Offshoring is the process of getting your work done in another country. Essentially, this model increases your output, enhances your working hours and improves your technical expertise.
Other than being located geographically far away, it's pretty much similar to hiring locally. The process and cost of recruiting and paying staff is quicker and much lower. Even expanding your offshore team can be done easily and within reasonable time as compared to doing it in-house.
With offshoring, the administration, payroll, recruitment, accommodation, insurance, except final decisions is handled by the offshoring team.What is Offshoring?
This sort of business process outsourcing is not a new fad; globalized companies have been utilizing this process of business work style for decades. With the introduction of high speed communication, better internet connectivity, and advancement in communication technology, offshoring has become an activity that is handy and an excellent tool for businesses.
Especially now during COVID times, offshoring is a good respite to continue business without too much hiccup.
Countries Reputed For Offshoring
India remains the leading country to outsource. There are 14 super cities listed by experts that have an enviable reputation for offshoring. These cities pride themselves as possessing top talents specialized in IT and software development.
India is the 3rd largest economy after US and China in terms of purchasing power party (PPP) and 10th in terms of nominal GDP. India has moved up prodigiously in the World Bank's ease of doing business ranking due to multiple economic reforms.
Huge youth population, high literacy rate, amazing English proficiency and government aid supports offshoring activities further.
Philippines is another popular outsourcing destination and holds the title 'The BPO Capital of the World'. Being a former colony of Spain and the US helped them achieve cultural compatibility with the West. The country specializes in voice and non-voice-related outsourcing customer service roles like call-center or IT support.
To encourage this industry the Philippines government supports foreign investors to set up BPO companies in the country by providing incentives such as tax holidays, tax-free importation of equipment, and visa assistance.
One another region gaining traction in the off shoring front is Eastern Europe and in particular Ukraine. The country has been continuously receiving recognition from various institutions such as the Global Sourcing Association (GSA) in the UK, IAOP, and A. T Kearney. IT offshoring in expected to rise at the backdrop of COVID as developed countries look to offshore major activities so as not to lose pace which pandemic induced.
Types Of Offshoring
Production Offshoring
When a company establishes its manufacturing unit in a different country, to import the finished goods for selling it in the domestic market, it is termed as production offshoring.
Services Offshoring
A company looking for service offshoring sets up units in other countries to carry out service-related operations such as customer care, information technology, marketing, human resource, accounting, sales and more.
Benefits of Offshoring:
Today one of the main reasons companies look at offshoring isn't cost alone, but availability of requisite man power. There are other benefits to offshoring and it isn't limited to just reducing expenditure (as stated below).
Cost Reduction
One of the most crucial benefits of offshoring is cutting down labor cost and other operating expenses.
Cheap and Skilled Workforce
Offshoring provides competent and cost-efficient labor eager to prove itself in a developing nation.
Complete Assistance
The offshore team holds expertise in its field and will provide relevant solutions for issues related to offshored requirements.
Better Control
A company can ensure appropriate management and regulation of all its operations via offshoring.
Core Business
A firm that offshores its secondary services can now focus more on its core functions.
24/7 Operations
A company has a great advantage of carrying out 24/7 service which would otherwise not be difficult in their own home country.
Risk Mitigation
Offshoring business operations reduces risk of failure, as there are several options available.
Streamline Process
You are assured of a dedicated team that would be working on offshored services to complete the assignment efficiently, effectively and in time.
Tax and Other Benefits
Many developing countries provide various types of incentives like tax benefits, tax holidays, economic zones, necessary infrastructure to attract companies for foreign direct investment.
Offshoring Disadvantages
Offshoring is also a challenge if not handled in the right perspective. While relocating business operations or utilizing offshoring to carry out necessary activities in a different country, firms should not overlook certain drawbacks or hurdles that could hamper future operations:
Language Barrier
Firms foraying into developing nations for relocating business processes could find language an irritating problem to overcome.
Communication Barrier
Difference in language, lingo, customs, slangs and comprehension, that organizations fail to realize at an early stage could curtail effective communication with the offshoring team.
Long Distance Locations
If the offshoring units are located in far off regions then it becomes difficult for the management to visit them often to get to know the ground realities.
Ethical Issues
If the firm pays low remuneration to the offshoring team or in any case if the facilities are run short of basic requirements, it could lead to ethical problems and negative brand image.
Socio-Cultural Problems
A company offshoring to another country needs to acquaint itself with the cultural and social environment or could encounter socio-cultural issues.
Geographical or Political Unrest
Geographical or political problems like riots, protest, shutdowns, political instability, etc. may prevail in the region where the company sets its offshoring which could affect productivity.
Security and Safety Issues
A company's offshoring unit could face threats of lockout and closure if the natives suspect that safety or security issues have not be handled in a correct manner.
Check-list To Select Offshoring partners
As the world continues to be in the throes of the pandemic that is disrupting scores of businesses all over the world, it undeniably opens up new avenues to conduct business - such as offshoring. This also creates new horizons for the technology sector.
Companies recognize that remote workers can be as efficient as the on-site ones so they turn to offshoring with more confidence.
Factors to be considered while selecting an offshoring partner:
- Staff having strong educational background
- A region with a stable economy
- Good English proficiency
- Cutting-edge technologies
- Variety of outsourcing services inculcated
- Smart and effective work environment
- Minimal cultural gap
- Acceptable time difference
- High-security standards
- Optimal pricing
Conclusion
Why companies use offshoring is clear. However, the benefits - real and tangible business advantages of offshoring is worth considering even if there could be few negatives.
Offshoring is an extension of an idea when you have access to skilled developers whom you can easily find and afford, but just happen to live on another continent maybe. Scaling up a company is never as easy as it sounds.
Taking on new employees, especially skilled ones is a huge investment and presents a significant financial risk. Combined with lower costs and other advantages the idea of offshoring is a no-brainer.
Recruiting skilled employees requires expertise and time, but where there is an accessible pool of talent and manpower tailor made for your requirements, companies prefer offshoring which is not surprising at all.
