Outsourcing is the business practice of contracting with a party outside a company to perform services or create goods that usually were traditionally performed in-house by the company’s own employees and staff. Outsourcing is a practice usually started by companies as a cost-cutting measure. Particularly, the non-core areas such as sanitation, security, household, pantry, etc are outsourced by a company. The company makes a formal agreement with the contracted agencies. These contracted agencies are specialized agencies. Services outsourcing in India started in the 1980s and rapidly accelerated in the ’90s. In today’s world where information technology has become critical to business, the meaning of outsourcing has undergone a drastic change over the years.

When organizations decide to go international, they look for ways to tap into new markets and expand their operations with help of outsourcing. Global outsourcing helps businesses get services from countries with lower labour costs, save money and stay competitive.

Organizations prefer lean structures; lean organisations often have cross-functional teams, flexible job roles, and a strong commitment to continuous improvement. This structure aligns with Lean principles, fostering a culture of efficiency, waste reduction, and customer-centricity. And lean organizations prefer outsourcing to cut down on wastage of any sort, especially lean organizations cut costs by employing minimum labor. They also prefer saving on operational costs. Following are some reasons why outsourcing has gained importance in organizations:

Multitasking is inevitable

Multitasking usually hurts employee’s productivity. As a result, organizations have difficulty motivating them and getting the required quality output in their work, thus affecting customer satisfaction. Outsourcing’s potential for further savings is one of the main reasons it is a sought-after strategy. An eight-hour shift could be easily consumed by routine tasks such as answering emails, data encoding, bookkeeping, filing, record keeping etc. These tasks can drain the energy, effort, and creativity of a team, eventually resulting in more employees leaving organization. Employee retention is a big challenge. This is one of the reasons why companies outsource time-consuming tasks to free up their team’s time so they can take on the core aspects of their responsibilities.

Focus on core competencies

The entire idea of an outsourcing strategy is to save money, time, and effort to focus on the core competency of a business. Organizations can focus on their core competencies by delegating small, day-to-day tasks to outsourcing firms. When used effectively, this gives them some control to fight competitors, plus allow employees work-life balance.

Why outsourcing?

Outsourcing, and at times offshoring (the practice of relocating business processes or work functions to another country to cut costs and increase efficiency) remains to be an integral and cost-effective part. Whether outsourcing a business process or manufacturing services, teaming up with an external outsourcing partner allows organizations with several advantages. Most companies flourish when they partner with qualified professionals from external firms. In response to the sudden boom in the industry, organizations have responded positively to the service provided by outsourcing agencies.

Outsourcing is essential globally as companies pave the way to gain access to better services. It ensures prospective employees do not waste their process potential and skills, whether on the other side of the world or behind a couple of time zones.

India is preferred outsourcing centre

India is becoming the world’s largest outsourcing centre. In the global market, all multinational corporations and other large corporations want to reduce their variable and fixed overheads, which has a huge impact on their profits. Information Technology is India’s core competency, but other than IT services, India is a well-known outsourcing nation that also supplies HR processes, financial solutions, data management service, and more. With so many services the country can offer, it is not surprising that many global companies are attracted to India. The following reasons make India an attractive outsourcing centre.

Qualified and skilled manpower

When compared to other countries, India has the largest workforce. On the other hand, the more highly skilled labor is costly to company’s payroll. To avoid rising payroll costs while lowering other expenses, India is the best place to outsource work. India has more work-friendly environment that provides a development model for multinational corporations.  The time zone variations work out as the biggest advantage for outsourcing to India. It is time saving.

Time zone advantage

Due to time zone differences, work is completed at night, resulting in increased efficiency. India’s time zone is advantageous for businesses located in other parts of the world, such as the United States and Europe get advantage in engaging Indian companies in outsourcing. The time difference allows Indian outsourcing companies to provide 24-hour operations, ensuring that projects are completed faster and more efficiently.

