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Which outsourcing model is right for your business?
June 22, 2020

Which outsourcing model is right for your business?

Written by: Nick Ogden

When it comes to outsourcing, there’s not a ‘one size fits all’ approach. Outsourcing can be tailored to suit the specific needs of a business - it’s just a matter of finding which model is the right fit.

This blog will help you analyse and identify which of the four outsourcing models are best suited to the needs of your organisation.

Outsourcing model 1: Project-based outsourcing

This model involves paying a freelancer overseas to complete a task or project for your business - it’s suitable for businesses with a limited budget. The partnership between you and the offshore employee can be a ‘one-off’. This means that the team member doesn’t have to be employed on a full-time basis, however, also means that the employee will not be 100% dedicated to your business.

Pros

  • Can often hire someone on a time constraint via a third party website
  • Affordable
  • An ‘on-demand’ relationship that you can turn on and off.

Cons

  • Limited control on how, where and when the task is completed
  • Costs are indefinite - the more you want to change the more they can bill you for
  • A freelancer’s work-from-home environment isn’t as reliable as an office set up
  • Lack of industry knowledge
  • Quality may be compromised - you get what you pay for.

Examples: hiring a graphic designer via Upwork or Fiverr or paying an offshore loan processor to process loans on a per-loan basis.

Outsourcing model 2: Traditional outsourcing

This model involves paying an outsourcing provider to do absolutely everything for you - suitable for businesses that require quick turnaround times or high volumes of work produced. The outsourcing provider supplies office space, equipment, infrastructure and handles all facilities. Your outsourcing provider will recruit and manage your staff members which as a result, leaves you with little control over business processes, productivity and quality of work.

Pros

  • Everything is taken care of for you
  • Local knowledge isn’t required
  • You don’t have to oversee the recruitment process
  • The fastest model in terms of getting up and running.

Cons

  • Only suitable for large teams
  • Often more expensive than other models
  • Lack of control over business processes
  • Quality is often compromised due to lack of personal input
  • Little to no integration between onshore and offshore employees. Creates a separate culture between teams. This can lead to inconsistencies.

Example: call centres.

Outsourcing model 3: Managed offshoring

This model involves setting up a dedicated team overseas in a lower cost economy resulting in staff costs being up to 70% cheaper. The offshore provider will have their own facility, office, equipment and infrastructure and will manage the recruitment process whilst handling HR and payroll.

This model allows you to have full control over your business processes, unlike traditional outsourcing. You are required to supply the tasks, systems and processes. You manage your offshore team just as you would your onshore, however, communication is virtual. This model is best suited for businesses seeking full-time staff, businesses that want to streamline processes, increase efficiencies and overall, scale and grow.

Pros

  • You will learn all local knowledge necessary from your outsourcing provider
  • You don’t need to worry about infrastructure, HR, equipment etc.
  • Everything is set up for you, all you need to do is recruit an offshore employee
  • Costs are transparent
  • You’re in control of your processes
  • You manage your team
  • Easy to add and take from your team.

Cons

  • Your onshore employees may not have any cultural knowledge so integration can sometimes be difficult at the start if your business is not adequately prepared for it
  • Recruitment may take a while to find the right person for the job if it’s a more technical position.

Examples: Hiring a full-time graphic designer to design all creatives for your business or a property management assistant to manage the day-to-day admin in your agency. Your offshore employee will liaise with you or your onshore team about set tasks and outcomes. Hiring an offshore employee via Beepo is an example of this model.

Outsourcing model 4: Incorporating your business offshore

This model involves setting up a function of your business offshore - suitable for businesses that have the time, money and cultural similarities of an offshore location.

It requires you to physically go to your offshore destination to set up the facilities, security, telecommunications, recruitment, HR and payroll. It requires you to manage the day-to-day work, quality and productivity - the opposite of traditional outsourcing.

This model is a lot more complex than the rest. There are a lot of considerations around tax and labour laws and it requires a significant time investment to set up and find staff. You are responsible for every business function just as you are onshore.

Pros

  • Complete transparency
  • You can handpick the employees you want working for your business
  • You’re in control of almost everything.

Cons

  • Requires a significant upfront investment
  • Takes time to set up
  • Requires your full attention which can often distract you from core business
  • You NEED local knowledge otherwise cultural differences will pose as a threat
  • Only suitable for large teams otherwise not cost effective.

Examples: opening an office in the Philippines to hire team members that will be responsible for enquiries, customer service and/or maintenance calls.

So, which one is right for you?

As you can tell, there are many pros and cons to each model - it’s just a matter of exploring each as relevant and then implementing the right one for your business.

To find out if outsourcing is right for your business, follow the checklist on this blog.

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