An offshoring solution, simply put, is the relocation of a company’s business process to another country with more favorable conditions to reduce operation costs.
Business functions sent offshore vary from simple IT solutions to increasingly more complex knowledge-based business processes, including product development.
Offshoring is often confused with outsourcing. The two strategies are similar in that businesses use services from a foreign location to optimize their processes. However, the two do have a stark difference. While offshoring is when a company moves its process to another country, outsourcing is when a company contracts a service provider to handle particular tasks and functions for its business.
In offshoring, a company retains its control over the process. However, in an outsourcing agreement, process methods and quality control are primarily left in the hands of the provider.
Advantages To Consider
So, what advantages does a company stand to gain when they decide that offshoring is the next step in its development plan?
Lower Labor and Operation Costs
The first obvious advantage of using an offshoring solution is the savings on operation costs you can reach. With the inflated cost of living in most states in America, the salaries that many high-skilled positions command are highly competitive.
However, experts in technical roles, such as software engineering, can be just a fifth of the cost in some developing countries like the Philippines and India. In emerging markets like Thailand, Indonesia, and Malaysia, you can find a lot of talent for less than what you’d typically get if you decided to hire locally. Globalization and ubiquitous access to high-speed internet have made it possible to get the same quality of productive output from across the world.
Setting up infrastructure and facilities in the economies mentioned above also means the amount you must pay for overhead, such as maintenance, rent, and energy bills is significantly lower. Not to mention that some countries, such as the Philippines, offer tax benefits and financial incentives to companies who decide to relocate their operations to their special economic zones.
A company can cut back on considerable expenses given the abovementioned benefits. A great development strategy and fiscal management could open many new avenues of growth for your business.
ACCESS TO GLOBAL TALENT
Countries like the Philippines and India have a high demographic of young, educated, English-speaking professionals with comprehensive skills and knowledge in various fields, ranging from accounting to software development. Partnering with other companies to facilitate your offshore setup provides you access to this expansive talent pool.
Some companies may even specialize in specific industries, meaning you can quickly assemble an excellent team for any business process you need. In comparison, your in-house recruitment team may have more difficulties and spend more resources sourcing and processing just one candidate.
Additionally, the candidates you hire for your offshore team will have knowledge and experience with the local market that your in-house team would have to learn by themselves—a task that’s easier said than done.
Scalable Growth and Continuous Business Cycles
By taking advantage of time zone differences, your business gains the capacity to cover more shifts. This means more productivity and a continuous work cycle that allows you to serve and respond to more clients round the clock.
Handled well, this effectively scales operations and maintains client satisfaction while keeping expenses relatively low. However, if handled poorly, this could easily crash and burn your business. Strategic alignment between your onshore and offshore teams is necessary for a smoother transition, delegation of tasks, and allocation of resources.
And Disadvantages to Be Wary Of
Job Displacement and Lower Team Morale
One of the most prominent criticisms of offshoring solutions is that it hurts the local economy. The jobs sent offshore could be jobs given to American citizens. Businesses that decide to offshore their processes are often heavily criticized and suffer much reputational damage.
However, studies with reliable data have revealed that the narrative is far more complex than it initially seemed. It was not a simple matter of products made abroad competing with products made locally. One study’s conclusions pointed to the overwhelming benefit of using offshoring solutions: it did not decrease the need for domestic resources. Instead, it freed them up to create and market more high-quality versions of their products.
However, another thing to consider when you begin offshoring is employee morale, which can take a massive hit if a sizable portion of your workforce suddenly feels there’s a danger of being laid off.
Honest communication with your employees is the key to keeping morale in check and quelling fears. Your offshoring solution strategy should be well understood by your team. They should know how their roles are affected and how they fit into the broader development of the company.
Due to sheer geographic distance, some factors can significantly hinder your offshore solution setup. Differences in language, culture and time zones will cause a few issues when organizing a foreign team. Your new team may have different work practices that you need to accommodate. Some countries have widely different views and laws that govern employee work conditions.
In a well-designed strategy, these factors can be flipped to your advantage. We will discuss this in more detail later, but these will initially pose a problem as you build your communication channels and lay out your formal business procedures and protocols with your offshore team.
The most straightforward way to overcome this issue is to partner with a veteran and reliable offshoring partner. These companies will have wide-reaching, well-established networks and dedicated facilities you can use to smooth out your offshore setup.
When To Offshore?
Implementing an offshoring strategy requires thoroughly evaluating a business’s current situation. The truth is that most companies that have set up instant offshoring operations, even in conducive countries like India or the Philippines, have failed.
Many factors can affect the outcome of such a high-risk, high-reward strategy. You will have to worry about a wide gamut of issues that may not be readily apparent unless you’ve begun operations. These can include misunderstanding of cultural mores and laws, difficulties finding qualified experts to fill your niche positions in a developing country, opaque communication channels due to time zone and language differences, and other pressing problems due to sheer geographic distance.
Most companies only think about all the cost savings they will attain once their offshoring project ramps up without considering the possible challenges. When these problems do eventually arise, they are ill-prepared. And most do not survive long enough to learn from the mistake.
