Key Takeaways:
42% of businesses are outsourcing for improved access to talent, 33% for better work performance and 33% for the adoption of a global delivery model.
The global revenue for business process outsourcing is projected to hit $415.73 billion in 2025.
77% of IT infrastructure services and 72% of software development companies outsource their operations.
Outsourcing also helps you cut costs, speed up processes and access specialized talent. This means faster innovation and a better allocation of resources, putting you ahead of your competitors.
With changing times come changing strategies. In the current business landscape, doing it all in-house can slow you down and drain your resources.
What if we told you there’s a solution that will help you supercharge efficiency, tap into global expertise and boost productivity all at a budget-friendly price?
By outsourcing your operations, you can have all that and more!
Outsourcing isn’t just a trend—it’s a strategic choice businesses are making to scale faster.
From data entry to social media, when you outsource, you get professional support and the time to manage your core tasks.
This article will define outsourcing, outline its benefits and explain everything you need to get started.
Definition of Outsourcing
Outsourcing is a practice in which a company delegates certain business functions to a third party, like a freelancer, independent contractor or outsourcing company. These outsourced employees provide services that were previously done in-house.
This business strategy helps companies reduce costs, gain specialized skills or technology, access global expertise and prioritize their core competency.
Types of Outsourcing
There are more ways than one when it comes to outsourcing.
In today’s competitive landscape, businesses are discovering smarter, need-specific ways to outsource their operations. This helps them tap into expert support without burning a hole in their pockets!
Let’s look at all the different types of outsourcing so you can make your choice.
Based on Location
The location of the outsourced employees impacts time zone differences, communication and cultural compatibility. Depending on the chosen region, outsourcing can be:
- On-site: The outsourced employees work at your physical location.
- Onshore: The work is outsourced domestically, i.e., within your country.
- Nearshore: The work is done in a nearby country.
- Offshore: The work is outsourced to people in an overseas country.
- Multishore: The outsourcing is distributed across two or more locations.
Based on Outsourcing Models
Outsourcing enables companies to set up flexible employment arrangements. Depending on the division of roles and responsibilities, these models of outsourcing include:
- Staff augmentation: Outsourced employees are added to your in-house team. The extended team is managed directly by your company.
- Managed team: The outsourced team works independently and reports to an in-house project manager. The day-to-day management is handled by the external service provider.
- Project-based: The entire project is delegated to the outsourcing company. The project has a fixed end date and your internal employees are not involved in the project.
Why is Outsourcing Important in Business?
Since the late 1980s, outsourcing has been a pillar of global economic growth. The industry has continued to expand with the rise of remote work, hybrid workplaces and coworking offices.
So what makes outsourcing a great business strategy?
Reduce Costs
Companies often outsource to take advantage of cost-effective labor in developing countries like India and the Philippines.
Contracting out to a foreign company also reduces overhead costs, such as recruitment, workspace, equipment and legal compliance.
Focus on Core Business
Outsourcing can help companies and their executives prioritize core business processes.
For example, non-core activities like email management or payroll processing can be contracted to an outsourcing company.
This allows the in-house staff to focus on valuable revenue-generating activities.
Access External Capacity
Outsourcing is a source of external capacity. When businesses lack in-house resources, outsourcing allows them to access external resources, new technologies and a global talent pool.
External experts offer specialized skills, increased efficiency and a fresh perspective.
Boost Productivity
Outsourcing can also relieve the pressure on in-house employees. Expanding the workforce improves productivity and prevents burnout in crunch times.
Working with external providers enables staffing flexibility, so businesses can scale up or scale down depending on seasonal requirements.
Gain a Competitive Edge
Singapore’s late Prime Minister, Lee Kuan Yew, says,
If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.
When you outsource non-core tasks, you get more time to focus on the main tasks that impact your business.
Outsourcing also helps you cut costs, speed up processes and access specialized talent. This means faster innovation and a better allocation of resources, putting you ahead of your competitors.
Such benefits make your businesses more profitable, scalable and competitive.
Disadvantages of Outsourcing
Despite the potential benefits, outsourcing also comes with its own set of challenges.
Your company is handing over some decisions and business processes to outsourced workers. So delegation may feel like a loss of direct control.
There may be miscommunication, conflicting expectations and cultural differences. Ensuring open and regular communication, as well as following best delegation practices, will help you overcome these challenges.
In offshore outsourcing, the time zone difference may delay information flow and hinder collaboration. Some outsourcing providers employ night-shift workers to minimize time differences. This is especially popular for roles like customer service.
Without proactive security protocols, you expose yourself to cybersecurity risks and data breaches. When working with external companies, businesses can use non-disclosure agreements and end-to-end encryption to protect sensitive data like patient or customer information.
What Services Do Companies Outsource?
42% of businesses are outsourcing for improved access to talent, 33% for better work performance and 33% for the adoption of a global delivery model.
Outsourcing the right business operations is key to building and scaling a successful international business.
Businesses typically outsource their non-core functions, which don’t contribute directly to revenue generation. For example, a construction company would hire in-house employees for core functions (like procuring materials) and outsource secondary activities (like video production or research and development).
Many companies also outsource business tasks if they lack the necessary in-house resources, expertise or technical skills. For example, an iOS game studio may contract out Android app development.
The outsourced products or services also depend on the size and needs of the companies. A large multinational corporation may invest in offshore call centers and legal process outsourcing. Small businesses prefer to outsource accounting, IT services and content creation.
From manufacturing and IT to business processes like marketing and customer service, here are some services you can outsource.
| Outsourcing Sectors | Examples |
|---|---|
| Manufacturing Outsourcing | – Medical devices – Pharmaceutical drugs – Electronic products – Automobiles |
| Information Technology Outsourcing | – Software development – QA testing – Cybersecurity – Cloud computing |
| Business Process Outsourcing | – Talent acquisition – Design – Operations management – Administrative tasks |
Manufacturing
Outsourcing manufacturing to foreign factories allows companies to benefit from lower labor costs, availability of skills, cost-effective natural resources and global supply chains.
