A Guide to Offshoring

Businesses decide to offshore work because they want to save money or utilize less stringent regulations. Offshoring is something businesses have done for years now. It actually started in the 1960s. So, it shouldn’t be surprising that companies still consider it today. However, as popular as offshoring is, some businesses are choosing nearshoring for their companies’ needs. The two options are quite similar, but yet very different.

What is Offshoring

Offshoring is moving part of a business overseas. Most of the time, the countries chosen are those that are not as developed. Therefore, labor and even materials are much cheaper. Companies that outsource to those countries often see an increase in profits. This is due to the cost savings measures mentioned above, as well as lower tax liabilities.

Advantages of Offshoring

There are quite a few advantages for offshoring, at least from a business perspective. The main advantage of offshoring is the increased availability of a business. Once a business opens an office in another country, they are now available to clients and customers more hours of the day. If a business offshores properly, they can actually be available twenty-four hours a day, seven days a week.

Being accessible to clients is huge, but so is being able to continue having products or services available when a natural disaster strikes. Companies who have chosen offshoring will find that they can do business as usual, even if one site has been closed due to weather or another issue. They could then be ahead of their competition if their competitors could not open again right away.

Another big advantage to offshoring is having access to highly skilled professionals in other countries. There are times when companies want to work with individuals who possess specific skills. If there are no options in the company’s country, it makes sense to broaden their horizons and choose a person from another country. And the company still has control over what happens within the business.

As mentioned above, the cost of production, labor, and taxes are much lower when companies take their business to another country. Those lower costs can be reflected in the prices consumers pay for the products and services. However, that is not always the case, as some businesses want their profits to be as high as possible.

Disadvantages of Offshoring

There are a few disadvantages of offshoring, which is to be expected. One of the biggest disadvantages can be communication. Not everyone in foreign countries will speak English. And if they do, it may not be fluent English. Therefore, miscommunication can occur when using certain phrases and even sentence structures.

Another huge issue is the different time zones. When questions come up, work may stop completely until an answer is received. If the question is sent when everyone is sleeping in the US, then there is a chance no one will know the answer until the following day. This is often when the answer being sent is after the end of the workday in the foreign country.

The exchange rate is also different for each country. That exchange rate can constantly change, as well, so there could be differences in costs from day to day. Once a company adds in the cost for travel, there might not be as much of a savings as initially thought.

Depending on the country chosen for offshoring, there is a risk that the quality of work is not as good as it would be in the company’s home country. It may even take longer to obtain supplies and do the work.

The last disadvantage pertains to legal and tax-related complications. There are always loopholes, but lawyers are needed to make sure businesses are following the local, and national, laws.

Managing an Offshoring Team

Anyone in charge of an offshoring team must know what steps they need to take to manage them. This is not as difficult as a person may think. Simply asking for detailed productivity reports will ensure all managers know what tasks are being completed by each employee.

Of course, managers should maintain a log of the employees’ schedules and shifts. They should also have the employees track their hours. There are multiple apps that can help with all these. All a manager needs to do is find the one that will work best and include all the information they need to know.

Offshoring has long been looked at as a way for businesses to be more profitable. While it has its pros and cons, it should never be considered as a solution for every type of problem. After all, the benefits of offshoring are usually minimal in the beginning. It could honestly take years before massive profits and other benefits are truly experienced.