BUSINESS PROCESS OUTSOURCING

Introduction of Business Process Outsourcing:-

Business process outsourcing is an agreement in which one company hires another
company to be responsible for a planned or existing activity that is or could be done internally,
and sometimes involves transferring employees and asset from one company to another. The
terms outsourcing which can came from the phrase outside resourcing. In simple word we can
say that outsourcing is also the practice of handling over control of public service to private
enterprises, It also includes both foreign and domestic contracting. In domestic there is some
terminology use as outsourcing include Offshoring which mean relocating its operational
process from one country to another country which has taxable relief or other such suitable
environment which is favorable for its operations. And another one is also used commonly is
Near shoring it mean transferring its operation to nearby country. Another one is Farm shoring
it refer to USA rural located country and the last one is Home shoring it is a form of IT enabled
transfer of service industry employment from offices to home based with appropriate telephone
and internet facilities. We can say that an intermediary is when a business provides a contract
service to another organization while contracting out that same services. As we talk about
business process outsourcing is to do anything which is used to satisfying the need and wants of
whole society ,to fulfill those needs and wants company take helps from another company, either
domestic region organization or international does not matter its provide services or
manufacturing industry. In real world businesses have to face lot of challenges ,due to
competition environment and every individual want better living standard, best product and
services to improve its living standard ,so in modern era business have to give its product to its
customer at lowest prices and high quality product to remain persist in challenges economy.
When the business can not meets that quality which customer want at that price then they
decided to buy that part from another company .Business process outsourcing is a contracting
out of a company noncore non revenue producing activities to specialist. It differ from
contracting in that outsourcing is a strategic management tool that involve the reconstructing of
an organization around what it does best of its core competencies. Three common types of
outsourcing which is used by company in our country these are Information Technology
Outsourcing, Business Process outsourcing and Legal Process outsourcing. Business Process
Outsourcing relates to the accounting, human resources, benefits, payroll and finance functions
and activities. All these activity fall under broad category of Knowledge process outsourcing. In
Pakistan there is most competitive and popular IT outsourcing destination in the world tops
tanking of outsourcing report, and China is in second position. Global outsourcing index is a
necessary and effective tools that offer a business community a baseline. It is a first milestone
process that should give a business and corporate communities a road map to right outsourcing
process. International whiteboards offer all the relevant information about specific countries,
their relative advantages and the specific resources capabilities. It is sub contracting process
such as product design or manufacturing, to a third party company. The decision of outsourcing
is often made in a interest of lowest price or making better use of time and energy cost
redirecting or conversing energy directed at the competencies of business or to make more
efficient use of land, labour, capital and information technology resource.
 Outsourcing become part of business lexicon during 1980s.It is essentially a division of labor.
The Economist says made its presence felt since the time of the Second World War, often
involves the contracting of a business process either operational or non- core functions, such as
manufacturing, call center support. Business process outsourcing contain s the transmission of
process along with the related operational activities and responsibilities, to third party with at
least a guaranteed the same service level and where the client contains a firm grip over the
behavior of the vendor for mutual long term success .It is positively associated to the search for
more efficient organizational design to cost decrease and productivity increase and innovation
capabilities. Normally business process outsourcing is undertaken by developed firms. Standing
on the shoulder of s of the innovation time, a new generation of the times, a new generation of
visionaries has leaped ahead. Companies are often drawn to BPO because it affords them
greater operational flexibility. By outsourcing non-core and administrative functions, companies
can reallocate time and resources to core competencies like customer relations and product
leadership, which ultimately results in advantages over competing businesses in its industry.BPO
offers businesses access to innovative technological resources that they might not otherwise have
exposure to. BPO partners and companies constantly strive to improve their processes by
adopting the most recent technologies and practices. Although BPO originally applied solely to
manufacturing entities, such as soft drink manufacturers that outsourced large segments of their
supply chains, BPO now applies to the outsourcing of services, as well.

Business Process Outsourcing Defined:-

Business process outsourcing is defined simply as a movement of

business process from inside the organization to external service provider. With the global
telecommunication infrastructure now well established and consistently reliable, Business
process outsourcing initiative often include shifting work to international providers.

“Business process outsourcing is a form of outsourcing which involve the

contracting of operations and responsibilities of a specific business function to a specific
service provider”.

