Offshoring” is being heard a lot. Offshoring has earned a lot of verification status these days, making it popular. However, it should not get confused with ‘outsourcing.’
Now the question is what is offshoring? It is a type of production or service that gets carried out in another country.
One of the most prominent providers of offshoring is China, subsequent to its accession in 2001 to the World Trade Organization.
Popular offshoring services include operational services, support services, accounting, and call centers, amongst many others.
Many countries are perfect for offshoring. In the overview of A.T. Kearney, Asia was the one with the most representation. Some of the countries included in their top 10 are:
- China
- Malaysia
- Mexico
- India
- Brazil
- Bulgaria
- Egypt
In the top 20 countries, G20 nations include Germany, India, Mexico, Indonesia, and the USA.
Reasons for Offshoring
Lower labor and operational cost
Labor cost is the main reason many businesses and organizations go for offshoring. As a business finding a way to boost its profit is essential for the competitive market, and offshoring helps get great benefits.
New markets
One has many opportunities to find a product market and get provided with a whole new business platform by having a local hub.
Comprehensive knowledge base
The major advantage of offshoring is getting your employees educated and trained to a much higher and better standard. It helps to ensure a business gives a high level of service.
Handling Ordinary Tasks
Businesses can offshore their mundane tasks like staff management to help reduce the costs of labor on intensive projects. Moreover, it saves time, helping them to focus on more important tasks.
Let us look at some of the advantages and disadvantages of selecting offshore.
Advantages & Disadvantages of Offshoring
Advantages
Cost Savings
Companies with intensive labor can find a lot of benefits from offshoring. A company needs a boost in its profit as the market becomes more competitive. Offshoring can help businesses offshore their operation, reducing their overall cost and labor expenses.
Real Estate Cost Lowering
A reduction in staff means a reduction in space. Real estate is extremely high in many places, making staffing costs high also. However, most offshore locations are inexpensive, especially when it comes to land purchasing.
Managing risk
Offshore locations get planned really well, serving a decreased associative risk with offshoring. It is true in most outsourcing the offshored procedures as the business should specialize in this field.
Tax Advantage
There are many tax benefits with offshoring, especially for companies that are overseas.
Disadvantages
Communication issues
The language barrier is one of the main disadvantages. In many countries, the common language they have is English. However, understanding the language and the knowledge depth differs. Another issue is accented, as it makes it difficult to understand what they are saying.
Cultural and social barriers
Challenges are a must when it comes to new cultures and environments. Offshore means in another country. This can mean the way people are or behave in the workplace will be different from what you know and are used it. It can also apply to the attire.
The language could be the same, but some annoyances, cause isolation. For example, in the USA, one who is straightforward when speaking will get appreciated. However, in a more religious nation, it can get considered objectionable.
Time zone differences
Suitable shift patterns have to get decided and planned according to the time difference between the two zones.
Security
Many security issues come with offshoring. Therefore, strict regulations, protocols, and safety measures have to get achieved.
Loss of Intellectual Property
Losing IP overseas means getting the original cost multiplied.
Higher offshore cost
Of course, the offshore labor cost is 70% lower. However, the other utility cost can be quite expensive, like electricity.
Conclusion:
Offshoring has many advantages including decreased labor costs, new opportunities, and market facilities. However, it also comes with many challenges, like social, communication, and cultural barriers. Therefore, consider offshoring advantages and disadvantages before you choose it for your whole or a section of your business operation.
As the pandemic hit, many countries have started working for and against many organizations. What do you think about it?