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TRENDS IN GLOBAL OUTSOURING

Lions, and Tigers, and Bears. Oh My!

Author’s Corner


In this white paper, Jeff Shelmire, Senior Vice President of Professional Services, elucidates the significance of outsourcing as well as the driving forces behind the shift toward outsourcing across organizations.

Please click on the video to the right to learn more about the author, hear his insights on this white paper, and learn what motivated him to write about this topic.

To discuss this white paper in more detail, please contact Jeff using the information provided at the bottom of the page.

Yesterday’s unconventionality becomes today’s convention


Globalization has changed a lot, as the interdependence of trade partners is accelerating the pace at which the world becomes increasingly connected. During the pandemic we learned many jobs can be performed remotely -- that is, outside the corporate office. Using collaboration software and videoconferencing, businesses and workers everywhere are negotiating the right balance between work-from-office and work-from-home.

As this new paradigm of remote work is becoming standard, it naturally lends itself to thoughts of outsourcing some parts of your business. "After all," business leaders reason, "if work can be performed remotely, it can be performed anywhere in the world where there is a solid internet connection. And, if the work can be performed anywhere, why not use an offshore outsourcing partner?"

It has been estimated that 66% of businesses in the United States outsource at least one department. Outsourcing has been on the rise for the last three decades and now the outsourcing industry is poised for new demand. There are numerous reasons for this. Let's examine four of them.

The #1 Reason Firms Outsource Is to Cut Costs.


Outsourcing allows businesses to save money through labor arbitrage, the practice of locating and then using the lowest-cost workforce to produce goods or services. Essentially, businesses in high-priced geographies look to tap labor pools in lower cost locales. For example, firms in the United States often use companies in India or China to produce goods or services. This is straightforward enough and has been the prevailing reason to outsource since 1989 when it was first recognized as a viable business strategy.

Inflation is putting cost pressures on businesses and is forcing them to look for ways to contain spending. The response to the COVID-19 pandemic from the central banks around the world is one cause of inflation. There are other factors too – supply chain disruptions due to the pandemic, and the war in Ukraine. Inflation of course is showing up in the goods and services we purchase every day. It is also evident in the form of increased spending because of payroll increases. Cost pressures brought about by inflation are driving businesses to look for new ways to contain costs. Outsourcing has been, and still is, a viable alternative for businesses to control costs and maintain margin.

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The #2 Reason Businesses Outsource Is To Gain Access to Skilled Labor.


We see “help wanted” signs everywhere; the global labor shortage is not going away. There are twenty million fewer people in the global labor force today than there were prior to the pandemic, according to the Organization for Economic Cooperation and Development (OECD) which includes thirty-eight member countries. By 2030, the Project Management Institute estimates twenty-five million new project professionals will be needed, according to its 2021 Talent Gap report. Delivering projects on-time, within budget, and that satisfy customer requirements can be difficult due to staffing shortfalls. If not managed properly, these shortfalls can cause quality to erode and deadlines to be missed. Simply put, being unable to satisfy customer requirements due to staffing shortages can add more stress and burden to workers who are already stretched thin. Therefore, businesses can expect more than average turnover within their employee rosters as these overstretched workers become increasingly tired, stressed, and frustrated.

Because of the COVID-19 pandemic, the war in Ukraine, the growing distrust in political and business institutions, and other current affairs, workers are re-evaluating their priorities when it comes to how they spend their time. Many workers are reassessing their employment and what they want in return for the sacrifice of their time and talents. This is one of the factors causing workers to leave their jobs. According to the Bureau of Labor Statistics (BLS), in May 2022, 4.3 million people quit. As of May 31, 2022, there were 11.3 million jobs waiting to be filled, according to the BLS. Reasons workers give for quitting their jobs include:

  • Compensation – They can get paid more elsewhere.
  • Flexibility – Workers want greater flexibility in the hours and locations they work. Workers want to work from home or in a work-from-home/ work-from-office hybrid environment.
  • Health and Wellness – Workers want more time off and more benefits including healthcare, childcare, profit sharing, and 401(k) retirement plans.
  • Culture – Workers want to feel appreciated and recognized for their contributions outside of a paycheck. Specifically, they cite teamwork, closer interactions with management, and an opportunity for continued growth in their fields. They want education and training to advance in their careers, remain competitive among their peers, and not become stagnate. Workers also do not want to be pigeonholed into performing just one job. They want the freedom to test their capabilities in other assignments outside of their normal day-to-day responsibilities.

