Terms Beginning With 'b'

Business Process Outsourcing (BPO)

What is Business Process Outsourcing?

Business Process Outsourcing (BPO) is a procedure of using a third-party service provider company to deliver operations and responsibilities which otherwise can be done in-house. Typically, in the organisations "non-primary" activities and services are outsourced on a contract basis.

Data gathering, Payroll, customer relations such functions are outsourced, which allows the companies to focus on the core areas of business. Outsourcing can be foreign or domestic contracting.

Types of Outsourcing

  • Onshore – outsourcing within the same country but different city or location
  • Nearshoring – the country where services are outsourced is located nearby to the contracting country
  • Offshoring – Contracting country outsources its functions in a distant country

The services which are outsourced are primarily operational business functions. Also known as subcontracting, outsourcing was once commonly used in the manufacturing industry, slowly the technology companies started to outsource the manpower from other countries, and now BPO services are used in various businesses. BPO vendors provide both back office and front office operation support.

The third-party service provider is employed on a contract or project basis to carry out the business functions in a company.


Outsourcing has several benefits; hence many companies in the world opt for it. Rather than employing a whole team, companies hire one professional who manages the outsourced vendors. It not just reduces operational cost but also allows a global footprint for the company. While BPO has been efficient for many, there are also drawbacks of overdependence on the vendor and security issues, but with technology in place, these issues are no more hindrance.

Image Source: © Kalkine Group

 

Good Read: All You Need To Know About Online Outsourcing Marketplace Freelancer.com

 

What are the common benefits of Business process outsourcing (BPO)?

  • Lower cost: One of the biggest benefits BPO provides to the business is cost control, and this is one of the most acknowledged objectives why organisations outsource services. The third-party services are usually cheaper than having the entire system in-house, such as setting up IT equipment, hiring employees.

Most of the time, BPO services are outsourced to the countries offering less currency rate and lower international tax. Many Business Process Outsourcing (BPO) firms are located in developing nations.

Developing countries allows businesses to take advantage of low-cost labour markets.

 

  • Focus on essential business functions: Many technology companies outsource their IT staff from other countries, or even the cybersecurity companies hire specialists from other countries. It is a widespread practice. While setting up a startup, the focus is on core processes, and the non-core functions are outsourced to BPO firms.

For instance, if a seed-stage technology startup is striving to get the hold of the market, it will not be bothered with building a customer support system in-house. While having a customer service function is essential, in-house isn't the best place. The startup instead could hire a Business Process Outsourcing (BPO) firm specialised in customer service. The startup will receive the efficient end result in a cost-reduced manner.

Businesses can save time and energy for the functions, which are their main business activities that make the brand stand out.

 

  • Improve speed and efficiency: Another important benefit BPO firms provide is that because they are specialised and experienced in the services they provide; it indeed saves time and efforts of your core team members. When the employees can focus on the core functions effectively, it will improve the overall service delivery.

BPO firms also keep improving their own delivery quality to keep up with the competition in the market. They encourage best practices and use the latest technology to provide services. Naturally, the end result is better compared to the in-house setup.

 

  • Expanding global footprint: If the organisation decides to enter overseas markets such as the French market, the company in the US or Australia will not have the required resources to provide customer service in the French language. Even if they do, it will not be at a reduced cost of the level BPO can provide. In such scenarios, the companies send their representative to set up a regional office in the country.

Many companies find it better to hire a local partner company with the local workforce and give them the project on a contract basis. As the native workforce is aware of the local market and has a stronghold on language, it helps them produce better results. The local partner company can help you expand your company's footprints on the international stage at a faster pace and low budget.

Also Read: Onevue Signed Five-Year Outsourced Managed Fund Administration Deal With AUWCM

 

What are the disadvantages of Business process outsourcing (BPO)?

Though outsourcing produces many benefits and the Business Process Outsourcing (BPO) firms, have been a reliable support system for various organisations but if the BPO vendor is not up to the mark, the company may be facing significant risk. You don't want to compromise on the valuable data or become highly dependable on the local partner for operations.

  • Overdependence on the BPO firm: It is more difficult to cut ties with a company than firing an unproductive employee. When the work is outsourced to a BPO company for a very long time, they become an integral part of the operations. They know the company in and out.

If the BPO firm is underperforming, it's a vast process to fire them and hire another firm. Therefore, organisations get accustomed to their work processes, and it impacts on the quality of the services.

