Offshoring

Offshoring | Pros, Cons & Myths

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Offshoring is the relocation of the business process of an organization to another country. This can be performed by a subsidiary of the same company, or by another/separate Company. This process has the potential to save revenue for both seller and consumer.

After extensive research on various views on offshoring and outsourcing, companies realize that lots of myths and misconceptions surround this practice. These myths have the potential to thwart businesses from maximizing their profits, as they discourage in engaging in this kind of innovative possibility.

Alongside technological improvements, it has been noticed that decades of productive offshoring that has lowered the costs of consumer goods such as clothing and electronics.

Offshoring activity can be either production offshoring or services offshoring. Production offshoring is the relocation of physical manufacturing processes to another country. Services offshoring is the relocation of a company’s administrative and technical services such as accounting and finance, human resources, sales services, and IT infrastructure.

Offshoring

The IT services that are usually being offshored are IT infrastructure, application development, help-desk services and solutions, and knowledge services that include analytics, engineering support, product design, and research and development. Several IT services can be tedious and time-consuming to perform for small and medium-scale companies especially if they have an IT department that is limited by personnel and resources.

Maximizing the efficiency of operations and boosting operational productivity are the main reasons why you should offshore your IT services to an IT center of another country.

When you offshore your services to a reliable offshore solutions provider you automate your IT services and solve service-related issues much faster.

Positive’s of offshoring

Overall Economic Growth

The decrease in the cost of goods and services as a result of offshoring increases local consumer incomes. This increase in income creates higher consumption and/or savings. Therefore due to growth in consumption local employment increases where the goods/services consumed are locally produced. However, the jobs that may be created can be in sectors different to those from which the jobs were offshored.

Offshoring

Option to Diversify

Businesses which save money due to offshoring can pass on the benefit of savings to their customers, thereby becoming more competitive. In lieu, they may choose to re-invest those savings into their other businesses to expand and generate more local employment typically in a more highly skilled job sector.

Competitive Growth

Growth in jobs and income in the country providing the offshore staff increases their consumption of goods and services. In the long run goods and services are more competitive because of the element of cost savings achieved due to offshoring.

Inflation Benefits

Reduction of costs is one of the principal causes for a company to offshore services. This reduction in costs can better assist control of local inflation and can slow down consumer price rise. This in turn will keep interest rates low and encourages investment and employment.

Tax Revenue Rises

Reducing costs and improving competitiveness ultimately results in more profitable businesses which pay more local taxes.

Offshoring

Offshoring Risks

Hidden Costs

Essentially outsourcing benefit is cost-effectiveness. But keep your eyes pealed for hidden costs that may come-up during development stage. These may ensue from unexpected changes that require immediate adjustments.

Therefore discuss all costs and sundry charges before signing the agreement with your offshore vendor.

Communication Risk

English is the primary language for international communication. People may be proficient in reading English, but not all can write and express in a lucid manner. Accent also plays an important role in seamless communication. To meet projected results, there has to be continuous communication flow between clients and vendors.

There should also be a leeway for cultural and local context to assist communication. Use messaging apps, emails, Skype and project management tools to discuss the project and manage all multi-functional teams.

Offshoring

Privacy and Security Concerns

Apprehensions on privacy should be the top priority for companies that store and process data. Information such as customer names, credit card numbers, and email addresses. After research for offshoring, check if the vendor offers robust security measures. Find the one with unmatched security policies and a dedicated team that enforce them.

Make sure to sign security protocols and non-disclosure agreements before formalizing the partnership. Such steps safeguard your company’s data from possibilities of violation on privacy and security.

Hierarchy

Workplace hierarchy in the US is structured and straightforward than their offshore counterparts.

Hierarchical social structure also has the tendency to limit autonomous thought, creativity, and soft skills. Not all offshore entities function in this manner, these are some legitimate issues that you will need to address initially.