The outsourced manufacturing industry produces medical devices, pharmaceutical drugs, clothing, plastics, electronic products and vehicles.
Information Technology
The worldwide IT outsourcing market revenue is expected to reach $588.38 billion in 2025. 77% of IT infrastructure services and 72% of software development companies outsource their operations.
IT companies choose to outsource their software development, QA testing, cybersecurity, cloud computing and other information technology services.
Business Process
The global revenue for business process outsourcing is projected to hit $415.73 billion in 2025.
BPO involves business practices like accounting, customer service, human resources and marketing. Tasks commonly performed by outsourced workers include payroll processing, talent acquisition, website design, operations management, administrative tasks, bookkeeping, client invoicing and content marketing.
Examples of Outsourcing
Want to see the practical results of outsourcing?
Here are some real-world examples of how outsourcing has helped high-profile businesses.
BMW and Manufacturing Outsourcing
In 2024, BMW shipped over 2.45 million passenger vehicles.
How does the leading German car manufacturer produce enough vehicles to meet the global demand?
In the early 2000s, BMW set up manufacturing facilities in India and China. Today, they have over 30 production sites worldwide, from Brazil to South Africa.
Outsourcing automobile manufacturing has allowed BMW to focus on its core business functions—designing and selling next-generation cars!
WhatsApp and IT Outsourcing
In early 2009, Jan Koum started coding WhatsApp’s backend, but he lacked the specialized skill of iOS development. Koum solved the issue by contracting Igor Solomennikov, an iPhone developer in Russia. Four years later, Solomennikov relocated to California to work in WhatsApp’s California headquarters.
With over 3 billion active users, WhatsApp is one of the top messaging services today.
Applebee’s and Business Process Outsourcing
Applebee’s had customers clamoring for their classic pasta and salads, with around 1,614 restaurants worldwide in 2024.
But at one point, the industry-wide labor shortage had multiplied the pressure on Applebee’s workers. They just didn’t have the capacity to handle incoming phone calls from customers.
In 2019, Applebee’s started outsourcing takeout orders to external call centers. Hundreds of Applebee’s locations rely on the call centers today, allowing their in-house staff to prioritize the experience of dine-in customers.
How Do Outsourcing Companies Work?
Adding a few independent contractors to an in-house team is fairly straightforward. But this becomes more complicated when businesses delegate multiple tasks, functions or departments.
While freelancers may seem a good choice, they often come with higher costs, inconsistent work quality, a lack of long-term commitment and data security risks.
Many businesses have turned to outsourcing companies to streamline the process and gain external skill sets without the hassle.
An outsourcing company is a third-party service provider for software development, marketing, human resources and other business processes. They are responsible for hiring talent, compensating employees, maintaining infrastructure and supporting day-to-day management.
An outsourcing agency like Zenius handles legal compliance, taxes and employee benefits like health insurance. Whether you are a solopreneur, own a small business or have a large enterprise, you can outsource many tasks.
With an agency, businesses can leverage the benefits of foreign outsourcing without worrying about the administrative burden, regulatory requirements and other hidden costs.
Multiple functions can be outsourced to the same company to enjoy a coordinated and hassle-free experience.
An alternate strategy is to outsource different functions to different agencies, to ensure the best possible expertise and experience in every field.
How Can You Start Outsourcing?
Before signing any outsourcing agreements, you must first define your goals. Ask yourself why you want to outsource.
Assess your existing capacity and choose the right functions to outsource. This will allow your business to focus on core competencies. Consider these factors:
- Is it a non-core activity?
- Does your business lack the necessary in-house expertise or technical skills?
- Is outsourcing cheaper than doing the task internally?
Research well and choose a reputable outsourcing partner that matches your outsourcing needs and budget.
Carefully review the outsourcing contracts to avoid conflicting goals and hidden costs. To prevent future frustration, make sure to explain your work expectations, payment terms, project requirements and communication channels.
How Is Outsourcing Changing in 2025
After the COVID-19 pandemic, the rise of remote work has reshaped businesses globally. So outsourcing to remote professionals is a booming trend.
Some businesses are opting for hybrid outsourcing, blending in-house teams with external outsourcing partners for their operations. And many businesses are also hiring virtual assistants, who are remote professionals managing your back-office tasks.
The offshore outsourcing market continues to dominate for businesses seeking cost advantages, especially in IT and software development sectors. The offshore software development market alone is said to reach $283 billion by 2031, growing at a CAGR of 10.13% from 2024 to 2031.
Outsourcing is no longer restricted to a few back-office tasks. Businesses are adopting the end-to-end service model where they are outsourcing entire functions, such as HR and finance.
The global business process outsourcing market size is expected to reach USD 525.23 billion by 2030. In the future, businesses won’t just focus on the cost-cutting advantage of outsourcing, but seek access to specialized skills.
AI has revolutionized outsourcing and businesses are looking forward to leveraging it to its best capabilities. From routine task automation and AI-driven chatbots to AI-enhanced data processing and machine learning algorithms, AI integration will reshape and enhance efficiency and deliver never-before-seen results!
In short, outsourcing in 2025 is a strategic, tech-driven and collaborative model that’s here to grow in this transforming global market!
Wrapping Up
It’s no wonder the outsourcing industry has expanded rapidly in recent years. Offshore outsourcing has helped businesses reduce costs, save resources and enjoy flexibility.
Whether you’re running a startup or an established company, outsourcing some business processes to agencies like Zenius will help you boost productivity and gain a competitive edge.