Global outsourcing is a smart growth move for companies that want to scale their operations and access top talent around the world.
No longer used just to save costs, global outsourcing enables companies to spur innovation, find the right talent regardless of location, and expand to new markets.
Global outsourcing is a fast-growing trend, with Deloitte projecting that global spending on outsourcing could hit $731 billion in 2023—an approximate 5% increase from 2022.
Companies that want to gain a competitive edge in a global marketplace should embrace global outsourcing. Read on to learn why global outsourcing is important and how it helps businesses gain market share.
What is global outsourcing?
Global outsourcing is the practice of hiring individuals or companies from another country to perform business functions in an effort to improve operations and meet future business goals. Companies commonly outsource to reduce costs, enhance efficiencies, and focus on core business functions.
Why businesses exercise global outsourcing today
Gone are the days when global organizations turned to outsourcing to replace their domestic employees with foreign talent. Instead, many outsourcing examples today take the form of strategic partnerships with niche providers in industries like data security and HR.
Additionally, businesses aren't only trying to cut costs when pursuing global outsourcing initiatives; they're also trying to fill a skills gap in a way that adds value, increases competition, streamlines processes, and maximizes efficiency.
Let’s take a deeper look at four key reasons businesses pursue global outsourcing below.
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Cut costs
While cutting costs is not the only reason organizations outsource certain operations or skills abroad, it still remains a key benefit of global outsourcing. By outsourcing tasks to specialized talent or providers in other global markets where labor costs are comparatively lower than an organization’s domestic market, businesses can save money.
Additionally, when companies turn to global outsourcing, they also reduce investments in infrastructure, technology, training, and overhead costs.
Scale operations
Global companies that choose to outsource benefit from scaling operations quickly. By outsourcing certain tasks to specialized talent or providers abroad, businesses can expand their capacity without investing heavily in new domestic infrastructure or personnel. They can also focus on streamlined growth as they adapt to market changes without the risk of overextension.
Improve cybersecurity
Recent digital transformations in business—fueled primarily by the pandemic—have presented the need for more robust cybersecurity measures.
Many organizations turn to global outsourcing services to handle digital threats: a Deloitte global outsourcing survey found that 81% of companies today outsource cybersecurity. According to the study, leveraging providers for cybersecurity services “brings not only technology, talent access, and cost savings, but also risk-sharing advantages, as in the case of a data breach.”
Fill a skills gap
In Deloitte’s global outsourcing survey of over 500 business and technology leaders, 50% said their top internal challenge is talent acquisition. Beyond that, 56% of executives said they don’t have the right mechanisms to retain talent.
Global employment outsourcing is effective for filling skills gaps in domestic markets. When engaging global talent pools, organizations can build winning distributed workforces and partnerships by hiring the right people for the right jobs at the right price—unencumbered by borders.
Global outsourcing helps companies bridge skills gaps and improve global talent acquisition and talent retention so leaders can build high-quality teams that help them achieve their long-term goals.
3 ways global outsourcing helps businesses gain market share
There are three primary ways businesses can gain market share with global outsourcing. First, businesses can use outsourcing to engage international talent pools to grow their global presence. Second, outsourcing allows companies to reallocate resources to other business operations. Third, businesses can use outsourcing to diversify their customer base.
Businesses can engage global talent pools
One of the primary benefits of global outsourcing is that it allows businesses to engage international talent to fill skills gaps that exist in their domestic market. By working with talent and service providers in other countries, businesses can leverage new skills and improve business operations while maximizing their budget.
Businesses can reallocate resources
When companies efficiently outsource certain tasks or operations, they can reallocate resources to other business operations. For example, if you hire an agency to handle your cybersecurity needs rather than building and training an in-house team, you can reinvest your cost savings into other critical areas of your business that directly impact competition and revenue.
Businesses can diversify their customer base
Global outsourcing enables businesses to expand and diversify their customer base. By partnering with international talent or service providers, organizations gain a deeper understanding of that market and potential business opportunities it may have in store.
Challenges of global outsourcing
Global outsourcing has its challenges, too. Below are considerations that every growing company should address before pursuing global outsourcing.
Language and cultural barriers
Language and cultural barriers pose significant challenges to global outsourcing. Communication complexities that arise from differences in language fluency and cultural norms could lead to misunderstandings, delays, and errors in project execution.
Companies that outsource globally may find that cultural disparities impact work styles, ethics, and business practices, putting strain on teamwork and client relationships. Successful global outsourcing requires a balance between leveraging diverse perspectives and managing these barriers to ensure seamless cooperation.
International laws and regulations
Companies that implement global outsourcing face complex international laws and regulations. Varying legal frameworks across countries could complicate contractual agreements, data privacy compliance, and intellectual property protection.
Companies must navigate disparate labor laws, tax policies, and export regulations to avoid legal compliance conflicts and potential financial penalties.
To mitigate these challenges, companies must conduct thorough legal research, engage legal experts, and establish clear contractual terms that address jurisdictional complexities. Adhering to international laws is crucial to ensure ethical, lawful, and sustainable outsourcing practices.
Data security
Data security is another challenge in global outsourcing. Outsourcing may require companies to trust external service providers with sensitive information, raising concerns about data protection regulations and practices.
Different legal frameworks around data security could lead to compliance issues, exposing companies to legal and reputational risks. Outsourcing involves sharing data across networks and borders, which could potentially lead to cyber attacks or data breaches.
Selecting trustworthy partners with stringent security protocols and ensuring contractual agreements address data handling and breach response is critical for managing these risks effectively.
Global outsourcing FAQs
Below we answer common questions about global outsourcing.
What is the difference between global outsourcing and offshoring?
Global outsourcing involves delegating various business tasks to external talent or service providers. Offshoring refers to relocating business processes to a foreign country to take advantage of lower operating costs. Offshoring is a form of global outsourcing, but not all global outsourcing involves offshoring.
What are some examples of global outsourcing?
Examples of global outsourcing include hiring offshore call centers to handle customer support, outsourcing payroll and HR services to a third-party global partner, or contracting software development to a team in a different country.
Who benefits from global outsourcing?
Global outsourcing benefits companies, talent, and service providers: Companies benefit by reducing costs, accessing specialized skills, and enhancing efficiencies. Talent benefits by engaging in a larger job market. Service providers benefit by accessing a larger client base and growing their business.
Achieve your growth objectives with an employer of record
Whether you’re exploring Africa or eyeing Asia for your global outsourcing needs, growing with an employer of record (EOR) can help you make the most of your expansion efforts.
If you’re interested in engaging a global talent pool or expanding your services abroad to new customers, an EOR can help you enter new markets while mitigating risk and cost. With an EOR, you can quickly and compliantly hire top talent in international markets without the headaches.
Learn more: What Is an Employer of Record (EOR)?
Velocity Global helps you grow your global footprint
Velocity Global has assisted hundreds of organizations with breaking into new international markets—without setting up an entity or risking noncompliance. Ready to join these organizations and grow your global footprint? Contact Velocity today to learn more.
