With the devastating effects of the pandemic on small businesses and large ones, many have had to either close their doors for good or find ways to cut costs.
One way to achieve this is by moving a large part or all of the business overseas. This could also increase profit margins and, perhaps, service in the process. This is known in the business world as offshoring.
So, let’s take an in-depth look at The Pros and Cons of Offshore Outsourcing and find out what it’s all about…
- What Is Offshoring?
- What Are The Pros and Cons of Offshore Outsourcing?
- The Pros
- 1 – Massive Cost Savings
- Extremely low labor costs…
- 2 – Professional Expertise and Specialities
- Asia comes out on top!
- 3 – 24/7 business
- 4 – Government Policies
- 5 – Improves focus on Business Tasks
- The Cons
- 1 – Security Breach
- 2 – Less Control
- 3 – Logistical Challenges
- Language and Cultural Barrier
- Time Zones
- 4 – Consumer Ideas
- 5 – Tax and Payroll Complications
- Why Not Take Advice From Millionaires?
- The Pros and Cons of Offshore Outsourcing – Final Thoughts
What Is Offshoring?
Offshoring is when a company or business moves all, most, or some of its business overseas. They usually pick a country where this will be cheaper to do so, which will cut production and staff costs while at the same time, increasing profit. The company retains full ownership of the operations overseas and employs staff from the chosen country.
Many big successful companies have offshore companies, and it’s benefited them in several ways. Take a look at Ford, for example. They have an IT enterprise in India that deals with software development, IT services, and customer support. The call center employs Indian staff who deal with calls, email support, and live chat online.
What is Offshore Outsourcing?
Offshore outsourcing means that a third party located in a foreign country takes some parts of a company’s business operations. This means the company would have no direct employees, but they would use someone to deal with their operations. This is common with call centers or manufacturing.
Countries such as The Philippines and India most often are used for offshoring within IT. This is because they have the people qualified to do the jobs. Large companies like Apple, Amazon, IBM, and Microsoft use offshoring.
What Are The Pros and Cons of Offshore Outsourcing?
Of course, we’ll start with the upside of outsourcing and what it entails.
1 – Massive Cost Savings
The main reason any business chooses to offshore their company is down to cost. If there is any way that they are going to save some money, this could be the best way to do it. It is estimated that companies can expect to save around an average of 15% if they achieve overseas success.
Most foreign countries that these corporations choose to use offer lower labor costs, cheaper materials, greater efficiency, and increased services. The company does not have to factor in health insurance, social security taxes, and other compulsory employment costs essential in the US.
Extremely low labor costs…
Can you believe that salaries in the US are 12 times higher than in India? This means that companies truly take advantage of the lower labor costs and choose foreign countries to increase their profits back home.
2 – Professional Expertise and Specialities
In many specialized fields, it is hard to find employees on home soil. Or a large number of employees. Specialized labor like IT, software development, and finance employees are broadly available overseas.
Finding these workers in countries with efficient English skills and a high number of quality educated people in the niche is easier. Countries such as the Philippines and India are prime examples of places with educated individuals in the field. They also cost less and will perhaps produce better business outcomes.
Asia comes out on top!
When it comes to production and manufacturing, it is no secret that Asia holds the gold medal. Countries like China and Vietnam are known for their highly skilled manufacturers at cheaper prices. They also have the necessary infrastructure to ship products easily, which is a bonus.
3 – 24/7 business
We no longer live in a world where we operate the business hours of 9-5. Well, some smaller, start-up businesses do. However, big companies have the resources to offer 24/7 support to their consumers. The internet shunned the idea of business hours. If you are shopping online at 3:00 am and run into a problem, your customer will want it solved there and then.
Offshoring gives the perfect opportunity to hire people worldwide to connect with US-based customers and deal with their issues. Capitalizing on workers in different time zones means companies can offer this service easily.
4 – Government Policies
As we know, many big businesses reach the news for tax scandals and tax avoidance. Some may call this selfish; others may call this smart. Regardless, offshoring does offer some excellent benefits when it comes to tax exemptions and company incentives.