Seventy-five million baby boomers will retire by 2030, according to staffing firm, Adecco USA, adding to the labor shortage. According to one Goldman Sachs study, almost 70% of the five million people who left the labor force during the pandemic are older than fifty-five and most of them are not interested in returning to work.

The result of workers’ changing priorities is creating churn in the labor force and companies are struggling to find qualified, willing, candidates to take open positions. Outsourcing is one way to alleviate staffing constraints. Outsourcing providers can supply their clients with skilled labor that can be flexed up or down depending on demand. This not only provides access to talent, but it moves the cost curve from fixed to variable. This means that outsourcing contracts can be structured using a “pay as you need” methodology. Outsourcing deals constructed in this manner require businesses to pay only for the transactions processed, and not full-time equivalent employees. By moving from a fixed-cost structure to one of variable-costs, businesses have more flexibility with their expenditures. This is especially attractive to companies that have variable demand based on seasonality or some other factor.

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THE #3 REASON COMPANIES OUTSOURCE IS TO GAIN ACCESS TO TECHNOLOGY AND BEST PRACTICES.


A majority of businesses look to implement automation to help manage the post-pandemic labor shortage. According to a study by Deloitte, 75% of businesses plan to add automation to improve worker efficiency. Alas, 57% of businesses surveyed in the same study are uncertain whether they can successfully implement automation technologies effectively. Outsourcing is a way companies can rely on a partner to bring the best people, processes, and technologies.

Look for an outsourcing partner that uses technologies such as robotic process automation (RPA), natural language processing (NLP), and artificial intelligence (AI) within its delivery framework. A best practice is to leverage the same technology platform as the outsourcing partner when your employees are performing the same tasks. Consequently, firms do not have to gamble their budgets on new technologies which may or may not perform.

Instead, they can use their outsourcing partner to prove out these technologies, while at the same time maintaining the service levels their business demands. For example, an outsourcing partner may start delivering your service using a manual process. Over time the manual process is converted into an automated process in an incremental fashion as the outsourcing company continues to improve its efficiency in the process. Outsourcing firms are motivated to do this; process improvements and improve cost structure and margin. It is a win-win situation for your business and for your outsourcing partner.

THE #4 REASON FIRMS CHOOSE TO OUTSOURCE IS TO INCREASE SPEED TO MARKET.


The supply of goods and services was constrained due to government imposed COVID-19 restrictions. This resulted in pent up demand in the market. Labor shortage, inflation, and supply chain issues are also creating further disruption in the economic system. Disruption creates opportunities and savvy business executives embrace change to stay competitive and outpace their competition.

Having access to people, processes, and technologies enable companies to react to market forces more nimbly and provide businesses with the ability to quickly scale. In most circumstances, outsourcing companies will have staff ready to deploy within six to eight weeks. This is faster than most companies typically can hire, onboard, and train new personnel, thus providing speed to market.

BOTTOM LINE, THERE ARE SEVERAL COMPELLING REASONS TO OUTSOURCE PARTS OF YOUR BUSINESS.


Whether your business needs to cut costs, alleviate staffing pressures, gain access to process and technologies, implement best practices, or increase speed to market, outsourcing helps business leaders achieve their objectives and gain a competitive edge.

Sources:

https://www.weforum.org/agenda/2021/12/career-planning-new-job-priorities/

https://www.un.org/development/desa/dspd/2021/07/trust-public-institutions/

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https://www.indeed.com/hire/c/info/employee-value-proposition

Jeff-Shelmire

Meet the Author

Jeff Shelmire - Senior Vice President of Professional Services

Jeff Shelmire is the Senior Vice President of Professional Services at Vee Healthtek. His expertise and ability to expand the company’s client base into long-lasting relationships brings Vee Healthtek ahead of the curve.