Categories : Outsourcing and Offshoring
Author : Date : Nov 1, 2022
As an entrepreneur, you must have heard about offshoring. It involves relocating a company’s operations fully or partially to a foreign country. The most obvious benefits business owners expect from offshoring are reduced operational costs and increased profitability. And many companies have been successful at it!
However, as someone eyeing offshoring, you must remember that offshoring is a strategic decision that involves a considerable investment. Hence, while focusing on benefits, you must also be cognizant of its cons or challenges. Knowing the pros and cons can help you optimize the benefits and mitigate the risks that offshoring could pose. Here’s a blog that talks about both.
Let’s start with the pros of offshoring and then proceed also to review its cons.
1. Considerable Cost Savings
As indicated earlier, this is the most significant benefit. Companies that plan every aspect of offshoring and partner with a reliable offshoring company save money and simultaneously augment their profits.
Usually, it is developed countries like the US, Canada, the UK, Australia, France, Germany, etc., that offshore their operations to developing countries.
But the country of operations undoubtedly matters. It usually includes India, China, or the Philippines. These countries have relatively less expensive labor. In addition, the operational costs also are comparatively less there.
Per experts, offshoring your operations, for instance, software development can result in about 15-20 percent cost savings. The percentage could mean millions for companies with a significant business volume.
2. 24/7 Operations
Offshoring proves to be a prudent idea for companies, for 24/7 operations aren’t feasible on their native soil. For instance, a US company offshoring customer support to a firm in India can reap the 24/7 operations advantage without engaging any local resources for it. Thus, with the required training and infrastructure, companies can provide round-the-clock services to their clients.
3. Broadened Access to Expertise
Offshoring to a foreign country allows companies to leverage access to a broader range of talent – precisely skills absent or very expensive in their country.
When it comes to IT offshoring, countries like India prove to be very useful. They have abundant skills available across the IT domain. It includes developers, testers, project managers, consultants, cybersecurity experts, and many more.
While it isn’t that developed countries, do not have experts in these areas. They come at a relatively high cost tethered to them. These costs could collectively add to the project’s cost and affect profitability.
In addition, offshoring provides a higher degree of flexibility and scalability. Working entirely with in-house resources doesn’t offer that advantage. Screening, hiring, interviewing and onboarding are arduous tasks that could pressurize companies, given project exigencies.
4. Focus on Core Business
This is very obvious. Companies that do not have expertise in a particular area might struggle with every aspect of it. But offshoring allows them to stay relieved about the operational aspect. They can focus on their expertise and the things at which they are the best.
Let’s now look at the flip side of the coin. Knowing a few challenges of offshoring can help you prepare and plan for them. Here are four of them.
1. Cultural and Language Barriers
This could be the first roadblock to seamless offshore operations. While language is one challenge, cultural differences could quickly escalate if not addressed proactively. Thus, it is imperative for both parties to understand each other’s culture.
Thanks to globalization. Things aren’t as complicated these days. People have the internet to study each other’s culture and language. Many companies send their employees to the client’s country to learn about operations and the client’s culture to avoid unnecessary conflicts.
Virtual learning has further simplified communication. The entire team can attend virtual sessions and learn about cultural aspects and nuances from the client.
2. Reduced Operational Control
Another significant potential disadvantage of offshoring is reduced operational control. We say it is potential because it isn’t the case with every offshoring project. Some amount of control (routine decisions and operations) surely remains with the vendor company. But yet, clients can still prepare agreements that allow them to pull the strings and drive the project.
Thus, it all depends on the contractual terms and conditions. In most cases, clients retain maximum control to steer the operations based on their needs.
3. Jobs Exported to Other Countries
Many consider offshoring detrimental to a particular country’s jobs. The larger the operations, the higher the number of jobs exported. While it is beneficial for companies within their context, a greater number of companies doing it can significantly affect the country’s employment landscape.
4. Payroll Complications
Payroll is a complex aspect to deal with, no matter the country involved. When you offshore operations to another country, you introduce a wholly new set of payroll laws, rules, and regulations into the picture. Not having the right offshoring vendor can make things even more complicated and lead to pecuniary repercussions in the form of fines. Let alone the loss of reputation!
Are you looking to offshore software development in India? Consider Techcedence. We are an experienced technology partner with the resources, expertise, and experience handling offshore IT projects for various countries worldwide. Our consultants provide their strategic know-how and help you plan the offshoring operations to minimize risks and help you achieve a higher return on investment. Please write to us at firstname.lastname@example.org to know more.