Outsourcing is contracting and delegating specific tasks, functions, or processes from another company specializing in those areas. It allows any organization to focus on its core competencies while benefiting from specialized expertise, cost savings, improved efficiency, and access to resources not readily available in-house.
Before diving into the outsourcing world, it’s important to understand some of the most common terms and phrases used in this practice. Here is an outsourcing glossary that will get you up to speed on the lingo:
In the Philippines, a 13th-month pay is a special bonus meant to help employees before Christmas. It is a benefit provided to qualifying employees in the private sector who have worked for at least one month during the year. This pay is typically 1/12 of the basic annual salary or a prorated amount based on the months worked within the year.
The 14th-month pay is an additional payout certain employers give their employees. It is usually equivalent to one month’s salary and is typically provided by the end of the year or within a specific timeframe. However, in some countries, such as the Philippines, only a 13th-month payment is mandatory.
Countries that implement a 14th-month pay:
- United Arab Emirates (UAE)
Artificial Intelligence (AI)
AI is a branch of computer science focused on creating software that can imitate human intelligence, skills, self-awareness, and thought processes. It enables machines to adapt to new information, perform tasks similar to humans, and take on various roles and responsibilities. Although often associated with robots and futuristic technology, AI finds practical applications in diverse sectors and industries. Virtual assistants like Amazon’s Alexa and Apple’s Siri demonstrate AI in our everyday lives.
AI chatbots are frequently used in customer support and e-commerce websites, allowing users to communicate via text or audio prompts. These can answer questions, provide support, and assist customers with online purchases.
Build-Operate-Transfer (BOT) is a model used by fast-growing companies to quickly expand their business functions when they lack the expertise or time to do it themselves. In this setup, the outsourcing company designs, builds, and operates the business function before eventually transferring operations to their client.
This business model is commonly used in government projects, such as infrastructure development, where a private business is granted the right to build and operate the project before transferring ownership back to the government.
Business Process Outsourcing (BPO)
BPO involves partnering with an external service provider to handle various aspects of your business operations, such as front-office or back-office processes, customer service, sales, HR processes, and your IT systems.
A call center is a dedicated physical or virtual space where a large volume of customer calls and inquiries are handled. It serves as a central hub for addressing various customer needs, such as queries, support, and potential sales. Call centers can be categorized as inbound or outbound, or a combination of both, known as a contact center.
Contact or Call Center Outsourcing (CCO)
CCO is a popular form of outsourcing in which brands partner with external service providers to handle their contact center functions. This includes customer service delivered through voice calls, chat, and social media channels.
Co-sourcing involves integrating external service providers into an organization’s in-house departments, allowing internal employees to collaborate with outsourced team members to accomplish business activities. It is comparable to hiring a consultant or contractor who becomes an essential part of the team and works closely with the internal it team and on-site personnel.
Customer Experience (CX)
The CX includes all the interactions between a customer and an organization throughout their entire relationship, from before they purchase to every point of contact afterward. Essentially, it refers to how a customer perceives your brand and their overall satisfaction with it.
Customer service, often used interchangeably with customer support, involves employees providing assistance and guidance to customers of a specific company through various communication channels such as voice, email, chat, SMS, and self-service options. The primary focus of customer service is to help customers resolve issues, troubleshoot problems with products, facilitate payments, handle purchases, exchanges, returns, and address any other related concerns.
First Contact Resolution (FCR)
FCR is a metric that indicates the percentage of customer calls or requests successfully resolved in the initial interaction without needing to restart the conversation or transfer to another agent. It is considered a significant measure of success for contact centers.
Front-Office refers to the customer-facing aspect of an organization or the personnel and services that directly engage with the client base. These roles play a crucial role in shaping the company’s image and generating revenue as they involve direct interactions with customers. Examples of front-office functions include sales, public relations, contact centers, and other customer-oriented departments.
Freelancers are remote workers hired for specific jobs or projects, offering the flexibility to work on their own terms and schedule. They are self-employed and often manage multiple clients simultaneously. Freelancers specialize in various project-based roles like writing, graphic design, web development, digital marketing, and more.
Homeshoring is the practice of outsourcing work or job roles to individuals who work from their homes or remote locations instead of traditional office settings. It is a form of remote work where employees or contractors carry out their tasks and responsibilities from the comfort of their own homes using communication and collaboration technologies.
Information Technology Outsourcing (ITO)
ITO involves outsourcing a company’s IT functions and processes to a third-party service provider. This can include one-time technology projects or ongoing IT services such as desktop support, infrastructure maintenance, software development, cloud computing, and hosting.
Key Performance Indicator (KPI)
A KPI is a crucial measure used to evaluate the progress of business processes toward their objectives. Organizations employ it at various levels to assess the performance of professional services contributing to overall company progress.
They fall into two categories: quantitative and qualitative. Quantitative KPIs are based on numerical standards and goals, while qualitative KPIs assess performance based on physical feelings, tastes, or opinions.
A knowledge base is a system that contains related information and data about a service, product, or organization. It facilitates the gathering, organizing, and retrieving of data such as FAQs, tips, guidelines, rules, and standards. This information is easily accessible, allowing employees and customers to find the information they need anytime and anywhere.
Knowledge Process Outsourcing (KPO)
KPO involves outsourcing highly specialized services and experts in a specific field. It is a form of outsourcing where companies contract with third-party providers for high-value services such as research, legal and medical services, training, consultancy, scientific research, hardware and software development, animation, and design.
Unlike BPO, KPO requires advanced technical or analytical skills and focuses on increasing a company’s value through skilled employees with advanced training and expertise. KPO emphasizes judgment and specialized knowledge, while BPO focuses on maximizing volume and efficiency in tasks requiring basic expertise.