Young and English literate labor

India has highest English speaking and very young workforce. Outsourcing problems typically arise when there is a lack of understanding due to a language barrier. However, because English is the medium of instruction in most higher education institutions, many Indians speak fluent or native-level English. This is one reason why foreign companies prefer Indian employees. The Indian workforce is ideal for customer support services because they have no trouble conversing with end-users and addressing their concerns.

Types of outsourcing:

Outsourcing is a multifaceted business strategy, and companies often engage in various types of outsourcing depending on their specific needs and objectives. Understanding these different categories provides insights into the diverse ways businesses can use external power to enhance efficiency while focusing on their core competencies.

Business Process Outsourcing (BPO)

Payroll processing services, data processing services and tax solutions are examples of horizontal BPO. Vertical BPO concentrates on functional services in specific industry domains such as manufacturing, retail, finance and accounting services and healthcare. Business Process Outsourcing involves contracting out specific non-core business functions to external service providers. Infosys is one of the leading outsourcing companies in India as per NASSCOM, it provides services and operations in Brazil, China, Philippines, Europe, and Australia. As of June 2023, it has over 57,000 employees worldwide and has made an annual revenue of over 1 billion USD in 2022.

It specializes in providing services such as Business Transformation, Master Data Management, Customer Care Solutions, Robotic Process Automation, Finance and Accounting, Annotation, and Legal Services among others. Its solutions include Cloud Computing, Cybersecurity, Robotics, Data Analytics, AI solutions, and other outsourcing and consultancy solutions.

Information Technology Outsourcing (ITO)

Information Technology Outsourcing focuses on delegating technology-related tasks and responsibilities to external vendors. This includes software development, infrastructure management, network maintenance, and technical support. ITO facilitates companies to stay technologically competitive while leveraging expertise and cost advantages offered by external specialists.  There are other aspects as well that we can include in IT outsourcing. Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), Infrastructure-as-a-Service (IaaS), utility systems, and cloud-based services are all examples of IT outsourcing services. Several types of industry-specific software development are also included in IT outsourcing such as application development, mobile, web design, web app development, and more. Wipro is one of the leading Big Tech companies. Wipro’s capabilities range across cloud computing, computer security, digital transformation, artificial intelligence, robotics, data analytics, and other technology consulting services to customers in 167 countries.

Knowledge Process Outsourcing (KPO)

Knowledge Process Outsourcing involves outsourcing more complex, knowledge-intensive tasks that require specialized expertise. This often includes research and development, data analysis, and other high-level cognitive activities. Companies choose KPO to access domain-specific knowledge, innovation, and advanced analytical capabilities. Genpact is a leading global KPO services firm that started its humble beginnings in 1997 as a business unit within General Electric to being a publicly traded company ten years later. The firm runs some of the most complex business process operations primarily for Global Fortune 500 companies. Genpact serves various industries such as commercial and consumer banking, consumer goods, energy, healthcare, industrial manufacturing, and retails.

Manufacturing outsourcing

Manufacturing outsourcing result in contracting the production of goods to external suppliers. This is particularly common in industries such as electronics, apparel, FMCG and automotive. Companies outsource manufacturing to take advantage of cost savings, global supply chains, and specialized production capabilities. In India, Coca-Cola works with various bottling partners that manufacture and distribute beverages for the company. Hindustan Coca-Cola Beverages (HCCB) is among the largest bottling manufacturers in the country with 16 factories; additionally, it maintains eight contract parking facilities, 20 lakh sq ft of warehousing. It manufactures and sells 60 different products across seven categories such as Coca-Cola, Thums Up, Sprite, Minute Maid, Maaza, Smart Water, Kinley, Limca, Fanta. The company has 115 factories in India, and it is outsourcing services – bottling for more than 20 global beverages.

Accounting

It is one of the most common areas where small businesses choose to outsource. It takes a lot of time and skills to learn all the processes and compliance standards a company requires to meet. However, a skilled accountant can often manage this area for multiple businesses at once. This increases efficiency and saves organization’s money. Patron Accounting LLP is an ISO certified accounting firm based in India and has successfully registered 100+ Foreign Companies in India. Their clients are based out from Dubai, Germany, Australia, USA, UK, Russia & other parts of the worlds.