“Business process outsourcing (BPO) is a method of subcontracting various

business-related operations to third-party vendors”

“There are two contrasting views of the outsourcing market, one emphasizing the
core competencies perspective and the other adopting a cost discipline views. But both views
agree that in order to be competitive companies need to outsource”

The breadth of a business' BPO options depends on whether it contracts its operations within or
outside the borders of its home country. BPO is deemed "offshore outsourcing" if the contract is
sent to another country where there is political stability, lower labor costs, and/or tax savings.
Outsourcing your non-core activities will give you more time to concentrate on your core
business processes. Offshoring can give you access to professional, expert and high-quality
services. With outsourcing your organization can experience increased efficiency and
productivity in non-core business processes. Outsourcing can help you streamline your business
operations. Offshore outsourcing can help you save on time, effort, manpower, operating costs
and training costs amongst others. Outsourcing can make your organization more flexible to
change.You can experience an increased control of your business with outsourcing.Your
organization can save on investing in the latest technology, software and infrastructure as your
outsourcing partner would be investing in these.Outsourcing can give you assurance that your
business processes are being carried out efficiently, proficiently and within a fast turnaround
time. Offshoring can help your organization save on capital expenditures.By outsourcing, your
company can save on management problems as your offshore partner will be managing the team
who does your work.By outsourcing, you can cater to the new and challenging demands of your
customers.Outsourcing can help your organization to free up its cash flow • Sharing your
business risks is possible with outsourcing.Outsourcing can give your business a competitive
advantage as you will be able to increase productivity in all the areas of your
business,Outsourcing can help your organization to cut is operational costs to more than half

Business Process Outsourcing With the Help Of Diadram:-

Element Of Business Process Outsourcing
Business Process Outsourcing in today's world is seen as a strategic management
option rather than just a way to cut costs. It helps achieve the companies their business
objectives through operational excellence and an edge in the market place. The following is a
chart manifesting the elements of BPO that can be outsourced: Every company today, has one or
more of its services outsourced so that it can focus more on its core competencies. Outsourcing's
emerging power as a business tool of unique versatility and flexibility is undoubted. Resources of
the companies need to be focused on core business functions so the non-core functions need to be
outsourced. Outsourcing gives you the right combination of people, processes and technology to
operate effectively in the Global market place without burdening your time and budget. This is
the reason why more and more companies are showing interest in outsourcing there activities to
various offshore locations. With the cost to bring a product from development to market having
increased significantly, outsourcing is seen as a potential savior. Two prime factors come into
play when searching for a reliable outsourcing provider: quality and price.
Offshouring Business Process organization
Offshore outsourcing is the practice of hiring an external organization to
perform some or all business functions in a country other than the one where the product or
service will be sold or consumed. It can be contrasted with off shoring, in which the functions
are performed in a foreign country, whether by the foreign subsidiary of the same company or a
third-party. Opponents point out that this sends work to other countries than the one the
opponents live in, thereby reducing domestic employment and domestic investment in the
countries which, because of higher wages, are subject to outsourcing by countries with lower
wages. Many jobs in the InfoTech sectors - such as data entry, computer programming, and
customer support in countries such as the United States and the United Kingdom have been or
are potentially affected.

The general criteria for a job to be offshore-able are:

 The job does not require direct customer interaction.

 There is a significant wage difference between the original and offshore countries.

 The work has high information content.

 The work can be transmitted over the internet.

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 The work is easy to set up.

 The work is repeatable.

The driving factor behind this development has been the need to cut costs while
the enabling factor has been the global electronic internet network that allows digital data
to be accessed and shipped instantly, from and to almost anywhere in the world.

Nearshore Business process Outsourcing

Many top corporates, who have adopted outsourcing and have enjoyed the benefits, are
slowly finding out the advantages of an upcoming concept of Nearshore Outsourcing. Near-
shore Outsourcing is the practice of outsourcing work to neighboring countries rather than
outsourcing them to far off countries.
For Example

Many companies in the US outsource work to Canada and Mexico.

Geographic proximity means that travel and communication is easier and less expensive,
there are likely to be more similarities between the cultures, and people are more likely
to speak the same language. This makes the outsourcing process easier.

Benefit Of Business Process OutSourcing :-

 Strategy to Eliminate Noncore Functions
 Business Process Outsourcing not confirmed to routine task
 Technological Innovation
 Improve Human Resource
 Tax Benefit
 Favorable environment
 Reduction in Operational cost
 Optimum Utilization Of Resources
 Competitive edge
 Productivity Improvement

Drawback of Business process Outsourcing:-

 Security Breaches
 Relationship Challenges (Communication)
 Degree of Independence

Effect of Business Process Outsourcing on Economy:-

 Unemployment within Economy

 Effect on tax Collection
 Effect on small Business.