  • Hidden expenses: The vendor selection process isn't simplistic; It requires time and efforts to search and initiate the procedures to get them on board. The miscellaneous costs, additional consultation fees, legal fees etc. are some of the add on costs which may appear in the last stage of the process.
  • Security risk: Though the Business Process Outsourcing (BPO) companies are under the legal contract, but depending upon the nature of the outsourcing work, the security risk such as sensitive data leak is always possible. These companies not just hold the classified company data but also customer data.

Customer data is one of the most expensive assets in today's time.

What is an Absolute Advantage? Absolute advantage is one of the key macroeconomic terms, which is based on the principles of Capitalism and is often utilised in international trade-related decisions. Absolute advantage refers to the competence of a company, region or country to produce goods or services in an efficient manner compared to any other economic entity. The efficiency in production can be achieved by: Production of the same quantity of good or services as produced by other entity by utilising fewer amount of resources Production of a higher quantity of good or services as produced by other entity by using the same amount of resources What is the Significance of Absolute Advantage? Different countries or businesses possess a different set of ability owing to their location, soil composition, weather, infrastructure, or human resource skills. When applied in the right direction, various factors may pan out to offer more cost-effectiveness and hence build absolute advantage of the entity in comparison to others.  The absolute advantage remains one of the critical determinants for the choice of the goods or services to be produced. Absolute advantage in a particular area often translates into profitability in the area. The profit margin increases by the achievement of cost efficiency, allowing the entity to ensure higher profitability over the competitors.  For example, let us assume that the US can produce ten high-quality aircrafts utilising a specific amount of resources. China, on the other hand, can build 6 similar quality aircrafts using the same amount of resources. Thus, in the production of an aircraft, the US holds Absolute Advantage Let’s say the US has the ability to manufacture a certain amount of steel using 10 tonnes of iron ore. China, on the other hand, can produce the same quantity of steel using 8 tonnes of iron ore.Here, China here holds Absolute Advantage in the production of steel.  How Countries Build Absolute Advantage? While natural conditions, which include climatic factors, geometry, topography, cannot be altered for achieving absolute advantage, the countries use the underlying factors strategically in their favour. Furthermore, factors of production are focused at by many companies or nations for building absolute advantages.  Some of the strategies for building absolute advantage includes: Development of Technological Competencies- The implementation of innovative or latest technological innovations allows the entities to lower their production cost, facilitating absolute advantage.  Enhancing Skills of Human Resources- The improvement in the cost-efficiency, along with the quality of the products, is targeted through imparting varying skill development programs. Many countries subsidize or aid the apprentice or labour training for enhancing the absolute advantage in trade.  Improving Infrastructure- The infrastructure enhancement in the form of road, telecommunications, ports, etc. can be useful in enhancing the cost-effectiveness across different industries.  What Do We Understand by Comparative Advantage Vs Absolute Advantage? Evaluating the comparative advantage introduces the concept of opportunity cost, which is the deciding factor to determine the production of particular goods or services. Opportunity cost refers to the potential benefits associated with the next best possible alternative which is missed out when one option is chosen over another.  The Absolute advantage simply considers the capability of a business or region to deliver goods or services in the most efficient manner. The Comparative Advantage, however, also takes into account the benefits that are forgone if an entity decides for production of a particular product or services.  Comparative advantage, based on the notion of mutual benefits, is often used in international trade deals. The Comparative advantage has been the major factor driving the outsourcing of services in search of cheap labour.  Understanding through an Example For instance, country A can produce ten televisions with the same amount of resources with which it can make 7 laptops. The opportunity cost per television is 7/10 or 0.7 laptops. Meanwhile, the opportunity cost per laptop is 10/7 or 1.42 television.  It highlights that country A is forsaking the production of 0.7 laptops if it is deciding to manufacture one television. On the other hand, it is missing out the opportunity to manufacture 1.42 televisions for every single laptop manufactured.  Now, say Country B’s opportunity cost for producing a television is 0.5 laptop, and that of producing laptop is 2 televisions. Then, country B will have a comparative advantage in making televisions, and country A will have comparative advantage in producing laptops. It has to be noted that despite country A having absolute advantages in both the products, it would be mutually beneficial for both the countries if country B produces television while country A produces laptops. Do You Know About Absolute Advantage Theory by Adam Smith? The concept of Absolute Advantage was indicated by Adam Smith in his book called ‘Wealth of Nations’ which focusses on International trade theory. Adam Smith, in his book attacked on the previous mercantilism theory, which mainly stressed for economies to maintain trade surplus in order to command power.  The Absolute Advantage theory considered that the countries possess different ability with respect to the production of varying goods or services. It argued that it is not necessary that a state may hold an absolute advantage in the production of all goods, and here the relevance of trade comes into play.  It advocates that countries should produce those goods over which they hold a competitive advantage. It would allow the countries to make the same amount of goods using few resources or in less time. The theory propagates the relevance of trade for economic sustainability.  What Are the Limitations of the Absolute Advantage Theory? The assumptions used in the Absolute Advantage Theory by Adam Smith may limit the application in real bilateral trade. The limitations of the theory by Adam Smith include: Smith assumed that the productive capabilities of a country could not be transferred between the two countries. However, in practical terms, the competitive scenario aids the nations to acquire new capabilities and acquire new resources, especially in the technological and human resource skill aspects.  The two-country trade which was used as a basis for the theory does not consider the trade barriers levied. The present scenario, however, is strikingly dominated by trade wars between economies. Nations impose huge tariffs, import duties and other type of barriers to promote local manufacturers.  Absolute Advantage theory assumes that the trade between the two nations will take place only if each of the two economies holds an absolute advantage in one of the commodities traded. However, in general, countries despite not holding absolute advantage are engrossed in international trade, boosting their economic setup.

