History of Business Process Outsourcing

The Business Process Outsourcing began even before the technologies and internet

are introduced in the business world, but is slightly different with how BPO works nowadays.

Back then, BPO is a practiced mainly associated with the manufacturing industry. Huge

segments of operations being outsourced largely focus on the supply chain which involved

raw materials, the production and distribution of goods and services. An example of a

company using BPO back then was Coca-Cola. Coca- Cola was established in the late

1880s and have bloomed its popularity in American market over the years. In 1921, Coca-

Cola decided to outsource their manufacturing operations in the Philippines establishing first

international bottler in the process at the said country. This was a strategy of Coca-Cola to

save cost and secure strong brand image.

As the industry entered late 1990s up to 2000, internet has been introduced but not

quite advanced as it is in today’s generation but still developed the operations of the

business process outsourcing and change its shape and form in the industry. The prime

focus of the Business Process Outsourcing in this generation was cost-cutting. Like before, it

is still used for the manufacturing purposes but other activities have increase its demand to

be outsourced like the office support activities such as using of the Call Center Services. This

also gained flexibility for the business which helped them focus on their main core processes.

BPO in the Philippines

In the Philippines, Business Process Outsourcing started on 1992 with the first

contact center company, the Accenture Global Resource Center which was founded by

Frank Holz. In 1995, the Economic Zone Act was passed by the Congress which is an act of

lowering area requirements for development that can attract more possible foreign investors.
From then on, numbers of outsourcing centers entered and started in the country. In 1997

Sykes Asia was located in the Philippines and become the first multinational in the country.

In year 2000, the Business Process Outsourcing accounted about 0.075% in the country’s

gross domestic product. The “People Support”, which is an U.S based outsourcing center

that was co-founded by David Nash and Lance Rosenzweig in 1998 operated its service in

the Philippines in 2001 which generated over 8,400 jobs. Then in 2003, the Covergy’s

Corporation opened another two call centers in the Philippines when the president of the

corporation, Jake Frecker announced about the incorporation that is happening in the

Philippines in the revenue generation plan and the global expansion of the Convergys. Then

in 2005, Business Process Outsourcing started to grow and generate more revenues and

provided more job opportunities in the Philippines. About 3% of global Business Process

Outsourcing was gained in the country which accounted for almost 2.4% of gross domestic

product in the Philippines. In the following year, the ePLDT Ventus led the Business Process

Outsourcing industry wherein the domestic economy of the Philippines was improved by

5.4%. Because of the increasing growth of the increasing growth up to 2010 wherein 525,000

employees are employed in call centers, had generated revenue of almost 8.9 billion dollars,

and has attracted a lot of foreign investors, the Philippines was declared as the world’s

Business Process Outsourcing capital. The growth of Business Process Outsourcing in the

country doesn’t just stop there and according to the survey for the year 2016, BPO industry is

projected to generate a total of 1.3 million new jobs, with 17% annual growth.

Business Process Outsourcing

According to Grit (2018), Business Process Outsourcing (BPO) refers to hiring a third-

party provider company to handle a specific outward or inward business processes and

activities like human resources management and customer services, letting the other
company take responsible for it. A lot of company conduct this kind of strategy for them to

focus on the main core functions of their business such as product development and

operational excellence

Advantages and Disadvantages of Business Process Outsourcing

There are advantages of Business Process Outsourcing for a business. The first

advantage is how it will allow a business to be more flexible not only with the conversion of

fixed assets to variable cost but also with managing the resources and having to adjust with

the changing environment faster than before. Another advantage is how they can save from

investing to fixed assets and costs and direct the funds to their core activities. The increasing

speed of the business process is also an advantage since the employees from the client

business can focus only on their core activities and the service providers have a good

response of time on when they will have to finish their tasks. Lastly, Skilled Manpower is an

advantage that companies can acquire when they outsource some of the services because

they will be insured that the service provider that will take responsible for the tasks is an

expert in that field.

Although there are number of advantages of business process outsourcing,

there are also some cons that companies should be aware of. Sometimes, communication

between the client and service companies can be hard and possible misunderstanding might

happen. Having different standards of services can also be a problem to the both companies

which can be a hindrance of completing the tasks. The time difference can also be a problem

like setting a meeting or planning. This is mostly experienced by those that use Offshore

Outsourcing. For this kind of problem, the service providers should be the one to adjust with

the time zone of the clients and match with their office hours. Last disadvantage of business
process outsourcing is the loss of control to the quality of the services that is cause by the

misunderstanding between the client company and the service providers. That’s why it is

important to have an effective communication and the transparency with the tasks.