So, the question now is, when is an offshore solution a worthwhile endeavor?
As much as we’d love to give some solid general advice on this matter, the ‘right time’ and the ‘right decision’ will ultimately be different and unique for every company. What worked for a company—even one in the same industry and comparable size—may not necessarily work for yours. However, there are a few scenarios where offshoring solutions will be most effective, provided a solid plan is laid out before its execution.
When You Have a Constant Stream of Projects
Imagine for a second that you are a company’s CEO. Your business has been doing well, and you’ve just acquired many new clients. So many that you are having difficulties fulfilling all these new orders. You have multiple large-scale, complex projects scheduled several months ahead, and you already know that your in-house team won’t be able to output enough work to fulfill the demands reasonably.
The usual risk in setting up an offshore team is that it may cost you more eventually if you don’t have enough projects coming in. Most offshore development projects fail simply because of awful timing. They set up an offshoring base, and then the demand for the product or services dwindles and disappears, leaving the new offshoring team with nothing to do but eat up the budget.
They realized too late that they weren’t really on the verge of growth, and a less risky solution like hiring contractors for staffing would have sufficed in the meantime to meet the spike in demand.
Offshoring solutions become a strategic choice when your business is booked months or years ahead with many complex, large-scale projects already locked in with contracts. You ensure that your new offshoring team will be maximized for the long term with ample time for you to develop.
When You Want to Enter a New Business Market
As mentioned earlier, adapting to cultural differences can be a difficult obstacle. However, local experts provide an excellent advantage when you want to enter a new, foreign market. Acquiring an offshore team composed of local experts and talented individuals who know their way around the local market environment can provide a highly competitive edge.
Offshoring solutions allow you to adapt your business more readily to the new market compared to allocating time, funds, and effort to training and upskilling your in-house team—a move that isn’t guaranteed to be successful as there are just a lot of factors to consider. Entering a new market may be a risky and foreign endeavor for you, but with the help of a local offshoring provider, you minimize most of the risks.
When You Are Established
Companies with an already established and well-defined product or service are some of the best candidates for offshoring. They will have business processes that are already well-documented or software that’s already refined and only needs maintenance support. An offshoring solution strategy becomes one of the most practical ways to reduce overhead costs.
A business that has matured enough to know its core competency needs only to decide which processes should be sent offshore. For example, a high-level software development company that has already optimized most of its product software code can offshore its finance, accounting, and call center operations to save costs on support processes. At the same time, this allows them to streamline and focus on their software development processes with their in-house team.
Offshoring too early in your business’s life cycle comes with many risks, including security issues. A new software development company is in danger of having its code base stolen by unscrupulous individuals or leaked by an untrained offshore employee.
The Best Countries for Offshoring
With all the advantages and benefits discussed, one key question you’re most likely asking now is: which country is the best for your offshoring strategy?
Globalization and the growth of developing countries have opened many options for businesses looking to set up an offshore team. The countries listed below will have unique advantages, ranging from favorable government benefits or specialization in particular markets.
India is near the top as one of the most financially attractive countries for investing in and setting up an offshoring company. The country boasts one of the highest numbers of qualified professionals and a readily available workforce, making it one of the world’s best software development service providers.
With an economy that has overtaken the United Kingdom as the fifth largest in the world, India is poised to be a globally dominant central hub for offshoring solutions.
The Philippines is a sought-after offshoring destination for different companies around the globe. With a highly proficient and literate workforce, a highly compatible culture with Western countries, and government policies supportive of the offshoring sector, foreign organizations flock to the country and partner with firms to gain a competitive edge.
Businesses can enjoy significant cost savings while maintaining effective and highly functional teams for their offshoring setups.
Most people probably know Egypt more for its pyramids than its offshoring infrastructure. However, Egypt is prime positioned to become a central hub for offshoring services.
Egypt’s key geographic location, abundant talent at a competitive cost, and government-incentivized support for foreign investments have given its offshoring sector the momentum it needs for immense growth.
Vietnam is another southeast Asian country transforming into a promising economy for the offshoring industry. The country enjoys a stable political environment compared to other countries in the same region. It was also one of the few countries that successfully managed to contain the coronavirus pandemic within its borders, showing how disciplined and organized it can be.
Many major international tech companies also have some forms of investments and facilities in the country, notably Intel, IBM, and Sony. Vietnam’s large population of STEM-educated professionals can provide companies with a large pool of talent for developing their offshore teams.
These are just some countries you can look over when designing your offshore solution strategy. Many other countries offer a different mix of unique advantages that may be more suitable for the offshore team you have in mind.
iSupport Worldwide Is Your Offshoring Solutions Partner
Does your business meet some of the scenarios we laid out above? Are you hesitant but undeniably curious about how an offshoring solution could accelerate your business’s growth?
iSupport Worldwide is a leading provider of offshoring solutions in the Philippines. When you partner with us, we can help your business attain up to 70% cost savings. Leverage our vast network of connections to the top 5% of talents around the country and build your most competitive offshoring team yet.
Our quick and straightforward 30-day setup can allow you to scale rapidly and meet the demands of your business. Book a discovery call with us, and let’s get started!