As a result of the COVID-19 pandemic, businesses, regardless of their size, are striving to remain profitable by exploring various options, such as outsourcing some of their business operations to offshore partners.
Offshore outsourcing can provide significant benefits to companies, such as cost savings and a competitive edge in their respective industries. However, it can also pose challenges, including dealing with foreign regulations, different time zones, and cultural barriers.
This article comprehensively analyses the advantages and disadvantages of offshore outsourcing. Additionally, we’ll address four frequently asked questions about offshore outsourcing, including the common business services that can be outsourced to an offshore company.
5 key pros of offshore outsourcing
Offshore outsourcing involves engaging a foreign third-party organization to oversee some of your business operations. Many businesses find this strategy appealing due to the numerous advantages it offers. Some of the key benefits of outsourcing to an offshore partner are:
- Reduced labour costs
- Improved access to skilled professionals
- 24/7 business support
- Ability to focus on core competencies by freeing up time and resources
- Rapid business expansion
- Favourable foreign policies to facilitate company growth.
Here is an in-depth examination of five common advantages of offshoring:
Massive cost savings
One of the primary reasons small businesses opt for offshoring their operations is the significant cost savings they can achieve.
By hiring an external organization or offshore vendors, you can avoid the expenses associated with resources, tools, technology, and infrastructure. These costs are typically factored into the contract with the outsourced partner and are often a fraction of what you’d pay in a developed country.
This is primarily because developing countries typically have lower labour costs than developed nations, allowing you to capitalize on the savings. In addition, you can bypass mandatory employment expenses such as social security taxes and healthcare insurance, which are common in the United States.
For instance, salaries in the US are roughly 12 times higher than in India. Therefore, outsourcing to an Indian company can significantly enhance your profits while taking competitive advantage of their lower labour costs.
Consider the following outsourcing companies:
Triniter is a top choice for businesses seeking a reliable customer support outsourcing partner, having served over 1000 clients.
With 10+ years of experience in software outsourcing, AppTechub has developed over 2000 mobile apps, web apps, and software products for clients. They offer a 200% no-questions-asked money-back guarantee if the quality software product is not delivered by the deadline.
TrinityWired is a leading player in the software outsourcing industry, employing over 300 professionals across 30 domains.
DataPowerHub is a popular data entry service provider based in India, boasting a 100% accuracy rate in data entry for over 8 recent years. They offer a 200% money-back guarantee if they fail to maintain accuracy and can also provide assistance with data mining, data management, data processing, internet research, and other related services.
Opportunity to work with experts and specialists
Recruiting specialized professionals in fields such as IT, software development, or finance domestically can be challenging. Outsourcing these technical business operations can provide access to experts with niche skills.
Countries like India and the Philippines have a vast pool of software engineers and offshore developers. Furthermore, these regions have a substantial number of professionals with high proficiency in the English language and college degrees.
In addition, outsourcing product development to countries like China can be advantageous if you intend to launch a new product. China, Vietnam, and several other Asian countries have a reputation for delivering skilled manufacturing services. They possess the necessary infrastructure to develop and ship a product, resulting in a faster process.
Round-the-clock customer support
In the internet age, the concept of standard business hours has become obsolete as consumers now have access to products and services around the clock. As a result, businesses must be prepared to promptly address any issues or concerns their customers may have.
To ensure that your company is equipped to provide 24/7 customer service, you may consider outsourcing to an offshore provider in a time zone differences. By leveraging the availability of employees in other parts of the world, offshoring offers a practical solution for offering round-the-clock customer support. Once your business hours are over, the offshore provider can seamlessly attend to your customers’ needs.
Positive governmental regulations
Numerous foreign governments provide tax exemptions and other incentives to companies that invest in their economy and create job opportunities. This can significantly boost your company’s profitability and enhance its financial performance.
For instance, offshore destinations like the Philippines offer attractive financial incentives and reduced business regulations to encourage foreign investments in their country. Such foreign investment creates job opportunities, drives economic development and promotes long-term growth in the nation.
The Philippine Economic Zone Authority (PEZA) and the Board of Investments (BOI) are the primary investment promotion agencies that offer investors special investment packages and incentives. These tax benefits and financial incentives make it easier for companies to relocate to an offshoring destination in a different country.
One of the advantages of outsourcing business operations to a foreign country is the scalability it offers. Rather than investing time and resources in recruiting and training an in-house team to handle non-core activities, you can leverage an external entity with the necessary workforce to meet your requirements. This frees up your resources to focus on core business functions and expand your enterprise. This allows you to explore new markets and expand your business’s reach, facilitating growth and scalability.
Four significant drawbacks of offshore outsourcing
Offshore outsourcing provides numerous benefits, such as significant cost savings and business scalability. However, it is crucial to carefully evaluate the potential drawbacks of offshoring before deciding whether it suits your company’s requirements.