Legal Process Outsourcing (LPO)
LPO involves outsourcing legal back-office processes or services to external firms, often for cost-effectiveness, access to subject matter experts, and efficient case management. It offers various functions such as consulting, transcription, documentation, compliance, and litigation and may also deal with matters involving foreign legislation.
Lawyers in the LPO sector handle drafting documents, evaluating legal documents, conducting legal research, and ensuring compliance with diverse laws and regulations.
Nearshoring is the practice of transferring business operations to a nearby location with lower costs and closer proximity. It allows companies to save expenses while benefiting from easier travel, fewer cultural differences, and minimized time zone challenges. For instance, a U.S.-based company outsources to Mexico or Central America to get access to skilled workers for short or long-term projects.
Offshore Development Center (ODC)
An ODC is a dedicated team of software developers and IT professionals located in a different country and time zone. It serves as an extension of the IT department or subsidiary of a company, supporting its software development or IT operations. ODCs are established to outsource these functions to a cost-effective location, allowing companies to reduce costs and access specialized expertise.
Offshore outsourcing is the practice of outsourcing companies transferring certain business functions to a company located in a different geographic location, often known as an outsourcing destination like the Philippines, India, and Malaysia. This strategy allows organizations to access a broader talent pool at a lower cost while maintaining high-quality work.
StarTechUP is an offshore outsourcing platform operating in Cebu, Philippines, providing organizations with access to premium talent and flexible software solutions to address their specific business needs and challenges.
Onshore outsourcing, also known as domestic outsourcing, involves outsourcing business functions to a company within the same country. It is a growing trend as businesses bring their operations back home or collaborate with other companies in the same country for outsourcing needs.
Quality Assurance (QA)
QA involves implementing procedures and actions to ensure products or services meet established standards and achieve high quality. It includes software testing that spans the entire product lifecycle, aiming to prevent errors and improve processes. A QA engineer is responsible for ensuring products meet the required quality standards before being released.
Recruitment Process Outsourcing (RPO)
RPO involves outsourcing the recruitment process to a third-party provider who acts as an extension of the company’s HR department. This arrangement allows businesses to benefit from expert consultation, save time and money, and streamline the hiring process, including interviews, shortlisting, and onboarding.
Remote Employee / Team
A remote employee or team refers to individuals working together on a project but are located in different geographical locations. These team members may operate in different time zones and can be from outsource companies based in various cities or countries, collaborating virtually to achieve common goals.
Robotic Process Automation (RPA)
Robotic Process Automation (RPA) is a software technology that enables creating and managing software robots that mimic human actions when interacting with digital systems and software. These robots are designed to automate manual, repetitive, and rules-based processes quickly and precisely.
Scalability measures a system or department’s ability to grow and adapt to changes in demand. It refers to how well the component can handle increases in demand without being overwhelmed.
Service Level Agreement (SLA)
A service level agreement (SLA) is a formal document commonly used in outsourcing agreements to establish the expectations and terms of service between a service provider and an end user. It serves as a guide for decision-making and outlines performance standards, measurement methods, penalties, and procedures mutually agreed upon by both parties.
Staff augmentation is a strategy where an outsourcing company supplies additional staff to work in-house to handle varying workloads or additional projects. This approach allows businesses to save costs associated with recruitment, administration, payroll, and other setup processes, as the outsourcing company provides its own staff as external hires.
Staff leasing is a business arrangement where a company partners with a third-party managed service provider to handle administrative aspects of employment, making the third-party the legal employer of the staff. This approach allows the company to retain control over hiring and management while offloading responsibilities such as HR and payroll.
In traditional outsourcing, a third-party provider off-site is responsible for delivering the outsourced business function(s). The company and the provider usually agree on a set of KPIs to monitor performance.
Virtual Assistants (VAs) are remote professionals who support organizations by handling various tasks either on a full-time or part-time basis. They can assist with repetitive or specialized work and one-time tasks covering a wide range of responsibilities. Additionally, virtual assistants can also refer to AI or digital assistants that understand and execute voice commands from users.
Best Outsourcing Locations
The global outsourcing industry is growing, and each country offers its unique advantages. From specialized and experienced staff to cost-effectiveness, language proficiency, and cultural awareness, the outsourcing services and locations vary in their qualities. So, choosing the right one is essential.
Here are some of the best outsourcing locations:
The Philippines is a prominent outsourcing destination for BPO and IT services due to its skilled workforce, cost-effectiveness, favorable business environment, and reliable infrastructure. With a large pool of talented professionals proficient in English and renowned for their customer service orientation, the country offers seamless communication with clients. Moreover, the government’s support through incentives and infrastructure development further enhances its appeal.
India has experienced significant expansion in its technology sector, employing approximately 4 million individuals in the IT outsourcing industry. The country’s emphasis on education and proficiency in key digital skills has contributed to its status as a preferred outsourcing hub for various capabilities, including app development, blockchain, AI, and machine learning.
China has become a highly desirable destination for outsourcing software development due to its abundant talent pool and competitive labor costs. However, careful consideration is necessary before choosing China as an outsourcing destination, taking into account certain factors like the English proficiency of workers and the enforcement of the country’s Intellectual Property (IP) laws.
Despite the challenges posed by the Russian invasion and military conflict, Ukraine remains a thriving hub for software development in Eastern Europe. With a rich talent pool and favorable investment conditions, the country has fostered a flourishing tech ecosystem.
Mexico is emerging as a favored nearshoring destination for US companies due to its competitive pricing and convenient location. As part of Latin America, it offers a diverse talent pool, cost-effectiveness, and a relatively small time difference. Although Mexico joined the IT services outsourcing industry later, its government’s focus on technology since 2006 has led to significant growth, making it a prominent player in the global tech outsourcing sector.