Deloitte Monitor predicts that by 2023, the global outsourcing market will be worth $731.3 billion, with information technology outsourcing (ITO) having 71% (e.g., $519.3 billion) market share and business process outsourcing (BPO) accounting for the remaining 29% (e.g., $212 billion). This corresponds to a 26% increase in global outsourcing spending since 2018.
This tells you that outsourcing spending will continue to grow. The business strategy of outsourcing in the Philippines, India, China, Colombia, Macedonia, and other nearshore and offshore locations is here to stay.
What are the drivers of this outsourcing growth? Read on to find out why businesses outsource.
1. Rapid Staffing and Better Retention
A major driver of the global outsourcing market growth is the pressing need for talent and the difficulty of finding and retaining employees. Outsourcing provides organizations a quick and easy way to fill open roles and improve retention.
The Talent-Acquisition Problem
Have you heard about the Great Resignation? It’s the trend that pertains to a massive number of U.S. employees quitting their jobs. Specifically, 47.8 million people resigned in 2021 and 50.5 million in 2022.
To be clear, most people who resigned from their jobs did so to take on other roles. In other words, they quit because they were offered or were confident about finding better positions. This underscores how competitive talent acquisition has become for companies.
The problem is not exclusive to U.S. companies. There is a sweeping, worldwide talent shortage. A Korn Ferry study says the world will be short of 85 million human talents by 2030, corresponding to unrealized annual revenues of $8.5 trillion.
This is the lay of the land. Companies across industries, wherever they may be, are feeling the pinch of not having the talent they need to act on strategic priorities.
In its Global Outsourcing Survey 2022, Deloitte asked over 500 business and technology leaders, including 150-plus C-suite executives, about their outsourcing drivers and strategies. The data indicate that 50% of the respondents named talent acquisition one of their top internal challenges.
Unfortunately, the issue does not end with talent acquisition. Companies are finding it just as challenging to retain talent.
The Talent-Retention Issue
Employees are quitting not because they no longer want to work but because better opportunities await. Therefore, even if a company successfully fills its open roles, it has to work just as hard to keep its employees.
The North America Talent Attraction and Retention Survey by Willis Towers Watson shows that six in 10 employers have difficulty keeping their workers. The Global Outsourcing Survey 2022 by Deloitte, meanwhile, indicates almost two-thirds of the executives surveyed are not confident about their organization’s ability to resolve their retention challenges.
Addressing Talent Acquisition and Retention Challenges Through Outsourcing
Suppose a company needs customer service representatives, software developers, and cybersecurity professionals, and it needs them now. It must scale quickly to maximize the utility of its competitive advantage. What should it do to find the talents it needs to fill its open roles promptly and efficiently?
The conventional solution requires posting job ads in job marketplaces and waiting for applicants. A variation is outsourcing recruitment to a staffing agency that will do the job ad posting and screening on the company’s behalf.
The modern and better solution is to outsource the open roles to an outsourcing services provider onshore, nearshore, or offshore.
Onshore outsourcing means outsourcing to an agency in the same country. Nearshore outsourcing refers to delegating open roles to an agency in a nearby country (e.g., Colombia is a nearshore destination for the United States). Offshore outsourcing means working with an agency in a distant country overseas (e.g., the Philippines is an offshore location for a U.S. company).
Outsourcing eases the burden of talent acquisition and retention on organizations and shifts it towards outsourcing providers. One simply has to choose its outsourcing destination and solutions provider carefully. Done right, outsourcing can help a company swiftly fill its open roles and ease its retention challenges.
2. Improved Service Delivery
There are many ways outsourcing can lead to improved service delivery.
A dry aircraft leasing company that enables aviation operators to lease aircraft on demand must have 24/7 customer support availability to fulfill its accessibility and reliability promise to its clients. However, establishing 24/7 customer support operations in its headquarters will significantly jack up its capital and operating costs.
By outsourcing its customer support roles to one or more offshore locations, the company can ensure its clients have round-the-clock customer support coverage.
Systems and Standard Operating Procedures
An accounting firm wants to scale up its business and accept more clients. To accomplish this without sacrificing service quality, it must establish rigorous systems and standard operating procedures (SOPs).
By outsourcing to an outsourcing provider, the accounting firm can benefit from the outsourcing agency’s established systems and SOPs for the accounting industry. This also ensures better compliance for the client company.
Skills and Technology
A software-as-a-service company needs technical support personnel and more software developers to improve its product and services. Hiring in-house will take a lot of time, however. The company also has to bring its new hires up to speed and train them so they will have the skills their jobs require.
By outsourcing to an outsourcing agency that specializes in tech support and software development, the company can benefit from a ready-to-deploy, skilled workforce. The client company also benefits from the tools and technology with which the agency equips its people.
3. Cost Reduction
Cost savings is a benefit of outsourcing. If a company hires a developer in the United States, it has to pay that developer a base annual salary of $108,000. However, if it outsources the work to a developer in the Philippines, it has to pay only $25,188. That’s a savings of 77% in salary costs per year. Even after paying the outsourcing vendor its service fees and other charges, its cost savings should remain considerable.
For the longest time, cost reduction has been the leading driver of the global outsourcing market growth. In Deloitte’s Global Outsourcing Survey of 2016, 63% of the respondents said they use outsourcing as a cost-cutting measure.
Today, cost reduction remains one of the top reasons businesses outsource. In the Global Outsourcing Survey of 2022, 57% of the respondents using the traditional outsourcing model cite this as their reason for outsourcing. Note: Traditional outsourcing is the transactional framework that lets organizations outsource discrete and narrowly defined tasks to an outsourcing vendor.
Of course, cost reduction is no longer the leading consideration for outsourcing in emergent, non-traditional outsourcing models. In managed services outsourcing (typically tied to outcomes and accompanied by service level agreements), only 33% of the 2022 Deloitte survey respondents said they use managed services outsourcing to cut costs.
That said, cost reduction remains a significant reason for the growth of the outsourcing market.
Outsourcing Benefits Businesses
Outsourcing is an excellent business strategy. Organizations can use it to resolve staffing and retention challenges, improve service delivery, and reduce costs.
Jinky Elizan is a content writer for SEO Sherpa. She has more than 15 years of experience in producing content for SEO, inbound marketing and link building as well as in creating copy for web pages and social media. She also develops WordPress websites.
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