How much can your business really save by offshoring?

If there has ever been a need for businesses to think outside the box when it comes to cost savings, now is the time. More than two years into a global pandemic that has taken a devastating toll on society, pressure is building on many organizations that have been fortunate to not already drown under the weight of rising expenses, supply chain issues and labor shortages. One only has to look at data released by the Australian Bureau of Statistics in March 2022 to see the impact being felt across the corporate sector.

How much can your business save

Almost 40% of all businesses expected to increase their prices more than usual during the next three months, with nearly all (97%) saying they were being driven by rising non-staff related operating expenses. Soaring fuel and energy costs (88%) and increases to the costs of products and services (88%) are putting a huge strain on bottom lines, with two in five businesses reporting their operating expenses had increased during the previous month (compared to less than a quarter at the same time last year).

And the scary thing? Australia is considered a country that has managed the fiscal fallout of the COVID-19 better than most. Across the Pacific Ocean, a Federal Reserve survey of CFOs recently found 80% of U.S. companies were passing on rising costs to consumers as they adjust to a surge of inflation to a 30-year high. The same survey revealed nearly 90% of companies are facing extraordinary cost increases because of supply constraints, with more than 60% expecting the trend to continue until at least the fourth quarter of 2023.

It is a similar story around the globe, with pressures being felt by businesses unrestricted by location, industry or organizational size. Fortunately, many of those companies can tap into a tried and tested cost-saving strategy that is already easing the load on many stressed executives and their wider teams. These are the people who have turned to outsourcing cost savings in what are truly turbulent financial times.

What is outsourcing?

Outsourcing sees tasks that would normally be completed in-house by one’s own employees assigned to a third-party vendor. Such tasks may include a specific project, multiple activities or an entire business function, with outsourcing coming in three location-based types – onshore (partnering with a provider in the same country), nearshore (partnering with a provider in a neighboring or nearby country) or offshore (partnering with a provider in a more distant country).

Five ways outsourcing saves money

In the two decades from 2000, the value of the global outsourcing market has more than doubled to an incredible $92.5 billion and that growth is continuing as more and more companies realize the benefits of partnering with quality offshore providers. That is especially so for organizations looking to reduce expenses, with outsourcing delivering cost savings in multiple ways.

  1. Labor costs: a smart way to increase profits in business is to cut expenses in a way that will not negatively impact revenue and if you look at most businesses, their biggest expense is associated to labor. In the past, it was difficult to save on labor costs without potentially impacting revenue or productivity but outsourcing has opened up an exciting new opportunity for many businesses to significantly lower such expenses without losing skills or impacting quality. The cost of outsourcing to hotspots such as the Philippines is much lower than wages in Western countries, making it possible to save up to 70% on employment costs for the same talent and output quality.
  2. Real estate: the more employees an organization has, the more space it requires to physically house them. That may be great news for landlords and sales agents but it can be a headache for executives and managers given the costs involved in renting more office space, buying additional properties or building a commercial space from scratch. Outsourcing allows companies to access quality support staff but forego the responsibility of providing them with the space they need to do their jobs. Instead, quality outsourcing providers have their own workspaces.
  3. Fixed costs: partnering with an outsourcing provider can also help reduce fixed costs. Businesses of all sizes are always looking for ways to save on fixed costs such as facilities, electricity and other utilities but it is not always easy. That is especially so for organizations that are ready to scale. For example, if you are going to double your team onshore, you would expect your fixed costs to significantly increase but tapping into an outsourced team means they would stay the same. This difference to one’s bottom line can really make an impact.
  4. Infrastructure: any manager who has ever added even one employee to their team knows that decision requires a significant investment in tools. From computers and office furniture to additional software licences, a new in-house staff member needs various tools to do their job and the final cost can be a serious drain on resources when an entire team is factored into a budget. Once again, outsourcing providers supply equipment to their client’s offshore staff, thus saving them a costly investment that may be better directed elsewhere.
  5. Recruitment: the very act of recruiting new staff members costs money. Advertising is one of the greatest costs associated with recruitment, which is why many firms relish the chance to outsource that responsibility to an outsourcing provider who has its own processes and systems for attracting and sourcing talent. Each day that a position remains empty also costs businesses money so filling vacancies quickly is essential. Offshore providers are experts at cultivating and tapping into sizeable talent pools, meaning that jobs are filled more quickly and, in some cases, save in-house HR resources up to 50% per hire. Outsourcing providers can also scale hiring activity up and down quickly and efficiently to match the needs of their clients.

