An Overview of the BPO Industry

BPO is the contracting of operations and responsibilities of very specific business functions to a third-party service provider. Usually located in third world nations with still developing economies, to take advantage of favorable monetary exchange rates, this industry has attracted substantial financial investment, and provided impressive employment growth in these countries. Since it is dependent on information technology, it is also referred to as Information Technology Enabled Services (ITES).

This outsourcing process is beneficial to both the outsourcing company and the service provider. In this relationship, the provider enables the outsourcer to reduce operating costs, increase quality in non-core areas of business, save effort, and increase productivity.

BPO services are generally categorized into horizontal or vertical services. A horizontal BPO involves function-centric outsourcing: the vendor specializes in carrying out particular functions across different industry domains. Examples of horizontal BPO are procurement, payroll processing, human resources, facilities management, and similar functions. On the other hand, a vertical BPO focuses on providing various functional services in a limited number of industry domains: health care, financial services, manufacturing, and retail, are representative instances.

Following are the major components of the BPO industry:
(1) Contact center – inbound and outbound services for sales, technical support, directory, etc
(2) Software development – systems analysis, design, customization, etc.
(3) Animation/Creative services – giving illusion of movement to cinematographic drawings or models thru 2D, 3D, etc.
(4) Data transcription – transcription services for interpreting oral dictation of health and legal professionals, etc.
(5) Back office processing – services related to finance and accounting, and human resources administration, etc.
(6) Engineering design – includes design for civil works, buildings, electronics, etc.


Pros & Cons of outsourcing to third party vendors:
Advantages
• Focus on business core only.
• Benefit from best-of-breed solutions.
• Better quality at lower costs.
• Better process maturity, resource flexibility and economies of scale.
• Flexibility in deploying new technology.
Disadvantages
• Burden of excess capacity or challenge of insufficient capacity.
• High personnel attrition.
• Tight business margins.
• Not enough local financial muscle to sustain tight payback periods.
• Unforeseen developments

Pros & Cons of outsourcing inside host or origin country:
Advantages
• Securing data is less complicated.
• Capture margins that would otherwise go overseas
• Decision making authority contained within the organization.
• Tighter management control
Disadvantages
• Expensive specialist skill in host countries.
• Compliance and legal restrictions.
• Unavailability of skilled manpower due to market stagnation.
• Requires considerable effort in terms of management's time and attention to establish


Contracting a third party service provider allows the outsourcing company absolute flexibility of choice in singular or multiple relationships, up or down scaling, or terminating the same on favorable grounds.

It is estimated that every dollar of U.S. labor cost assigned overseas, generates $1.12-$1.14 in additional value for the American economy by making goods and services cheaper, and companies more competitive. Keeping the service at home incurs high investment with 5 to 10 time's longer payback period; therefore keeping them overseas is the more financially sound alternative.

In return, the countries that receive the outsourcing services generally experience impressive financial growth and higher standard of living for those directly involved. It is definitely a WIN/WIN situation all around.

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