The Outsourcing market is growing tremendously in the coming few with increasing
years with an increasing advantage as discussed below:-
 Strategy to Eliminate non course Function (BPO)
Outsourcing your non-core activities will give you more time to
concentrate on your core business processes. Efficient business strategy is essential to
take the business to the top. Outsourcing enables the top management level to hand over
critical but non-core activities of the business to the third party. This facilitates top
management level to concentrate on the core activities. Every organization limits on the
resources available to it. Outsourcing permits an organization to redirect its resources
from non-core activities toward building knowledge sets with long-term pay back and
impact on innovation. The constant challenge is to ensure that its limited resources are
expended in the most valuable areas. Outsourcing permits an organization to redirect its
resources from non-core activities toward activities that have the greater return in
serving the customer. Most often, the resources redirected through outsourcing are
people resources. By outsourcing non-core functions, the organization can redirect these
people, or at least the staff slots they represent, onto greater value-adding activities. In
rapid growth periods, the back-office operations of a company will expand also. This
expansion may start to consume resources (human and financial) at the expense of the
core activities that have made your company successful. Outsourcing those activities will
allow refocusing on those business activities that are important without sacrificing
quality or service in the back-office. With outsourcing your organization can experience
increased efficiency and productivity in non-core business processes
 Business Process Not Confirmed to routine task
 Productivity Improvement

Outsourcing lets the company focus on broader business issues while having
operational details assumed by an outside expert. For many companies, the single most
compelling reason for outsourcing is that several of the `how' type of issues are
siphoning off huge amounts of management's resources, time and attention. Too often,
the resolutions of these issues are stuck in middle management "decision gridlock". This
creates financial and opportunity costs that affect the organization's future. Outsourcing
can enable an organization to accelerate its growth and success through expanded
investment in the areas, which offer it the greatest competitive advantage BPO enables to
the corporate executive to concentrate upon core business areas. Conventionally
executives spend more time in management of details and they get very little time to
formulate strategies. BPO saves time and helps the executives to explore new revenue
areas, accelerate other projects and focus on their customers. This leads to improvement
in the productivity. Better educated or skilled people perform the task efficiently and thus
improve productivity. Periods of high employee turnover will add uncertainty and
inconsistency to the operations. Outsourcing will provided a level of continuity to the
company while reducing the risk that a substandard level of operation would bring to the
company. Example: The human resource manager is on an extended medical leave and
the two administrative assistants leave for new jobs in a very short period of time.
Outsourcing the human resource function would reduce the risk and allow the company
to keep operating.
 Technological Innovation
Technology is the leading area of outsourcing. It makes much of the work of
modern organisation easy. Investing in new technology is very costly and often risky. As
the technology market develops rapidly, it is difficult to keep pace with the latest
innovations and solutions. Thus outsourcing to companies that have the resources,
expertise and desire to continuously update their technological solutions, offers a true
advantage of outsourcing. By the very nature of their specialization, outsourcing
providers bring extensive worldwide, world-class resources to meeting the needs of their
customers. Partnering with an organization with world-class capabilities can offer:
access to new technology, tools, and techniques that the organization may not currently
possess; better career opportunities for personnel who transition to the outsourcing
provider; more structured methodologies, procedures, and documentation; competitive
advantage through expanded skills. Today, customer expectations and preferences can
shift at the speed of a mouse click. The specialized capabilities of an outside expert are
increasingly important in building that next generation solution. As an executive from
Home Depot put it, "If we don't look at what everybody else is doing out there we'll
become complacent, we'll become less innovative."
 Improve Human Resource
Improved HR is another great advantage of outsourcing business processes.
Cost effective manpower is yet another important factor of importance in BPO.
Companies today, require productive and efficient human resource that can generate
economies of scale. Due to outsourcing business can save Human resource cost,
depending on their priorities. Outsourcing gives a company the ability to get access to
skilled and trained man power at extremely low rates. A large project needs to be
undertaken that requires skills that your staff does not possess. Onsite outsourcing of the
project will bring people with the skills you need into your company. Your people can
work alongside of them to acquire the new skill set.
Example: A company needs to embark on a replacement/upgrade project on a variety of
custom built equipment. Your engineers do not have the skills required to design new and
upgraded equipment. Outsourcing this project and requiring the outsourced engineers to
work on-site will allow your engineers to acquire a new skill set.
 Tax Benefit
Credit institutions need to develop customized norms for the BPO industry. The
availability of risk capital needs to be enhanced in early stage ventures. Third party
hosted infrastructure BPO companies should be eligible to favorable tax treatment
afforded to the infrastructure
 Favorable environment

