Business Process Outsourcing Basics

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The practice of sub-contracting some processes of a business through a third party contractor or service provider, executed as a back office outsourcing arrangement or front office is commonly referred to as business process outsourcing. The outsourcing deals that manufacturing giants such as Coca-cola engage in, involves sub-contracting large segments of its strategic supply chain is good example of this practice.

Back office outsourcing arrangements largely pertain to the passing of internal operational functions such as finance or human resources, while under front office outsourcing agreements the deal covers the provision of contact center services or call center functions.

Some of the business outsourcing contracts involve third party service providers based in another country, which is known as offshore contracting, and when it entails a service provider in a neighboring country it becomes nearshore outsourcing.

The information technology sector has close relations with business process outsourcing (BPO) and for that reason the connection is capped with the title – information technology service or ITES, other sub-segments of BPO relate to knowledge process outsourcing whose names are indicative of the nature of relations existing between them, and the foregoing practice.

Countries such as India enjoy a lion’s share of the industry in general, and in particular offshore business process outsourcing accounts for up to US$10,9 billion, $30 billion of which is derived from information technology services. Other nations are also breathing heavily on India’s neck as they grapple for a piece of the fattening action, with locations such as South Africa, Egypt, Phillipines and Eastern Europe partaking in the frenzy.

The most notable BPO players in the territory of India being WNS Global services, IBM, TCS BPO, Daksh and Transworks Information Services, they are chewing large chunks of the BPO steak that is reportedly worth around $154 billion globally.

Business process outsourcing vendors usually dispense their services on a fee for service basis which greatly enhances their operational flexibility while boosting variable costs, in turn these companies manage their human resources better by switching focus to either customer intimacy, product leadership or operational excellence.

The global revenue value of BPO accrues to many sectors participating in it and according to McKinsey 35-40% goes to retail banking, 25-35% towards the insurance sector, 20-25% finance, accounting and human resource, while 10-12% is gobbled by the travel/hospitality sectors, 8-10% telecoms and others. In all these sectors flexibility remains one of the major advantages of engaging into BPO activities as it reduces response times in case of major environmental changes.

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