Marketing & Sales

When it’s time to grow business, an outside marketing firm can be very useful to help quickly. The seven functions of marketing are marketing information management, financing, product and service management, pricing, promotion, selling, and distribution. To help the business grow, we need each area to come together and build a productive marketing approach. Indian pharma firm, Orchid Chemicals and Pharmaceuticals has picked up its second marketing partner in the US. Last year it tied up with Par Pharmaceuticals, a subsidiary of US-based Pharmaceutical Resources, for marketing its oral cephalosporin formulations in the US.

Administrative Tasks

When running a business, it is quite demanding for organizations to perform administrative tasks on their own. It starts from taking phone calls, schedule customer appointments, make travel arrangements, manage email accounts, facilitate staff, handle payrolls and much more. Post Covid, outsourcing is in practice across the globe. The globalization of outsourced goods and services is highly effective in helping enterprises to drive their profitability. A lot many factors are instrumental in increasing its widespread acceptance. Cheaper salaries/wages, impressive currency exchange rates, and a wider range of facilities are the prominent reasons for its growing success. It is surprising to note that over 67% of businesses now outsource their administrative activities to third parties.  

Customer Service

For businesses that deal with customers mainly online or over the phone, prefer to outsource their customer service strategy to a call centre or chat service. Customer Satisfaction is the top goal for every business. The key criterion in achieving this is timely transfer of information. Call Centres typically assist organizations in achieving this. Genpact Ltd, WNS Global Services, 3i Infotech, TCS BPO, IBM Daksh and 24/7 Customer Pvt Ltd some of the famous customer care service providers. 

Shipping and Logistics

Today e-commerce is become part of our life. The arrival of e-commerce and m-commerce (mobile) has transformed the entire retail sector.  Retailers are tapping multiple channels for selling their merchandise; from traditional stores, using catalogue, through the internet and more and more via smart phones and tablets, no stone is left unturned. For surviving the competition in the e-commerce world distribution has become key component of the business. Supply chain and logistics experts have become key players. They assist in services right from strategic locations for Distribution Centres (DC). Outsourcing logistics is when a company uses an external provider (third-party 3PL, fourth party 4PL) to handle various supply chain functions. These can include a mix of shipping, storing, packing and/or delivering a company’s physical goods, from raw materials all the way to the finished product.

Blue Dart Express Ltd. an Indian logistics company is South Asia’s premier express air, integrated transportation & distribution company. It offers secure and reliable delivery of consignments to over 55,400+ locations in India. Blue Dart is a provider of choice for its stakeholders due to its customer centric approach and aims to further strengthen this partnership. As part of DHL Group’s DHL eCommerce division, Blue Dart accesses the largest and most comprehensive express and logistics network worldwide, covering over 220 countries and territories, and offers an entire spectrum of distribution services including air express, freight forwarding, supply chain solutions, customs clearance etc. It offers a complete suite of online services for shipment preparation, package tracking, shipment rates and tools for international shippers and small businesses.

Research

Global industries have realized that apart from technical support and software development, India is also a great place to outsource research and analysis services. Presence of specialized resources with multi-domain expertise, combined with exceptional processes have made India an ideal outsourcing destination for high-end processes like financial research analysis, market research analysis, and business research analysis. Today, India has taken over other outsourcing destinations like China, Russia, and the Czech Republic because India provides highest cost savings, excellent operational efficiency, access to skilled professionals, and quality services.

The present and future of the pharma companies will see a huge R&D, sales and marketing network spread across geographies, and their infrastructural costs can grow exponentially. Therefore, pharma companies need to adopt technology that can offer dynamic lines of communication between the global markets and their manufacturing and research centres in India. Ultimately, India’s growth as a global player depends on its ability to overcome challenges and given the scenario outlined, integrating, and facilitating cost-effective communication is a major benefit for India.

