Friday, July 14, 2017 |
Business Process Outsourcing (BPO) is a leading industry in the Philippines, as foreign companies take advantage of the low cost of living, vibrant cities, and the educated young people with high English proficiency skills.
According to recent studies, the Philippines is one of the top outsourcing destinations. In fact, the country replaced Mumbai as the 2nd top outsourcing destination in 2015. In 2017, the country is expected to hit the government target of US$25 billion in revenue and 1.4 million people employed.
There are three ways businesses can build an operations center in the Philippines. They can outsource a function of their company, establish their own Philippine corporation, or partner up with a BPO company for managed operations or hybrid outsourcing services.
Outsourcing is most suitable for companies that prefer little to no involvement in the business process they are outsourcing. They are outsourcing primarily because they want to rely on the assets, workforce, and expertise of a third-party provider to get the job done.
Companies that want to retain control and make the offshore operations a true integral part of their business will typically choose to incorporate an offshore entity.
Managed operations is a true hybrid between both extremes, enabling companies to leverage the assets and expertise of a local partner while still enabling them to run their offshore operations as their own.
Setting up the outsourcing arrangement will be fast as long as the provider’s cookie-cutter solution is compatible with your company. In most cases, the provider will be limited in how much they can customize in terms of infrastructure, systems, and business processes.
Another option is to start an offshore subsidiary. However, because of the need to navigate the ins and outs of an unfamiliar territory and its legal, tax, and compliance system, it may take a longer time before you can successfully launch operations. Logistics such as finding an office in an ideal location, purchasing computers, and the like may also take longer to accomplish.
With managed operations, the provider would have readily available but customizable infrastructure and assets on the ground that can be deployed on a short term notice. With all resources already in place, your company only needs to concern itself with establishing the systems, and workflow processes.
Outsourcing providers typically work with a much higher markup as they are taking on full delivery responsibility. Incorporating a business subsidiary involves high upfront capital costs and subsidiaries typically lack the economies of scale to operate at an optimized level.
Managed Operations with its lower services fees and economies of scale would typically result in the lowest longer-term costs.
Growing businesses need to stay flexible and nimble so they can easily adjust to their rapidly changing circumstances. This is one of the main concerns when considering whether to outsource or not.
When you outsource services, you are typically bound to the methods and process of the provider to get the job done, and it may be hard to have your provider adjust to business processes. With incorporation, you have full control, and you can mirror the way you are doing things. The problem here is that subsidiaries lack the scale and resources to operate in a way where they can scale operations up or down without taking on additional costs or risks.
Managed Operations can provide the operational flexibility and scalability of an outsourcing provider while enabling your company to operate in the exact way you want to do.
Taking work offshore will always come with employee resistance as they may fear the security of their job. Client resistance will come from a fear of loss of control and the loss of quality that may come with it. In an outsourcing arrangement, the resistance may be highest as the work effectively leaves the company and is performed in whole by a 3rd party. Incorporating an offshore subsidiary will come with the least resistance as the company is still performing the work within its walls and under its control.
Managed Operations involves a third party but operates in much the same way as a subsidiary giving both employees and clients the feeling that this essentially an expansion of the company in a new territory.
The outsourcing service provider employs all staff and team members. Since the employment contract is under the outsourcing provider, there is no full control over the team working for your business. On the contrary, if you have your Philippine subsidiary, you have full control and responsibility for talent acquisition, recruitment, and hiring.
In managed operations, your outsourcing provider sources talent based on your specific job description and employees will only join your team after receiving your approval. These employees will be exclusively and full-time assigned to your operation. You don’t need to worry about your team members getting transferred to other accounts.
Outsourcing providers are fully-equipped with tools and equipment necessary for onshore to offshore communications, collaborations, day-to-day productivity, and quality. However, you may not have full control over the specific workflow tools, and the outsourcing company retains the know-how. In incorporation, the subsidiary will have full control over the assets and systems deployed in new offshore location.
With managed operations, you retain full control over which tools, systems, and assets you want your offshore operations to deploy. Then, the provider will acquire, install, and maintain those resources.
With outsourcing services, startup costs are low, and you can launch operations quickly. However, long-term maintenance costs can be high, and you will not have full control over day-to-day operations. Tools and assets will not be under your company, either. It will belong to the offshore outsourcing company.
On the other hand, when you incorporate your company in an offshore location such as the Philippines, you retain full operational control. The downside to incorporating is that startup costs are steep, and you will not be able to launch quickly. You need to allocate months to get all the paperwork and legalities in order. You also need to purchase tools, equipment, and hire and train a solid local management team that you can trust before you begin operations.
As a hybrid outsourcing solution, Managed Operations is able to combine the best parts of both outsourcing and incorporating. Managed Operations is a strong option for companies that are looking to outsource certain business processes but still want control over how this work is performed. Furthermore, it is a highly flexible model enabling you to transition into a subsidiary once your offshore operations have reached a scale and maturity where it makes sense to go fully independent.