It is the average of the worst tolerable process that is considered acceptable. The quality level of a process is accepted if its data falls in between the range of the acceptable quality limits.

What is accounts payable? Accounts Payable (AP) is an obligation that an individual or a company has to fulfill for purchasing goods and services bought from their suppliers and vendors. AP refers to the amount that is not paid upfront and can be paid back in a short period of time. Hence, a good or a service purchased on credit to be paid in a short period will fall under AP. For individuals, AP may include the bill paid after availing services such as television network, electricity, internet connection, or telephone. Most of the time, the bill is generated after the designated billing period, depending upon the amount of consumption. The customers have to pay this obligation within a stipulated time to avoid default. What is accounts payable from a Company’s point of View? AP is the amount of money a company is liable to pay to its suppliers or vendors and clear dues for purchases of goods and services purchased from its suppliers or vendors. AP is required to be repaid in a short period, depending on the relationship with suppliers. It is essentially a kind of short-term debt, which is necessary to honour to prevent default. As the current liabilities of the company, AP is required to be settled over the next twelve months. It is presented in the balance sheet as the account payable balance. For example, Entity A buys goods from Entity B for US$400,000.00 on Credit. Entity A has to pay back this amount within 60 days. Entity A will record US$400,000.00 as AP while Entity B will record the same amount as Account receivable. AP is also a part of the cash flow statement. The change in the total AP over a period is shown in the cash flow statement, hence it is part of the company’s working capital. It is widely used in analysing the cash flow of the business and cash flow trends over a period. AP may also depict the bargaining power of the company with its vendor and suppliers. A vendor or supplier may give the customer a longer credit period to settle the cash compared to other customers. The customer here is the company, which will incur AP after buying goods on credit from the vendor. There could be many reasons why the vendor is providing a more extended credit period to the firm such as long-term relationship, bargaining power of the firm, strategic needs of the vendor, the scale of goods or services. By maintaining a more extended repayment period to supplier and shorter cash realisation period from the customer, the company would be able to improve the working capital cycle and need funds to support the business-as-usual. However, prudent working capital management calls for not overtly stretching the payable days as it might lead to dissatisfaction of supplier. Also, investors tend to closely watch the payable days cycle to determine the financial health of the business. When the financial conditions of a firm deteriorate, the management tends to delay the payment to their suppliers. Why accounts payable is an important part of Balance sheet and Cash Flow Statement? As inferred from the previous paragraphs, AP is part of the current liabilities of the balance sheet. This is an obligatory debt that has to be paid back within a time frame so that the company does not default. AP primarily consists of payments to be made to suppliers. If AP keeps on increasing over a period of time, it can be said that the company is purchasing goods or services on credit more, instead of paying up front. If AP decreases, it means the company is reducing its previous debts more than it is buying goods on credit. Managing AP is essential to have a stable cash flow. In a cash flow statement prepared through an indirect method, the net difference in AP is shown under cash flow from operating activities. The business entity can use AP to create the desired variation in the cash flow to some extent. For example, to increase cash reserves, management can increase the duration of paying back the credit taken for a certain period, thus affecting the net difference in AP. What Is the Role of Accounts Payable Department? Every company has an accounts payable department and the size and structure depend upon how big or small the enterprise is. The AP department is formed based on the estimated number of suppliers, vendors, and service providers the company is expected to interact with; the amount of payment volume that would be processed in a given period of time; and the nature of reports that a management will require. For example, a tiny firm with a low volume of purchase transactions may require a simple or a basic accounts payable process.  However, a medium or a large enterprise may have a accounts payable department that may require a set of practices to be followed before paying back the credit. What is the Accounts Payable Process? Guidelines or a process is important as it provides transparency and smoothness in facilitating the volume of transactions in any time period.  