Back then, offshoring only focused on production tasks. Many businesses opt to offshore to countries with lower manufacturing costs to cut the amount they invest in their products. But this business model evolved to something more inclusive.
Now, offshoring applies to other processes like customer support, data entry, accounting, and IT. However, it’s worth noting that there are pros and cons to offshoring your business process. This article will discuss them to help you decide whether to adopt offshoring.
Offshoring is not the same as outsourcing. Check the differences here.
Benefits of Offshoring
Two of the main reasons why companies offshore business processes are cost-saving and increased efficiency. However, there is more to this strategy than just cutting investments in production without affecting a product’s quality.
These are the benefits of offshoring:
1. Lower Operational Costs
Low-cost countries can offer businesses cheaper product components or services. When companies offshore their processes to such countries, they spend less on production. This reduces the cost you spend on manufacturing the product.
The lower labor costs employees from low-cost countries charge you also impact operational expenses. Unlike hiring employees from your country, workers from places with a lower cost of living can charge less while still affording their basic needs.
Offshoring can cut costs but can cause an over-budget when done incorrectly. Read this Forbes article to avoid the high cost of offshoring.
2. Access to More Professionals
Sometimes, you can only get the most qualified employees outside your country. For instance, you can offshore your business process to the Philippines if you need excellent customer support.
Offshoring lets you tap into a global talent pool of professionals, making it easier to find people who can handle your business processes properly.
3. Proximity to Resources
Offshoring allows you to operate a portion of your business, such as manufacturing, in countries with easy access to the needed resources. For example, you can do offshore manufacturing in China if you have a clothing business. Everybody knows China has a colossal textile industry.
When you offshore somewhere close to your resources, you no longer have to import them. This is another factor that decreases your company’s operational costs.
4. Tax Benefits
Another benefit of offshoring is the ability to move portions of your business to tax haven countries. By definition, a tax haven is a country that allows foreign companies to set up their offices while only paying little to no tax rates.
Some tax haven countries include Hong Kong, Ireland, the UK, and Singapore. Offshoring to these countries lets you save a portion of your corporate tax and allocate it to another business area.
5. Access to Better Tools
If you want to manufacture a physical product offshore, picking a country with more innovative machines is ideal. This will ensure that your product is of excellent quality.
This also applies to companies that will offshore digital processes. Choosing a country with an expert workforce and high-quality tools and software will give your business a competitive edge.
Find out how to offshore successfully in this article by Forbes.
Disadvantages of Offshoring
Before reaping the benefits of offshoring, it is important to understand its risks. Knowing these risks and disadvantages will allow you to avoid them or prepare a contingency plan if they are inevitable.
Here are the disadvantages of offshoring:
1. Security Risks
Cybersecurity and cop are most vulnerable when you offshore your business. Choosing a partner with no proven track record can result in data breaches or cyberattacks. This is especially dangerous if your offshoring partners can access your customers’ personal information.
On the other hand, companies offshoring the production of physical products can have their designs stolen.
2. Language Barriers
Individuals who work for offshoring firms understand English very well. However, people have different language proficiency. This can cause a language barrier between you and your offshore workers.
When your staff cannot understand your instructions well, it can disrupt the project timeline or even your budget if something has to be redone. Such misunderstandings can damage work relationships if not properly navigated.
3. Tax Complications
The tax system is complicated, even more so when you are offshoring. This is because apart from your country’s taxation laws, you must also understand the country’s tax system where you offshore.
While there are tax haven countries, they only help you lower the money you allocate on taxes. You still have to navigate their taxation laws to ensure you are not unintentionally violating them.
4. Quality Control Issues
Producing goods or handling services in-house allows you to check on your staff personally. This is something you cannot do when you decide to offshore processes.
True enough, you can set quality standards. However, every country has different work cultures, which can impact your product’s overall quality.
Quality control issues can also affect companies that offshore services like customer support. For instance, if your offshore staff handles your previous clients differently, they may notice the change and miss the service they received before.
This can lead to dissatisfaction, which inevitably affects your company’s reputation.
5. Less Operational Control
Among the advantages and disadvantages of offshoring, many companies are most concerned about the loss of operational control.
Offshoring means trusting a third-party company to handle a portion of your business because you cannot oversee it personally.
If you can’t personally manage tasks, deadlines, budget, and product quality, there is a chance for backlogs. And when these backlogs pile up, they can result in a massive delay.
Read more about the pros and cons of offshoring on LinkedIn.
How to Manage the Pros & Cons of Offshoring
It’s worth noting that although there are risks, the advantages and disadvantages of offshoring are manageable. You can avoid the cons and reap the benefits by preparing a plan for your offshoring efforts.
Here are some tips to manage the pros and cons of offshoring:
- Ensure Clear Communication.
Make sure you have communication platforms ready for your remote workers. Additionally, monitor your messages frequently to avoid missing out on urgent chats. - Set Alignment Meetings.
After giving out instructions, ask the offshoring head to repeat them. This way, you can check if they get everything correctly. You should also set frequent alignment meetings to inform you and your overseas staff of the project’s progress. - Conduct Evaluations.
You can prevent poor output quality if you have a solid evaluation system. This allows you to keep track of the project’s progress while helping your team discover what they should improve. - Build a Good Offshore Team.
Everyone in your offshore team must be professional and have work experiences relevant to your industry. Here’s how you can build a successful offshore team.