Types of BPO

There are three types of Business Process Outsourcing that is based on the service

provider’s location; The Offshore Outsourcing, Onshore Outsourcing and Nearshore

Outsourcing. The Offshore Outsourcing is a strategy that businesses use where they hire

third-party providers which are from countries that are not near to the company’s home

nation. Information technology related services is one of the type of service that Offshore

Outsource focused on. United States mostly conduct this kind of strategy wherein they will

export IT related work to the countries that are both politically stable and have lower costs

and tax savings. Companies are interested with this type of outsourcing not only because

they can save money in order to be price competitive with their main competitors but can

also help them compete with businesses from other countries. Onshore Outsourcing is

somehow the opposite of the Offshore Outsourcing. Although they both provide a similar

service which is focus with information technology, the location where they will hire the third-

party provider is different. This is a strategy that businesses use wherein instead of hiring

from far countries, they will pick the third party providers that are located within the same

area or country. This type of outsourcing enables companies to reduce the internal

information technology infrastructure and the support staff and still meeting the requirements

that may apply. This type is mostly preferred by companies that follow a strict legal and

operational requirement. Nearshore Outsourcing is the last type of outsourcing which is a

strategy that businesses use to hire third-party provider which are located to the neighboring

countries. This is the type of outsourcing that companies use when they want to save funds
since this is less expensive compared to offshore outsourcing because of the geographical

proximity. The communication will also be easy since some of the followed cultures between

the both companies have similarities with each other.

2 Categories of BPO

There are also 2 broad categories of Business Process Outsourcing that is operated

here in the Philippines and is divided into different types. The first category is the Horizontal

business process outsourcing which involves outsourcing the function-centric based

activities like the procurement, Human Resource, payroll processing and other functions

similar to those mentioned. Another category is the Vertical business process outsourcing

which unlike in horizontal it concentrates in specific industry domain like manufacturing,

retail, financial services, etc.

Types of Services that is commonly outsourced

Within the categories of the Business Process Outsourcing, there are several types of

services and these are the types that are commonly outsourced here in the Philippines. First

is the Call Center Services which is the most popular type of BPO especially here in the

country. They usually provide both verbal and non-verbal services that provide answers and

solution as well as information for the customers. There are 2 main types of Call Center

Services and the first one is the Inbound Sales Center where the call center agents received

the call and entertained questions from customers and possible clients. The questions that

are being asked to them are mostly about installations of the products or inquiries. Another

type of call center service is the outbound sales centers wherein the agents are the one who

will call the customers or possible clients. These are the centers that usually call for lead

generation, sales or conducting a research. Example of this calls are collection reminders,
telemarketing, telesales and insurance sales. Several Call Center Services can be found

here in the Philippines like the Eleora Call Center services that is located in Taguig, Fusion

BPO Services in Pasig, Sutherland Global Services in Makati and 785 more centers which is

located for over 22 cities nationwide.

Next type of service that is being outsourced is the Data Entry Services which

specialized in documentation like filling and processing of forms, data compilation, database

creation and updating online analogs. Some data entry services that can be outsourced are

online data entry, mailing list compilation, PDF conversion, data cleansing, image data entry,

etc.

Many companies outsourced this process to lift weight from their works since this is a

hard process to work with that consume a lot of time. Often, companies have back-up

workers for this service even though they are outsourcing it to be sure that the documents

that they have is disclosed within them. This service is considered by a lot of companies to

be a good profitable decision since outsourcing it can help them have accurate data and can

help the company focus on its core activities. This also requires a low cost compared to other

services that can be outsourced.

There are a lot of benefits that will be gained if a company will outsource their Data

entry service. First one is since this activity will be outsourced to a particular outsourcing

company, they will have well-trained and competitive employees which will result to have a

high quality service outcome. Another is it will ensure the security of the information and the

confidentiality of the customers will be the top priority. Another benefit is that since

outsourcing some activities of the business can lessen the works of the employees this will
help them expand productivity and be focus on what is the core activity of the business.

Example of the third-party companies that offer this type of service are Microsourcing,

Next type of service that is being outsourced is the Human Resource (HR) services.

This service is about the wide range recruitment, screening and hiring of possible employees

for a company. Some of the works that is outsource under this are finding and screening of

candidates, new hire training, employee administration and management, compensation and

benefits management and salary tax computation.

