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Home | Blog | The Comprehensive Guide To Outsourcing — What You Need To Know

The Comprehensive Guide To Outsourcing — What You Need To Know

By Magellan Solutions

Updated on May 15, 2024

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“Outsourcing is inevitable, and I do not think it’s necessarily treating people like things.”


This quote came from the American educator, author, businessman, and keynote speaker Stephen Covey.

Business process outsourcing, called BPO, is a term deemed outlandish, absurd, and even crazy a decade or two ago. Back then, nobody believed that BPOs could help businesses grow and become successful. But the idea of it all is rooted deep inside the annals of human history.

In the report “Outsourcing: Past, Present, and Future,” David Dorwin and his team discussed that “the history of outsourcing is deeply embedded in the history of the growth of the Modern Business Enterprise, which sprang up in the latter half of the 19th century.” They stressed that in the history of modernization and industrialization, it has been a rule of thumb to seek foreign assistance when needed.


What is Outsourcing?

Outsourcing is tapping outside firms to handle work usually done within a company. It is a familiar concept to many entrepreneurs, industrialists, and financiers. Small companies routinely outsource their processes, such as payroll, accounting, distribution, etc. They often do this because they don’t have a choice.

Many large companies turn to outsourcing firms for operational savings. In response, many businesses have evolved to support other companies by catering to their outsourcing needs.

But not many of us have fully understood the benefits of outsourcing. Outsourcing can indeed save money, but that’s not the only reason to do it. As several firms learned during the outsourcing “hype” of the early 1990s, subcontracting tasks excessively can be an even bigger mistake than not outsourcing any work.


Benefits of Outsourcing

The flat world economy we’re in now has caused many companies to massive layoffs and subsequently outsource their functions. However, if business owners and entrepreneurs are as wise as you, you know that outsourcing smartly can provide a lot of long-term benefits:

  1. Control capital costs

    Subcontracting work can convert fixed costs into variable costs, releases capital for investment elsewhere in your business, and allows you to circumvent costly expenses in the early stages of your business. Also, outsourcing may make your firm look more attractive to investors since you can pump more capital into revenue-producing activities.

  2. Increased efficiency

    Companies that do everything themselves have much higher research & development, marketing, and distribution expenses — all of which are shouldered by the customers. A third-party provider’s cost structure and economy of scale can provide leverage to drive more success for your company.

  3. Reduce labor costs

    Hiring and training employees for short-term or peripheral projects can be costly. And sometimes, temporary employees don’t always meet your company’s expectations. So partnering with an outsourcing company lets your company focus human resources on where it needs the most.

  4. Start a new project quickly.

    Handling a new project in-house might involve taking weeks or months to hire the right people, training them, and providing the support they need. And if a project demands significant capital investments, such as building a series of distribution centers, the startup process can be even more difficult. The solution: outsource it. A good outsourcing firm has the resources to implement a project. By partnering with the right firm, the success rate in completing the project will be higher than doing it in-house.

  5. Focus on your core business.

    Every business has limited resources. Likewise, every manager has limited time and attention. Outsourcing can help your business shift its focus from peripheral activities to work that serves the customer. This can help managers set their priorities more clearly.

  6. Level the playing field.

    Most small firms can’t afford to match the in-house support services that larger companies have. An outsourcing company can help them act “big” by gaining access to the same economies of scale, efficiency, and expertise that large companies enjoy.

  7. Reduce risk

    Every business investment carries certain risks. Volatile markets, fierce competition, changing government regulations, erratic financial conditions, and advancement of technologies at break-neck speeds contribute to the company’s success (or failure). And that’s where outsourcing providers come in. They assume and manage the risks for you and are generally much better at deciding how to avoid them in their areas of expertise.


Does outsourcing jobs solve problems?

Yes and no.

While outsourcing firms can help, they are not the all-in solution for all the problems your company is or might be facing. Let’s elaborate on this. Before engaging in a partnership with a BPO provider, give a moment to answer the following questions, as discussed in this article from Entrepreneur.

Let’s touch on some of them.

  1. What is the problem?

    Clearly define the problem first. Sit down with your small council and “critically analyze what you must achieve and the most important facet of your problem.” Questions will arise, which should be discussed extensively to understand the problem.

  2. Who do I know has the expertise in this problem?

    Should we do it ourselves? Can we do it? Or should we tap into third-party experts to help us? Identifying experts will help you determine whether your company needs a BPO partner.

  3. When can I see the results?

    This should be the deal-maker (or deal-breaker). If partnering with a BPO company can help you reach your goals faster, go! If not, then why bother?


How to choose the right BPO company?

Here’s our shopping list for choosing the right business partner for your company.

  1. Don’t Sell Yourself (or Your Company) Short.

    Before we begin shopping for partners, build your pilot project to deliver proof-of-concept first. Identify your benchmarks for success. Intelligent providers will compare their performance on metrics for standard processes against your standards for those same processes. Important issues such as reporting, performance, and scalability will be raised at this point. All of which are equally important in choosing the right BPO. To measure whether a BPO partner is a cost-effective investment, consider all of these factors before moving forward. The best way to do that is by putting your company’s needs first (remember: “What is the problem?”)

  2. Reporting is Key — Visibility and Constant Communication between Parties.

    Visibility and reporting is a critical process to set up. A transparent reporting and management tool must be established between you and your outsourced team. Even though you won’t be there physically, you still want to be on top of things. It is still your business, after all, not theirs. Having easy access to reports submitted to you religiously will provide insights into how your BPO is performing as far as achieving your targets go. As a result, you will be able to set goals and metrics for your outsourced team and change them as needed. The recommended reports include weekly internal status reports, monthly management reports, and customer satisfaction reports.

