonate with the IT Application Development
intended audience. IT Application Management
Cultural Differences Data Center operations
Cultural and linguistic differences between Cloud (on time Storage) Services
the client and vendor countries can lead to
misunderstandings and inefficiencies, Support Functions outsourcing:
potentially impacting project timelines and This is the practice of outsourcing non-core
outcomes. functions like finance, and human resources to
To mitigate cultural clashes, companies an external provider.
must invest in cross-cultural training and
establish clear communication channels to Support function/ services:
ensure that all parties are aligned and Cafeterias
misunderstandings are minimized. Copy centers
Staff Turnover Risks Security
High attrition rates at vendor locations can Janitorial Services
disrupt the continuity of service and Trucking/ Shipping
quality. This presents a challenge in Building Maintenance
maintaining a stable and well-trained
workforce.
Choosing an offshore partner with strong
human resource practices is key. Staff
retention is not just a local concern; it
affects the quality and reliability of the
services received from an offshore partner.
Routine Activities or activities that can be automated at notes:
larger centers:
Small banks outsourcing check
processing to large banks, riding on
ATM base of multi-bank network
Small vendors using Amazon.com as
data center, marketing, and payment
processing platform.
Banks using common/multi-bank core
banking services of large technology
providers
seasonal requirement/s:
Seasonal requirements refer to the
fluctuations in demand or specific needs
that occur during different times of the
year.
Examples:
Holiday and Peak Seasons, Retail and E-
commerce Peaks
all part-based activities:
These activities are often part of larger
processes that can be outsourced to third-
party service providers for increased
efficiency and cost-effectiveness.
Examples:
Car Company automobile assembly,
Electronics Assembly

vi. technologies and trends

Key technologies that support outsourcing
Video conferencing:
HP - Halo (8.5 min. video)
CISCO - Telepresence
Web-based conferencing and workflow
tools:
MS Windows Meeting Space
MS Sharepoint
Google Applications
fundamentals of outsourcing

Business Process
Outsourcing
Engagements

Management and Managing

Critical Situation Outsourcing
Control Transaction

BPO
Operations
Management