Government Regulations

As outsourcing of critical business processes keeps rising world over, legal issues also increase. Prior to outsourcing, it’s important that you make diligent research on appropriate laws regarding intellectual property and data protection.

Rules of governance are different among nations. Consider at least two legal systems before finalizing. Since there are will be no standard legal rules to follow, it is better that you discuss all legal aspects with your provider.

And ensure that your offshore partner conforms with all necessary native regulations and provides for adequate and accepted levels of transparency when audits are carried out.

Delivery Disruptions

Despite best efforts, vendors can fail to fulfill their obligation to deliver the service as expected. This is a possibility that could happen even with the best methodologies imbibed.

Hence ensure that the committed offshore company provides good-quality service even with least supervision. And choose a reputable vendor after extensive research that meets your technical and business necessities.

Check your vendor’s portfolio of having worked on similar projects to assess their capabilities and complexities. This will give you a necessary clues if they have the expertise, and experience to carry out the job.

Offshoring

Offshoring Myths Busted

Lack of Trust

You may feel the data you share is sensitive information to a third party, hence you may feel it isn’t safe. Relationships are built on trust. The firm you outsource to is highly unlikely to disclose sensitive business information, especially when they want to be taken seriously and protect their reputation.

Lack of Ethics

You’re an ethical business-owner and treating employees equally is important to you. Therefore it’s unlikely that you would prefer to outsource your work to people who are not ethical.

But the fact is offshore workers are paid at least 15% more than other workers in similar industry as in their base country. Although this won’t necessarily translate to the same minimum wage workers receive in your home nation. But it certainly means they’re being paid much more than others who work in a similar industry in the country where they reside in.

Lack of Skill

Closely linked to the pay issue is the notion that offshore workers don’t possess similar skill-set as available in your country. And that outsourced staff represent a ‘cheaper option’ in every sense of the word. But this is not the case, many people choose to outsource because finding acceptable technical skills in their region is challenging.

For example, if you need a group of people who can code for a brief period, it may be difficult to find such staff. Also people are unlikely to move to a new area for temporary work, hence you need to outsource. Checking on quality control processes augurs well for you on the long run.

Economically Debilitating

Offshoring is often necessary when you find it difficult to employ acceptable skills needs via the local talent pool. In some cases, it’s also necessary for budgeting reasons. Its not economically viable to halt business’ activities rather than to outsource and continue making money. By allowing businesses to continue trading, outsourcing is in fact excellent for the economy.

Financial attractiveness –        Availability of staff & skills         Business environment

Offshoring
                         Leading Countries In Offshore Business

Not Tenable For All

Small businesses can benefit from outsourcing as much as big businesses do. Small organisations experience more benefits, as they need additional room in their budget for other activities.

If you suspect you’ll need an outsourcing service and you’re not sure if your business is big enough, it’s better to investigate and find out rather than making assumptions.

Only Economic Gain

There is no denying that cutting costs is a big benefit of outsourcing. Albeit this is the only goal is inaccurate and doesn’t take into account the whole picture. Businesses choose outsourcing to see big and prodigious periods of growth. When organisations go through expansion, they need quick access to personnel at optimal cost. Outsourcing isn’t just about being cost-friendly, but it helps businesses expand, too.

Monitoring Strenuous

A few bad instances shouldn’t become the reflection of the market as a whole.

Offshoring companies invest considerably in their staff and monitor them to ensure timely progress. Creating a relationship with an organization can ensure they communicate regular reports regarding progress. This process is similar to hiring a person you believe is excellent. You’re placing your trust on someone who is based in another country.

Also Read : Business Plan for Startups

Offshoring Conclusion

There is absolutely no amount of truth in the substance that offshoring is a devil in disguise. On the contrary it is a viable option and the need of the hour. Measurable entities can be set to prove that its takings are perceptible for all entities involved. The world is becoming border-less and latest technology has only crumbled distances. It is time that the whole world benefits technological advancements and not only few individuals or organizations.

Offshoring

 

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