Just like the other services being outsourced, outsourcing HR has several

advantages. First is that companies can reduce fixed cost and save up from 24-32% from

hiring and managing permanent employees that will save them money and time that will be

consumed. Another advantage is how outsourcing this service will help the company gained

a more trustworthy and professional employees since the one that will handle the hiring

along with the requirements to be followed are those who are expert at this field. This can

help the company to lessen their employee turnover. The HR services would also be the one

to manage the personnel functions which includes the health benefit plans, retirement plans,

and workers compensation insurance.

Sometimes, outsourcing the Human Resource service has its disadvantages. One

significant disadvantage from it is the poor internal communication. Outsourcing this service

to an offsite location can lead to a sense of distance between the employees and the

company. This can make the employees feel that they are insignificant to the company.

Employees that are from the outsourced HR can be also different from the regular

employees and will have less understanding of the culture of the company. Sometimes, if the
company sought a lacking outsourced HR service, it may result for some information leaking

of some sensitive information.

There is an estimated of 58 HR firms in the Philippines and some of it are the Noon

Dalton, Staff Outsourcing Solutions in Cebu City, Optimum Source in Pasig City, Premier

BPO in Quezon City and MicroSourcing in Taguig City.

Information Technology Services are also being outsourced nowadays which on IT

infrastructure and IT-enabled services. Those services include desk support which is

performed by experts who can solve a problem about technical hardware and software,

network and server administration which are performed by the administrators who are expert

in installations and executions of networks and configurations, software development and

data center management.

There’s a lot of reason on why to outsource the Information System and some of it

are similar with the reason why companies outsource other services like the cost-cutting,

improve company focus and gain access to exceptional capabilities and reducing the risk

since if a company outsource the information technology service, they can be provided with

the best practice and gain a more accurate outcome. Example of Business Process

Outsourcing companies that offer information technology services are Concentrix,

Teleperformance, August 99 and Sourcefit.

Financial and Accounting can also be outsource nowadays. This service is focus on

Accounting and bookkeeping, accounts payable and receivable management, tax reporting

and preparation and financial analysis, auditing and reporting. Accounting is important to be
specifically and accurately carried out since it will greatly contribute to the financial stability

and success of a business. Since this is one of the services that is part of the in-house

operation which is expensive and should strictly follow the never-ending change of regulation

and policies, many companies outsource this service in order to obtain lot of benefits from it.

One benefit that can be gained from it is it will enable strategic redeployment of staff.

If a company will entrust the work to the accounting staff of their company, it may cause

some manpower constraints wherein when they outsource it and let a specialist finance and

accounting outsourcing company handle the process, that outsourcing company will have a

large team to handle the specific work. Since the workers of the outsourcing company are

trained professionals, it will make the work more accurate and will be a win-win situation for

everyone. While the accounting staff from the client’s company can help with the supervision

and dealing with the service provider in which they will check if all works are accurately

completed. Those outsourcing companies keep track with the constant changes in the field

and can implement the GAAP and IFRS and other accounting guidelines. Outsourcing

services also protects companies in times of difficult economic situations since they will

handle the responsibility of the decisions regarding the internal workforce and payment of

huge compensations in retention pay. MPM Consulting Services INC. is one example of an

outsourcing financial and accounting company.

Procurement Services is also a service that can be outsource to service providers.

The work of this service is to manage client’s purchasing costs, suppliers relationship and

other purchasing requirements which usually includes transaction processing support and

supplier selection, assessment, and monitoring. Companies outsource this service for them
to be guided with matters pertaining to the process and policy compliance since the

procurement BPO firms will have the expertise regarding this field of work.

Conclusion

Business Process Outsourcing is a business practice of using an outsourcing

company to handle some of the services to which will help the client company to focus on the

core activities of their business. All around the world, businesses used this kind of strategy to

save fixed assets and to lessen too much works for their staffs. There are three types of

business outsourcing process depending on the location of the providers which are the

Offshore, Onshore and Nearshore outsourcing. There are also several services that can be

outsourced and some of them are the Call Center services, Human Resource services,

Procurement services, Information Technology services and Financial Accounting.

With the continuous change of the business industry up to now, the development of

Business Process Outsourcing had also drastically change overtime. As it start with the

manufacturing services until it reached the Information Technology services that keep up

with the advance state of this industry, the BPO had also been shaped to a more advanced

state. BPO become an essential part of the business industry and has contributed a big part

in the lessening of unemployment rate and the economic growth. Implementations of BPO

made the works of the companies easier and more precise. It doesn’t just contributed for its

own industry but also for the growth of the economy in a country.
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