The process involves: Bill receipt: when goods were bought, a bill records the quantity of goods received and the amount that needs to be paid to the vendors. Assessing the bill details: to ensure that the bill or invoice copy includes the name of the vendor, authorization, date of the purchase made and to verify the requirements regarding the purchase order. Updating book of records after the bill is collected: Ledger accounts need to be revised on the basis of bills received. The department makes an expense entry after taking approval from management. Timely payment processing: the department takes care of all payments that need to be processed on or before their due date as mentioned on a bill. The department prepares and verifies all the required documents. All details entered on the cheque along with bank account details of the vendor, payment vouchers, the purchase order, and the original bill and purchase order are scrutinized. The department also takes care of the safety of the company’s cash and assets and prevents: reimbursing a fake invoice reimbursing an incorrect invoice making double payment of the same vendor invoice Apart from making supplier payments, AP departments also takes care of travel expenses, making internal payments, maintaining records of vendor payments, and reducing costs Business Travel Expenses: Bigger entities or firms whose business nature requires all personnel to travel, have their AP department manage their travel costs. The AP department manages the personnel’s travel by making advance payments to travel companies including airlines and car rentals and making hotel reservations. An account payable department may also deals with requests and fund distribution to cover travel costs. After business travel, AP may also be responsible for settling funds supplied versus actual funds spent. Internal Payments: The Accounts Payable department takes care of internal reimbursement payments distribution, controlling and petty cash controlling and administering, and controlling sales tax exemption certificates distribution. Internal reimbursement payments include receipts or both substantiate reimbursement requests. Petty cash controlling and administering includes petty expenses such as out-of-pocket office supplies or miscellaneous postage, company meeting lunch. Sales tax exemption certificates comprise AP department handling sales tax exemption certificates supply to managers to make sure qualifying business purchases excludes sales tax expense. Maintaining Records of Vendor Payments: Accounts Payable maintains information of vendor contact, terms of payment and information of Internal Revenue Service W-9 either manually or on a computer database. The AP department lets management know through reports on how much the business owes at present. Other Functions: The accounts payable department is also responsible to lessen costs by identifying cost structures and creating strategies to reduce the spending of business money. For example, minimising cost by making payment of the invoice within a discount period. The AP department also acts as a direct point of contact between an entity and the vendor. How to Calculate Accounts Payable in Financial Modelling Financial modelling enables calculating the average number of days a company takes to make bill payments. AP days can be calculated using the following formula: AP value can be calculated using the following formula: What is accounts payable turnover ratio? AP turnover ratio shows the capability of a firm to pay cash to its customer after credit purchases. It is counted as an essential ratio to analyse the cash management attribute of the firm and its relationship with vendors or suppliers. It is calculated by dividing purchases by average AP. Purchases by the company are calculated as the sum of the cost of sales and net inventory in a given period: Now let’s understand this with the help of an example. Let us suppose, Cost of sales of Company XYZ for the period was $60,000, and XYZ began with inventories worth $21000 and ended at $15000. AP at the beginning was $20000, and $15000 at the end. Now the purchases will be $66000 (60000+21000-15000). The average AP will be $17500. Therefore, the AP turnover ratio will be 3.77x. Dividing the number of weeks in a year by the AP turnover ratio will give the number of weeks the company takes on average to settle its payables. In this case, it will be around 13.8 weeks (52/3.77). What is the difference between Accounts Payable vs. Trade Payables? Though the phrases "accounts payable" and "trade payables" are used interchangeably, the phrases have slight differences. Trade payables is the cash that a company is obligated to pay to its vendors for goods and supplies which are part of the inventory. Accounts payable include all of the short-term debts or obligations of a company.