 Reduction in Operating cost

The single most important tactical reason for outsourcing is to reduce
or control operating costs. Access to the outside provider's lower cost structure is one
of the most compelling short-term benefits of outsourcing. This access to the outside
provider's lower cost structure, may be the result of greater economy of scale or some
other advantage based on specialization, it is clearly and simply one of the most
compelling tactical reasons for outsourcing. In addition, companies that try to do
everything themselves may incur vastly higher research, development, marketing,
production and employment expenses - expenses that have to be passed onto the
ultimate customer. Today's customers are too sophisticated to accept the costs
associated with an organization's attempts to maintain singular control over all its
resources. Cost savings can be significant to any business. BPO not only helps in
reducing cost but also increase productivity and raise revenue significantly. Cost
reduction is possible through process improvements, reengineering, and use of
technologies that reduce and bring administrative and other costs under control.
Outsourcing helps the company maintain lower rates with better service solutions,
thereby giving them a better market position and even a competitive advantage.
 Optimum Utilization Of Resources

Business Process Organization enables optimum utilisation of resources of scarce

resources. Outsourcing helps to capture new efficiencies and reallocate the
resources. This increases the efficiency and productivity. Availability of skilled
employees and adoption of sophisticated technologies leads to utilisation of resources
and productivity.
 Canter to changing customer demand

It is another great advantage of outsourcing the business processes. Many

Business Process Organizations provide the management with flexible services to
meet the customers’ changing requirements, and to support company acquisitions,
consolidations, and joint ventures.

 Competative Edge
 If you want your organization to stay ahead of competition, concentrate on
core competencies and make use of the latest technologies, then outsourcing can help
your organization achieve all this and more. In outsourcing, the advantages of
outsourcing are more than the disadvantages of outsourcing. The pros of outsourcing
have driven more organization to step into offshoring and experience the benefits that it
has to offer.

Drawback Of Business Process Outsourcing

 Security Breaches

 Relationship Challenges
Loss of control on offshored operations is an area that clients have traditionally
been concerned of in light of the cultural, administrative and geographic distance between the
client and the service-provider. The anxiety accrues due to two prime factors respondents cite –
perceived inability to influence the quality of the service and the inability to determine what is
going wrong due to inadequate or inaccurate information. The implication of the perceived loss
of control has been on high expectations from service providers and the detailed drafting of
SLA’s with respect to quality controls and communication flows. Although SLA’s encompass all
areas of client and service-provider rights and responsibilities, the expected quality of the
service and the evaluation criteria for measuring the service delivery is the one of the most
critical aspects of the contract. In addition to the traditional metrics of quality such as accuracy
levels, rejection rates, field error rates, turnaround time etc., the role of softer aspects of quality
such as client and end-user satisfaction is being highlighted. This change is being stressed in
light of the maturing drivers of offshoring, moving away from a pure cost-saving objective of one
enhancing overall productivity and quality of service. Although leading service providers invest
continually in quality initiatives such as six sigma, COPC, lean-service models, respondents
foresee that in the years to come, these initiatives will progress from being service differentiators
to ‘must-haves’. To corroborate adherence to the defined quality standards, respondents state
that the role of presenting accurate, consistent and timely information has also become critical.
Dashboard and MIS report structures are defined for each stage of the project clearly specifying
aspects such as frequency, time, content, initiator, participants and medium. In addition,
escalation timelines and levels are specified to insure de-bottling of communication flows. In
terms of operational communications, immense importance is being attached to the
documentation of communication flows between the clients and service providers.

 Degree of Indepence

Business Process Outsourcing Impact of Economy

 Employment Issue with In economy

 A part from the above-mentioned advantages, favorable policies of
Indian government are also a huge advantage for foreign companies. Government is
pulling a lot of FDI (foreign direct investment) into the country.

 The liberalization and deregulation initiatives taken by the Indian government are
aimed at supporting growth and integration with the global economy. The reforms
have reduced licensing requirements and made foreign technology accessible.
The reforms have also removed restrictions on investment and made the process
of investment easier.
 The government is actively promoting FDI, investments from NRIs (Nonresident
Pakistani) including Overseas Corporate Bodies (OCB's) owned by the NRIs
 Amendments have also been proposed in the Pakistani Evidence Act, Pakistani
Penal Code and the RBI Act. The mechanism of digital signature has been
proposed to address the issues of jurisdiction, authentication and origination.
 Recognizing the importance of Venture Capital Funding, the Ministry of
Information Technology has set up a National Venture Fund for the Software and
IT Industry with a corpus of Rs.100 crore in association with the Small Industries
Development state Bank and Industrial Development Bank of Pakistan. The aim
of the Fund is to provide Venture Capital to start up software professionals and
IT units in the small-scale sector.

The abundant skilled manpower has made India a target destination for multinationals to back
end their operations in our country. Pakistan ranks high in areas such as qualifications,
capabilities, quality of work, linguistic capabilities and work ethics, and thus is ahead of
competitors such as China, Philippines, Ireland, Australia, Canada, India etc.

 Impact of outsourcing on tax collection

  Impact of outsourcing on small businesses

Final Words on Outsourcing