Human Resources

Human resources encompass any tasks in a business related to hiring, onboarding, or managing the team. The most common type of outsourcing in this area is to work with a recruiting service to bring in qualified candidates for a new position. However, there are options for outsourcing training, benefits administration, payroll, and time and attendance issues as well. Human Resource Outsourcing is a practice in which an organization hires a third-party organisation to handle its human resources activities and administrative tasks. In other words, HR outsourcing is the process of receiving work previously completed by corporate personnel from sources outside the company. ABC Consultants in India is among the top 10 HR Outsourcing companies.  They are one of the best leading recruitment brands of India who have shaped the career of 1,65,000 professionals in 50 years. Their network is widespread across 8 main Indian cities with over 465 consultants. ABC Consultants believe in providing customized recruitment solutions across 24 industry practices. They have developed long-standing relationships with their existing clients because of their high-quality output. Their vision is all about “Building Careers”.

The concept of the value chain was coined and explained by Michael Porter in his popular book “Competitive Advantage: Creating and Sustaining Superior Performance” in 1985. Value chain is a sequence of activities or practices which aims at creating and adding value to a product or a service. Value is added at every process of doing business. Businesses aim at enhancing their margins and thus they need to work on their operating procedure carefully. Businesses work to change input into an output by adding greater value in it. Thus the logic behind it is simple; the more value a company creates, the more profitable it becomes. When more value is created, the same is passed on to the customers and thus further helps in combining a competitive edge. One happy customers gets ten more customers. Value adds brand loyalty and brand awareness in markets. The primary activities of value chain are inbound logistics, operation, outbound logistics, marketing & sales and after sales service. These primary activities are supported by procurement, technology, human resource management and firm’s infrastructure. Products pass through a chain of activities in order, and at each activity the product gains some value.

Processes that go in primary and supporting activities of value chain are as follows:

Primary activities:

Inbound Logistics: involves relationships with suppliers and it includes all activities required to from placing order for raw material, receiving it, storing it, stacking it and circulate inputs. Inbound logistics is associated with receiving, storing, disseminating inputs for the operation such as material handling, warehousing, and inventory control, vehicle scheduling and servicing the suppliers.

Operations:  involves all the activities required to transform inputs into outputs (products and services). For example machining, packing assembly, equipment maintenance, testing, printing pasting, stacking and facility operations.

Outbound Logistics: is associated with distribution. All activities required to collect, store, and distribute the finished product. It includes reaching the finished goods to the point of consumption.  Warehousing, material handling, routing, selection of routes, mode of transport, order processing and scheduling.

Marketing and Sales: activities include market research, segmenting market, sales promotional activities, developing, positioning and branding. Marketing and sales activities inform buyers about products and services. The activities in marketing facilitate the purchase with advertising, promotion, sales force size, training and developing, channel selection, channel relation and pricing.

After Sales Service:  includes all the activities required to keep the product or service working effectively for the buyer after it is sold and delivered. Such as installation, repair, training, parts supply and product adjustment

Support activities: 

Procurement: is the acquisition of inputs, or resources, for the firm.

Human Resource management: This consists of all activities involved in recruiting, hiring, salary, training, developing, compensating, motivation and performance appraisal. A transparent, ethical Performance Appraisal system is never demoralizing or inhuman. What’s inhumane is failing to make the organization’s standards and values clear and transparent and not letting people know where they stand.

Technological Development: It pertains to the equipment, hardware, software, procedures and technical knowledge brought to bear in the firm’s transformation of inputs into outputs. The digital revolution has created an Information Age.

Company’s infrastructure: this facet shows a company physical infrastructure, intellectual infrastructure, human infrastructure, digital infrastructure etc. In short, it refers to internal strengths of the company and how well connected it is externally.

