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What is BPO (Business Process Outsourcing)?

By Garry Crystal
Updated May 16, 2024
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Business process outsourcing (BPO) is the practice of using a third party, contracted to perform specific, specialized processes on a company’s behalf. Although “outsourcing” in its most basic form has been used for decades, such as when a business uses an outside accountant to balance the books, it has become a practice used by the majority of businesses and large companies, on a much larger scale. By outsourcing certain aspects of “doing business,” the company can focus on its primary purpose, whatever that may be.

There are two primary types of BPO: back office and front office outsourcing. Typical back office processes that may be outsourced include payroll, billing, logistics and human resources. Some companies offer their services in collections, credit analysis and job recruitment. More than ever, processes that one would never think would be outsourced, such as claims processing at an insurance company, are being outsourced to separate companies. Examples of front office outsourcing include technical support, customer service, marketing and advertising.

The foreign call center has become one of the most reviled aspects of BPO, with many located in different parts of the world. Where most companies once touted their customer service as something they took pride in, many customers find themselves having to explain their problems to someone has little vested interest in the company. Outsourcing or “offshoring” customer service to countries such as India saves the company a lot of money and improves their bottom line. Some of the biggest complaints customers have with foreign call centers are heavy accents and obvious scripting.

A company may utilize BPO due to cost considerations, or simply because they do not have the expertise to deal with certain aspects of business. Many companies have come under criticism for using BPO to cut costs, especially in regards to call centers. Companies in western countries, particularly the United States, are finding that countries like India offer the services they need at an excellent price. This is due to the fact that many of these countries have a well educated labor pool, high unemployment rates and a low cost of living. In India, which had approximately 63% of the offshore BPO market in 2006, labor is cheap, and employees are sometimes better educated than higher-paid workers in the US.

Many opponents of BPO lament the fact that western workers are losing jobs to foreigners faster than they are being replaced. While many companies are improving their bottom line by outsourcing, they are facing harsh criticism by consumers for the decline in quality of customer service. Employees may find an outsourced human resources department less accessible than an in-house one. Although BPO may be profitable now, consumer and employee backlash coupled with government restrictions or taxation on the practice may reduce its popularity.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
By anon179943 — On May 25, 2011

Does a person gain experience in BPO sectors?

By anon56621 — On Dec 16, 2009

what is labor outsourcing?

By anon53232 — On Nov 19, 2009

Don't get "offshoring" and "outsourcing" confused. Companies can outsource to call centers and other businesses located in the US.

You don't have to go "offshore" to "outsource." There is a backlash in US/UK regarding outsourcing of call centers to foreign countries because of a lack of proficiency on the part of the foreign contact center personnel.

Recent research shows that foreign contact centers do not resolve issues as efficiently as domestic call centers, and that callers are placed on hold more frequently and for longer periods of time.

It is not accents that callers are objecting to, it is the lack of communications skills and knowledge of the call center agents. And, it frequently takes several calls, not one, to resolve the issue.

When long hold times and multiple calls offshore are taken into consideration, it is just as cost effective to outsource at a US-based call center.

These problems at offshore call centers are costing US companies millions of dollars and driving customers away.

We are all paying the price in higher costs for products/services.

By anon46278 — On Sep 24, 2009

what is the difference between BPO and KPO? Can someone make a career in the BPO industry?

By anon43909 — On Sep 02, 2009

I am MCA nd looking for s/w job but find no job at all. Should i try for the BPO job?

By anon38179 — On Jul 24, 2009

Hi I am working in a financial company. i am getting a job as a in BPO of a big company.is it right for me to change my job

By anon34152 — On Jun 17, 2009

what is back office?

which types of work there?

By sasikr — On Nov 21, 2008

Due to the Inflation and Change of government in the USA, any affect on the BPO Industry? Can you explain ?

By alx468 — On Oct 04, 2008

"The heavy accents and lack of real information turn me off outsourced call centers. There is just too much competition in North America to put up with that. what ends up happening is the company gets written about on the internet in a very unfavorable way, and sometimes loses business to a competitor."

Your probably talking to an Indian dude..Its way different if your talking to a guy or gal in the Phils..We have closer cultural affinity to the US, we are more immersed to your ways being a former colony. The Indians are closer to the Brits..On why US businesses didn't pick up on this simple info is quite a mystery to me...

By anon19002 — On Oct 03, 2008

The heavy accents and lack of real information turn me off outsourced call centers. There is just too much competition in North America to put up with that. what ends up happening is the company gets written about on the internet in a very unfavorable way, and sometimes loses business to a competitor.

By anon10737 — On Apr 02, 2008

can you examine the role of BPO in the wake of globalization?

By suharjan — On Feb 01, 2008

How does offshore outsourcing start? I mean how to find out the companies in US who wants/does offshore outsourcing? Next, the two companies in different countries build mutual trust to start business?

By anon4159 — On Oct 05, 2007

In reply to the quote from Stephen Roach, Morgan Stanley Chief Economist, who states "The best response from the high-wage developed world is to uncover new sources of job creation rather than protect the old ones", he needs to wake up and get a reality check. Corporations in high-wage developed countries do not sit around wondering how to create more jobs and from what sources. What they do, as they have always done, is to figure out ways to reduce cost and generate more profit from other sources - always. Outsourcing, unfortunately, will, and for many years to come, continue to negatively impact workers in the USA but contribute to a company's bottom line.

By alx468 — On Aug 27, 2007

For every $1 the US outsources, it gets $1.46 back in new wealth according to McKinsley & Company(Time Magazine 7/30/07) .. Now, say if they outsource it to the Philippines its going to be at least $2 of new wealth for the US.

"The best response from the high-wage developed world is to uncover new sources of job creation rather than protect the old ones" Stephen Roach, Morgan Stanley Chief Economist.

Now why fight globalization when the rich countries invented the trend? Now that the tide seems to go against you, youll go back to your protectionist policies? nah ah!! sorry its the future...

By anon2931 — On Aug 01, 2007

what is difference between call center and bpo?

By anon1697 — On Jun 12, 2007

BPO creates thousands of jobs in the developing world and also becomes the reason for employment drop in the first world countries like UK and US. But why Americans & British should oppose this? This is exactly what globalization means.ie.the best & the cheapest products/service gets exported to all corners of the world.

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