Reasons Why Getting Offshoring Right
What is offshoring? Offshoring is the process of moving businesses from one nation (the home country) to another country (the other country). It involves the transfer of an operation of manufacturing or support nature, such as human resources and customer service, as well as content creation design marketing, accounting, and other. These are services typically utilized by businesses in developed nations. Outsourcing is performed to countries that are not as developed. E.g. countries like China, Mexico, Ireland including the Philippines and India.
The term “offshoring,” as it was known, gained popularity in the 1990s for businesses across the globe. The term “offshoring” offshore outsourcing’ was first coined in 1937 by Ronald Coase, an economist who wrote a paper which described this method of organizing business. Just a few years ago outsourcing in business was rare; today they’re a fundamental part of many businesses that have the presence of international companies.
Statistics on Offshoring and related statistics
As per a recent study conducted by researchers roughly 80% of Europeans and US firms have ranked India as their most preferred outsourcing destination. However, Global Sourcing Association (GSA) identified Ukraine as the Outsourcing Destination of the Year in 2017.
A separate report called ‘The Grant Thornton International Business Report It revealed that forty percent of global business leaders either outsourced their business or were planning to outsource their operations or were planning to do so. The report was released back in 2014 and the number has only increased over the years.
As per the same study 46% of firms were outsourcing their IT processes and 36% of them had offshoring services related to HR and payroll.
The advantages outsourcing can bring
Offshoring or outsourcing is a smart choice with a number of advantages, including (but not just) the absence of labor regulations that are stricter and proximity to raw material which aren’t available in your home country. There are many other reasons to consider outsourcing of your operations:
- Economic viability: A home country could reduce its operating cost of doing business by hiring a company based outside its boundaries. Compared to hiring employees within the origin country, the cost of employing foreign employees is generally less. The other factor that is for the parent business is the ability of offshoring workers to provide the same or nearly similar quality job for a less expensive salary. Besides enjoying savings in wages, you could count on a lower cost of incentives and benefits. Your outsourcing company will take care of health insurancefor instance. Material, infrastructure, and utility (such such as electricity and telephone) costs are also lower in less developed nations. Also, a lower wage rate combined with a lower cost of management equals profits.
- Benefits from favorable financial conditions which work to your advantage: Offshoring destinations such as India are advantageous due to the tax advantages offered by such countries. South Africa has specially made a dent in the global outsourcing market due to its tax incentives. As the Rand continues to weaken it is possible to see cost savings predicted. Did you know: In April 2020 The Rand was at record weak levels.
- Focus on core activities as companies expand and expand their customer base, they grow as well. This is where offshore companies come into the picture with their back office services, along with other supporting services. In transferring repetitive, costly and, often, boring expertise, you will be able to concentrate on expanding your business with selling and innovation and increase your profitability.
- Legal liabilities are reduced Limits on legal liability: The BPO is employed on a contractual basis, meaning any legal issues which are filed by employees are handled by the organization. The outsourcing provider takes on the entire legal risk that is associated with running a workforce of employees.
- Access to intellectual capital A large portion of the workforce employed in offshoring destinations are highly educated and have an excellent knowledge of English. As a business you have access to this ability (among other skills) and have a workforce who are ready to perform your routine tasks.
- Offshoring is a win-win solution Social standing of this generation of young workers has improved as compared to their parents. The higher standard of living allows workers to not only sustain themselves but also their families. Additionally, there is improved infrastructure in the countries that have seen growth over time. for instance, the use of internet is much higher in many of the foreign countries. One of the factors that favors you is the fact that a majority of less developed countries, which can be a haven for outsourcing the operations of your company, have a large population. More people, more the workforce capability.
- Companies that offer offshoring services are mature Companies that provide offshoring services have stepped up their game and have matured over the last few years. Not only on the moral front but also in terms of the delivery of high-end products and services.
- The world has become a global village. internet penetration has brought countries closer to one another. Face-to-face interaction is only an Skype or Zoom call away.
- Time zone advantages in time to market: Time restrictions in the countries of origin compelled businesses in these countries to look at foreign shores for solutions. The time zone differences enable rapid turnaround times. E.g. there’s a time difference equal to 12 hours India with the US. Since India is hours further ahead than the US working hours, the project is completed more quickly than planned.
- The ability to avoid management problems In the meantime, the principal company is responsible for distributing tasks and training, skilled human resource management is able to handle minor issues for you including ensuring that workers aren’t tardy handling sick leaves or vacation time, as well as tax returns among many things.
The disadvantages outsourcing can have
Though there are a countless number of benefits of building an offshoring equivalent There are also disadvantages. Take a look to make an informed decision.
- Communication barriers: Despite the fact that many offshoring destinations using English in their government transactions as well as business, workers in these countries might not be aware of the subtleties of the English language and could commit mistakes during crucial phases of communication. Accents that are a common characteristic of local workers also create obstacles in many situations.
- Cultural differences: Business behavior is not the same across all countries of the world. For instance small talk is thought of as essential when it comes to an American executive before he is able to embark on a more serious conversation. For a Chinese executive in contrast might turn to his seniors to know how to conduct these conversations.
Another distinct feature is personal space expectations. While it is typical to see Japanese bowing at the start and end of business interaction However, it’s not uncommon to see female Russian colleagues standing hand in hand with each other during their first meeting. The cultivation of cultural understanding is the key to overcome any such hurdles and differentiating factors.
- Differences in time zones: Finding an appropriate time and date for the parent company to communicate in conjunction with an offshoring company over different time zones isn’t easy. It would be especially exasperating if an urgent decision needed to be taken, but one or both companies were unable to reach the other in time.
Tips for building your offshore team
- Explore various avenues for building you offshore staff. Should you set up an international subsidiary or hire an offshore service company? Small and medium-sized business owners should consider budgetary constraints and the end result when making this choice. One option that is budget-friendly in this instance is hiring the services of an offshoring company because of how competitive the industry is. It is possible to discover a reasonably priced business to outsource your work to within this model of business. Be sure to inquire about secret budgets, unanticipated costs, and estimates prior to committing a company.
- Indicate the services you wish to outsource. Assess where your strengths lie and focus on those strengths. Your offshore team will take care of the entirety of your business that do not require your personal focus. Find out which task is the most time-consuming and consumes your time and transferring your attention to your core business. Don’t waste time on minute tasks that could better be managed by offshoring companies. offshoring company.
- Conduct a rigorous hiring process. Be sure to examine the service provider’s capabilities, and be prepared with questions you want to inquire about your potential offshore supplier.
- Create your budget. What will you pay? Are the earnings from outsourcing your business cover the expense of managing? Think about these issues before you ever get in touch with the offshoring company in a foreign country.
- Expect 3 to four months for the relocation of your company’s operations from your homeland to the offshore vendor to be completed. Following your first experience with offshoring and you’ll have to put the best practices in place. This will reduce the duration of the offshoring process to 4 to six weeks.
- Change management in terms of pre-emptive legal and regulatory changes within the company is essential during the transition of products and services to an offshoring company.
- Dissolve barriers to communication at work by being clear with your instruction. Facilitate feedback sessions whenever possible and ensure there is constant communication.
- Give appropriate training to the remote team when it is needed.
- Be trustworthy and responsible and become your go-to person in the event of an emergency.