Example of Starbucks for a better understanding of value chain:  The Starbucks journey began with a single store in Seattle in the year 1971 by three partners who met while they were students at the University of San Francisco: English teacher Jerry Baldwin, history teacher Zev Siegl, and writer Gordon Bowker. To become one of the most recognized brands globally, Starbucks planned a mission statement “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.” To achieve the mission the organizations concentrates on all primary activities such as:

Primary activities:

Inbound Logistics: The inbound logistics for Starbucks refers to selecting the finest quality of coffee beans from the coffee producers in Latin America, Africa and Asia. In the case of Starbucks, the green or unroasted beans are procured directly from the farms by the Starbucks buyers. These are transported to the storage sites after which the beans are roasted and packaged. The ready beans are sent to the distribution centers few of which are company owned and some are operated by other logistic companies. The company itself does the procurement to ensure high quality standards right from the point of selection of coffee beans.

Operations: Starbucks operates in 65 countries either in the form of direct stores operated by the company or as licensed stores. Starbucks has more than 21,000 stores internationally which includes Starbucks Coffee, Teavana, Seattle’s Best Coffee and Evolution Fresh retail locations. According to its sales figures, the company generated 79% of the total revenue during fiscal year 2013 from its company operated stores while the licensed stores accounted for 9% of the revenue.

Outbound Logistics: There is very little or no presence of intermediaries in product selling. Majority of the products are sold in their own or licensed stores only. As a new venture, the company has launched a new range of single-origin coffees which is sold through some leading retailers in the U.S. such as Guatemala Laguna de Ayarza, Rwanda Rift Valley and Timor Mount Ramelau.

Marketing and Sales: Starbucks invests in superior quality products and high level of customer services than aggressive marketing. However, need based marketing activities are carried out by the company during new products launches in the form of sampling in areas around the stores. At Starbucks at a point in time, some of their executives visited their coffee shops and noticed that good employees were losing their poise when faced with agitated customers. Instead of coming down on the individual employees, they developed new training material that eliminated the stress of these situations. The executives at Starbucks found that when they empowered their employees with tools they needed to serve customers happily, their employees gained their smiles back.

After sales service: Starbucks aims at building customer loyalty through high level of customer service at its stores. The retail objective of Starbucks is, as it says in its annual report, “to be the leading retailer and brand of coffee in each of our target market by selling the finest quality coffee and related products, and by providing each customer a unique Starbucks Experience.”

Support Activities:

Infrastructure: This includes all departments like management, finance, legal, etc which are required to keep the company’s stores operational. Starbucks well designed and pleasing stores are complemented with good customer service provided by the dedicated team of employees in green aprons.

Human Resource Management: The Company’s committed workforce is considered a key attribute in the company’s success and growth over the years. Starbucks employees are motivated through generous benefits and incentives. The company is known for taking care of its workforce and this is perhaps the reason for a low turnover of employees, which indicates great human resource management. There are many training programs conducted for employees in a setting of a work culture which keeps its staff motivated and efficient.

Technology Development: Starbucks is very well known for use of technology not only for coffee related processes (to ensure consistency in taste and quality along with cost savings) but to connect to its customers. Many customers use Starbucks stores as a make shift office or meeting place because of the free and unlimited wifi availability. The company in the year 2008 also launched mystarbucksidea.force.com as a platform where customers can ask questions, give suggestions and openly express opinions and share experiences. The company has implemented some of the suggestions given via this forum. Starbucks also uses Apple’s iBeacon System wherein customers can order their drink through the Starbucks phone app and get a notification when they walk in the store. Thus, Starbuck uses the available technology to their fullest strength.

Procurement: This involves procuring the raw material for the final product. The company agents travel to Asia, Latin America and Africa for the procurement of high grade raw material to bring the finest coffee to its customers. The agents establish strategic relationship and partnership with a supplier which is built up after reconnaissance and communication about the company standards. High quality standards are maintained with direct involvement of the company right from the base level of selecting the finest raw material which is coffee beans in case of Starbucks.

Conclusions: Starbuck’s rivals benchmark their business processes.