Below are the four primary disadvantages of offshoring:
Risks related to security
Due to the requirement of sharing confidential business information with offshore companies, security risks can be a major concern for many companies. For instance, outsourcing software development services for your website may lead to the risk of your code being copied. Moreover, you must keep your customer’s data classified to protect your customer and yourself from security threats. To avoid any mishaps, it’s crucial to implement safety measures and strict protocols. Verifying that your offshore outsourcing partner has the necessary prevention technologies to control data flow is also essential. Additionally, you should check if your offshore service providers has network security policies and how well their employees follow them.
Time zone disparities
If you are considering outsourcing your company’s website software development to an offshore team in a different time zone, it’s important to be aware of potential communication challenges. For instance, if you outsource to India, Indian Standard Time is 9 hours and 30 minutes ahead of US Eastern Time, which could mean you have to wait until the offshore development team comes online to make quick changes to your project.
Such time differences can cause communication gaps that may negatively impact your business, particularly for time-sensitive and deadline-driven tasks. On the other hand, an onshore development team that operates in the same time zone as your company can provide faster turnaround times and minimize such communication gaps.
Hidden Costs and Regulations Abroad
Outsourcing has the drawback of not being familiar with foreign regulations and laws. Before proceeding, it is important to clear up any concerns you may have about intellectual property rights with your offshore outsourcing provider. It is crucial to research the foreign country’s legal framework for safeguarding stakeholders’ intellectual property (IP) rights, as well as to verify if the outsourcing partner has a history of contract breaches.
Failure to do this may result in losing your company’s intellectual property, including inventions, computer programs, designs, brand logos, etc. Additionally, ironing out payment details beforehand is essential to avoid hidden costs, such as maintaining software after the offshore development team has delivered it.
Cultural Differences and Language Barriers in Offshore Outsourcing
When outsourcing projects to an offshore partner, language and cultural differences can become significant hurdles for the success of your project.
Although English is often used as the preferred language in many offshoring countries for political and diplomatic reasons, the level of understanding of English may vary from that in the US. Your offshore team may not be familiar with common expressions or figures of speech used in American English.
Moreover, different approaches to project management and decision-making styles influenced by cultural differences can impact your project’s workflow, quality control, and other aspects.
Thus, companies should carefully assess potential language and cultural barriers affecting their business before outsourcing offshore.
Frequently Asked Questions (FAQs) about Offshore Outsourcing
Here are some FAQs about offshore outsourcing:
What does the term outsourcing mean?
Outsourcing, or business process outsourcing (BPO), refers to delegating some of a company’s internal business functions to a third-party organization. There are three main categories of outsourcing:
- Onshore outsourcing: This occurs when a company hires a third-party organization located within the same country to manage some of its internal business processes.
- Nearshore outsourcing: This involves engaging a partner from a neighbouring country to handle some business operations. For instance, a US-based company may outsource to a Latin American organization.
- Offshore outsourcing: This type of outsourcing involves enlisting the services of a third-party company located in a foreign country to take over a particular part of a company’s business processes.
What is meant by the term offshoring or offshore outsourcing?
Offshore outsourcing refers to a company delegating some of its business operations to a third-party organization in a foreign country, often on a different continent. Typically, in this arrangement, operations are relocated to a developing country to leverage the lower costs available there. Adopting the offshore outsourcing business model can potentially increase profits, enhance service quality, drive innovation, and improve customer satisfaction.
It’s important to note, however, that offshore outsourcing should not be confused with outsourcing in general.
What are three typical services that businesses often outsource offshore?
Offshoring is a popular solution for companies looking to outsource various business services. Some of the most common services outsourced to offshore locations companies include software development, cloud services, customer support, and research development.
- IT/Cloud Services:
Offshore software development, web development, and app development are some of the most commonly outsourced services to countries like India and the Philippines. Outsourcing these services can benefit a company with an online presence. It is often more affordable to outsource software development to an offshore development company than to hire and train an entry-level software developer in North America.
- Customer Support Services:
For instance, running an e-commerce business requires addressing customer queries, which can be costly when maintaining an in-house call centre or support team. Outsourcing to service providers in countries such as India and the Philippines provides access to skilled customer support professionals at a lower cost.
- KPO Services (Knowledge Process Outsourcing):
Knowledge Process Outsourcing involves outsourcing core business requirements, such as financial research, data analytics, or market research. This service requires processing large volumes of information, which can be highly resource-intensive. Outsourcing to an offshore partner can provide access to highly skilled professionals and qualified engineers who can deliver high-quality work at a lower cost, making it a more cost-effective solution.
What are some commonly preferred offshore outsourcing locations?
Below are some of the leading global destinations for offshore outsourcing:
- The Philippines
- South Africa
Outsourcing some of your business operations to an offshore partner can offer various advantages. For instance, as a business owner, it allows you to delegate some of your most demanding operations, enabling you to focus on more critical areas of your business.
However, being cautious about what information you share with your offshore team is important, as it can result in security and financial risks. It is essential to weigh the pros and cons of outsourcing to help you determine whether offshore outsourcing services are right for your business.