What is the Dark Web?  The dark web is one such portion of the World Wide Web which is not accessible by regular search engines. The dark web is considered a hotbed for criminal activities, and it is much more than that. Various websites exist on an encrypted network inside the dark web. Standard web browsers and programs cannot find these websites. Once inside the dark web, different sites and pages can be accessed like one does on the web. Scientists believe that the internet we see is only 4% of the entire ocean of the web, meaning the 96% consists of the "Deep and Dark Web".  The user interface used in the dark web is usually internet-based, but it utilises special software which is not part of the standard ones. There are dozens of web browsers to surf the internet, but they all work in the same way. These standard browsers use ports and protocols to request, transfer and view data on the Internet. The website you access may look familiar, but as you enter, it may be illegal or something familiar but otherwise not monitored by anyone else. Therefore, the deep web and the dark web are famous for being anonymous. Also read: Cyber Espionage Campaign: Strings that tie China, Australia and the US How to access dark web browser? In order to access a few areas which are restricted, the user may need a password and a process to follow. A special software called TOR (The Onion Router) or the Freenet has these non-standard connections. These browsers are unlike standard internet browsers and have a process to access. They allow the users to browse around the dark web and are focused on keeping the user identity anonymous. If hacked or accessed, the regular web browser can easily provide user information such as who the user is and whereabouts. Though the dark web is providing 100% anonymity, federal agencies have been successful in tracking down criminal activities on the dark web. It is often said that the person you are talking to on the dark web could either be an FBI agent or a criminal. Image: Kalkine   What happens inside the world of the dark web?  The dark web is famous for allowing sinister activities, but many users go on the dark web to access information which otherwise may not be accessible on standard internet. Such as users from extremely oppressive governments who cut access to the world for their citizens. Unfortunately, such confidential environments also provide open platforms to criminals, terrorists and other such individuals involved in illegal activities.   Hence, experts advise users to not access the dark web even out of curiosity as it is a lawless environment. There have been many incidents where innocent, curious users were trapped and forced to get involved in criminal activities or their digital devices hacked and compromised without their knowledge.  A study conducted by a University of Surrey researcher Dr Michael McGuires in 2019, Into the Web of Profit, shows that the dark web has become worse in recent times. Since 2016 of all the listings on the dark web suggested, 60% could harm companies. Everything illegal and criminal can be found on the dark web, it also has other legitimate options such as chess clubs or book clubs, but because of the anonymity, the user will not know whom he/she is interacting with. Inside the dark web, anonymity and lawless nature make the crimes which exist otherwise in our society hard to trace.  The payment procedure inside the dark web is also different from the World Wide Web. Most often, Bitcoin and Monero cryptocurrency are used for the transactions.    RELATED READ: Knock Knock! Cybercriminal at Your Doorstep   What’s the difference between the deep web and dark web? The dark web is part of the entire deep web and is hidden from regular browsing access. Most people confuse the deep web and the dark web as one entity. It is not. The deep web content includes anything hidden and restricted behind the security wall such as content which otherwise requires paywall or sign-in or blocked by the author. Content which cannot be easily accessible on regular internet such as medical records, membership websites, paid content are available on the deep web; hence it is also called Invisible Web.  No one really knows the total size of the internet, but the experts believe that the standard World Wide Web consists of only 4% internet, the deep web consists of 90% and dark web consists of 6% of the entire internet.  ALSO READ: Technology has changed the way we work amid the COVID-19 crisis: A look at in-demand technologies Image: Kalkine     Also read: It happens again, NZX being bullied by Cyber-attackers- Down for the fourth day   What kind of risk companies face due to the dark web?  The Into the Web of Profit report listed below threats various organisations around the world are facing, especially the ones who have weak or insufficient cybersecurity measures.   Malware attacks Distributed denial of service (DDoS) attacks Botnets Trojan, keyloggers, exploits  Espionage  Credentials access  Phishing  Refunds Customer data Operational data Financial data Intellectual property/ trade secrets    Also read: Cybersecurity and the Requirement of a Resilient Environment in Australia  Are there advantages and disadvantages to the dark web?  The dark web provides complete anonymity, the users get complete privacy to perform any activity, be it illegal or legal. Many countries in the world still have authoritarian regimes offering no civil rights to their people. To such oppressed lot, the dark web provides an opportunity to access news, information, data and also express their views. The dark web is also a perfect place for law agencies to map criminal activities while being undercover. It is also easy to commit gruesome crimes through the dark web as it is complicated and lawless. Criminals can easily use the dark web to compromise someone's privacy, steal data or private information or even hire someone to commit murder.  Do internet users need to be concerned about the dark web?  The simple answer is no unless the user is using the dark web. Study says that most young people visit the dark web out of curiosity. They do not want to indulge in any criminal activity but want to see how the hidden and secret world of the dark web operates. And that is where the possibility of the electronic device IP address getting hacked by other criminals to perform their criminal activities lies.  The earliest use of darknet dates back to the year 2000. Freenet was created at the University of Edinburgh based on a student research paper. Ian Clark wrote the paper in 1999 on the possibility of such an encrypted internet base. Freenet was created to oppose censorship and provide a platform for free speech. The most powerful dark web is TOR, and it was created by the United States government to have a secure encrypted communication in case of emergency and complete disaster. Even today, many law agencies are secretly active inside the world of the dark web to gain access in the criminal world and stay one step ahead.

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