Where savings can be directed

Every dollar a company saves via outsourcing is a dollar that can be better directed elsewhere with an organization. While this may well be towards helping improve a profit and loss statement, saving thousands of dollars each month by offshoring can also benefit a business in other ways.

  • Increasing marketing efforts
  • Employing more sales staff
  • Providing more training
  • Upgrading technology
  • Investing in strategic partnerships
  • Investing in research and development.

Investing in any of these areas is likely to generate more growth in your business and the best part is, with an offshoring strategy in place, executives will be well positioned to scale their businesses to meet that demand.

Five more benefits of outsourcing

Saving money is undoubtedly one of the main reasons businesses turn to outsourcing. In 2020 alone, a study by Deloitte found that 70% of businesses who turned to an outsourcing partner did so for cost reduction. However, to say money is the only benefit would be a gross understatement.

  1. Increased productivity: one area that outsourcing providers truly shine is their ability to implement and oversee systems and processes that streamline and enhance productivity. Highly committed to meeting their clients’ KPIs, they have a vested interest in possessing the software, tools and knowledge that allow offshore staff to work more efficiently and effectively.
  2. Improved accuracy: outsourcing specialists are called specialists for a reason. Employing highly trained and knowledgeable staff is essential for any business and quality outsourcing providers can recruit entire teams of people who not only know the intricacies of specific industries but can raise accuracy standards by making fewer errors and identifying issues before they become headaches.
  3. Scalability: one of the great frustrations for executives is being forced to outlay thousands of dollars in wages when there is little to no work to be done, particularly so when such peaks and troughs are tied to regular timeframes (eg: holiday sales, tax seasons). Outsourcing allows managers to scale their workforces to meet daily, weekly or monthly schedules, along with increasing or decreasing offshore resources to meet unexpected periods.
  4. 24/7 support: while many businesses turn to outsourcing for cost savings, those who look to offshore destinations such as the Philippines are often thrilled to discover the benefit of having staff or teams in another time zone. The ability to assign work to be done offshore while in-house teams are ‘off the clock’ can help increase productivity, along with meeting customer expectations from those who increasingly want access to staff and resources 24/7.
  5. Value adding work: few things can drain an employee’s enthusiasm like being overloaded with repetitive and time-consuming tasks that are below their pay grade. Unfortunately, growing businesses often cannot avoid this as they do their best to juggle increasing demand with limited resources. This is where outsourcing providers can make a difference by facilitating offshore staff and teams to handle routine work and, in turn, allow in-house employees to focus on higher-value and more meaningful tasks.

Nurturing a successful outsourced team

If the cost savings and other benefits of outsourcing seem too good to be true, it is time to explore the practicalities of partnering with an offshore partner. Before rushing into an arrangement though, it is worth considering these handy hints.

  • Outsourcing takes time: do not make the mistake of thinking offshoring is a ‘set and forget’ operation. To truly realise the benefits, it is essential to invest time up front to build a strong partnership and then train, mentor and communicate with your outsourcing provider on an ongoing basis.
  • Treat your outsourced team like local colleagues: the best offshore teams feel like they are part of a company’s culture and that stems from building a personal connection with them. Outsourced staff are people – not robots. Talk to them. Schedule regular online meetings with their in-house colleagues. The more they feel part of a team, the more they will be committed to delivering the goods.
  • Nominate an in-house 'champion': the best way to equip an offshore team with the knowledge and passion they need to perform their role is to appoint an onshore champion to work with them. Nothing can limit the success of an outsourcing partnership more than a disconnect between offshore staff and in-house teams and your onshore champion is the key to ensuring that does not happen. They can answer the questions, provide the guidance and deliver the feedback and encouragement every offshore team needs to perform to the best of their ability.

Outsourcing represents an opportunity for businesses to do things differently. On the back of the cost savings and productivity increases it generates, it can free up time and funds to be directed elsewhere. You might pass on the savings and offer more competitive rates to your customers, use the extra time and human resources to improve your customer experience or choose to develop new products or break into new markets. At the end of the day, it is a chance to improve your business without losing revenue.

Rapid growth is the goal of most start-up founders but juggling increasing demand with limited resources can create headaches. Discover why smart entrepreneurs are turning to outsourcing as a means to free up themselves and key team members to focus on the areas they specialize in.

This blog was last updated on 22 April 2022.