    In addition, to ensure that the BPO provider meets and maintains standards on all deliverables, a designated point of contact must be identified and easy to reach. By having a point person, you can have a solid touch base you can reach out to at any time for the duration of a project. Long story short, communication is the driving source of success.

  3. Ensure that the BPO Partner is Financially Stable.

    In other words, the sustainability of a BPO partner will give you peaceful nights for the duration of the project. This is a particularly turbulent time for BPOs and is sometimes overlooked by some. You see, politics and AI can pose a threat, which makes deciding even more difficult. As a decision-maker, do your due diligence. Look into the financial health of your list of prospective BPO partners. You can even dive into the economic outlook of the country of origin. Looking elsewhere would probably be wise if the industry is predicted to fail in a specific location. If everything looks good from a geo-industry perspective, then look at their financial history, current holdings, and growth potential. And if a BPO has a history of bankruptcy under the same management, you might want to think twice before signing the dotted line. Remember, you want success, so don’t partner with a company that will only drag your firm down. Study every portfolio and choose a BPO provider that can take your company there without a shadow of a doubt.

  4. Quality Assurance is Fundamental.

    After you look into the financial profile of a BPO firm which you think can drive more success for your company, and you feel that they won’t leave you hanging until the job’s done, what’s the next step? You cut the list down. At this time, you might have expectations in place for your dream customer service team, so it’s worth looking into the vendor’s track record and performance. Quality is important. This will determine whether the BPO firm can deliver service based on the needs of your business. To qualify your possible BPO partner, you can verify whether it is nationally certified. Another is to ask (or look) for client testimonials and reviews to know their field of expertise and the industries they serve. Feedback will play a key role in choosing your BPO partner. It is also wise to interact with managers and possibly other team members of the BPO firm before signing a long-term contract. Seeing and talking to the people who will help your company succeed can help gauge whether they fit your company’s needs.

  5. Keep IT Capabilities Top of Mind This should be the last on your list.

    A high-tech company does not equate to higher success rates. The questions “Who should I tap?” and “How soon can we reach success?” will come into play at this juncture.

A Forbes article, “The Machine Learning Revolution: How Artificial Intelligence Could Transform Your Business,” discussed how AI will impact industries like health care, information technology, etc. And then, back in 2017, McKinsey Global Institute released a discussion paper entitled “Artificial Intelligence: The Next Digital Frontier,” which raised the question: “Artificial Intelligence is getting ready for business, but are businesses ready for AI?”

Let us look at the numbers real quick:


business process outsourcing

Image source: McKinsey & Global Institute


In 2016 alone, 26 to 39 billion dollars were invested in artificial intelligence; however, only 20% of these AI-aware firms say they will adopt this technology. Meanwhile, 41 percent of the respondents say they do not know how AI can help them succeed.

If BPOs will claim that they are embracing new technologies, it does not necessarily mean that they can help you succeed.

Again, do due diligence.

Assign a senior engineer (or somebody you can trust as far as existing technologies go) to do frequent visits from the offshore vendor to the client site during the design phase. The reports from these visits can help you see a better picture of the project you will be undertaking.

On the flip side, the BPO partner can showcase their capabilities. Visiting your possible outsourcing service provider can give additional insights you might miss from afar.

Finally, how can we confirm if a BPO can stick to technical timelines on deliverables? The answer is to have them sign a Staff Augmentation contract. This contract will provide both you and your would-be BPO partner the flexibility to act on meeting the changing demand without shouldering the cost and liabilities of adding full-time employees.


Where to outsource?

At this juncture, we’ll be talking about location – not ethnicity.

In the 2017 A.T. Kearney Global Services Location index study, 55 countries were ranked according to financial attractiveness, people skills and availability, and business environment. Of the countries included in the study, the Philippines ranked seven at an index score of 5.87 points, just 0.5 points behind Vietnam.

Here’s what the report says about the health index of the BPO industry in the Philippines:

“The Philippines focuses far more heavily on customer service, especially voice services, due to its workers’ English language skills and neutral accents that more closely align to American customers.”

Here is the complete list pulled from the Kearney report:

bpo location

Source: A.T. Kearney


List of Call Center Services

You can choose from several BPO call center services when you are planning to outsource. In general, it can be classified into two categories: the inbound call center services and the outbound call center services.


Inbound call center services

The services that fall under this category are concerned with consumer calls. It can be about an inquiry, a product issue, a refund, a need for support or assistance, and more.

List of inbound call center services:

  • App mobile customer support
  • Appointment and schedules management
  • Billing Inquiry
  • Claims processing
  • Customer service
  • Direct response marketing
  • Dispatch services
  • E-commerce customer care
  • Email support
  • Inbound sales
  • Inquiry handling
  • Interactive voice response support
  • Live answering services
  • Live chat support
  • Order taking
  • Overflow after-hours support
  • Reservation
  • Technical support


Outbound call center services

On the other hand, outbound call center services refer to calls made by agents who work for you to offer a product or service, solicit opinions, or set appointments.

List of outbound call center services:

  • Appointment setting
  • B2B and B2C lead generation
  • Collection reminders
  • Data verification
  • Market research and survey
  • Medical reminders
  • Telemarketing and telesales


Multilingual call center services

Not all people speak the English language. The population of non-native English speakers is already huge in the United States alone. If you operate in this area, chances are high that you haven’t tapped many customers because they speak a different language.

Also, multilingual call center services are helpful if you plan to expand your market in different countries. Multilingual call center service can be inbound, outbound, or both.


The Bottom Line

One cannot be successful in life without doing due diligence. With numerous BPO companies worldwide (especially the Philippines, look it up), your company has many options.

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