Many foreign countries are happy to have the business of a first-world country. It provides employment opportunities for their people, promotes economic development, and adds to growth in the country. These tax exemptions ultimately help drive your business’s profits and improve the business as a whole.
5 – Improves focus on Business Tasks
Offshoring allows companies to free up resources to focus on the business task at hand in the country. Outsourcing tasks that don’t drive profit directly to another country with fewer costs will allow the in-house staff to focus and spend more time on things that can help the business grow and succeed.
From the massive cost savings to easy scalability, offshore outsourcing may seem like the right thing for you and your company. However, we must consider the cons and weigh up whether it’s the right thing for your business. Let’s take a look at the top cons of offshore outsourcing.
1 – Security Breach
Sharing information and data about your business with foreign employees can be nerve-wracking. It can also be a make or break for your decision regarding offshore outsourcing. You have the responsibility to keep all customers’ information private, and you must protect them and your business from being exposed to security threats.
However, we can try to control these things but not completely prevent them. You must ensure that the offshore outsourcing partner has network security to stop this from happening. You could also implement safety measures and strict protocols, such as limiting remote access to confidential information so the offshore partner cannot steal the information or data.
2 – Less Control
One thing that may put companies off is the control element. Some outsourcing performs incredibly well, but if you fall into the unlucky bracket, it could cause detrimental problems for a company. Check out this Reddit feed on terrible outsourcing incidents. This is why many companies must research and discuss the options when moving to work overseas and not just go with the lowest offer.
3 – Logistical Challenges
Even the best and most trustworthy outsourcing partners can come with logistical challenges that will pop up when working with partners on the other side of the world. Let’s take a look at some of these problems.
Language and Cultural Barrier
It should be noted that anyone who can learn and speak another language and use it in business should gain respect for that. It is not easy, especially if working with technical issues that can be hard to explain.
However, if something does arise and there are communication mishaps, it’s important to address these and find a way to explain them clearly. Cultural holidays and festivals must also be taken into consideration while employing foreign workers.
As previously stated, there are great benefits to having workers in different time zones for customer support. However, when it comes to employee-employee contact, it can cause some problems.
For example, if an email was sent from the afternoon in New York to Shanghai, where it’s midnight, you may have a communication lag for eight hours or more. This, however, can be fixed by having a set communication time where foreign and state employees communicate with each other.
4 – Consumer Ideas
It is not surprising that Americans have a negative view of offshore outsourcing. They believe that it is the cause of many problems with the economy, and with the rich getting richer and poor getting poorer, offering work to foreign countries isn’t the way to build the US economy.
Whether or not this is factually true, you must prepare for some criticism. With more and more people looking for locally sourced products made with recyclable materials and homegrown food, outsourcing may turn away a few customers. You must be prepared to try and change consumers’ minds and inform them why your business outsources and why.
5 – Tax and Payroll Complications
Dealing with your own company’s tax and payroll regulations on home soil can be complicated enough, never mind throwing other countries into the mix.
You don’t want to end up on the front page for having not abided by a country’s tax laws unknowingly and look to be an evil foreigner. The wise thing to do would be to employ an international tax or payroll expert to ensure you are doing the right thing and not breaking any laws.
Why Not Take Advice From Millionaires?
Where better to get business advice from than the people who obviously know what they’re doing! So, let’s start with the Baby Steps Millionaires: How Ordinary People Built Extraordinary Wealth, or how about the Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth, and The Millionaire Fastlane: Crack the Code to Wealth and Live Rich for a Lifetime.
Of course, I’m not done! I also found the Millionaire Success Habits: The Gateway to Wealth & Prosperity, as well as the interesting read, The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, and The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich, all available online in 2023.
I personally find Elon Musk extremely inspiring, so I would highly recommend reading Elon Musk: A Biography of Billionaire Entrepreneur Elon Musk, along with the BIOGRAPHY OF ELON MUSK: A Fascinating Story of the Richest Entrepreneur in Modern History, and finally, Elon Musk: The Biography of a Modern Genius and Business Titan… believe me, you won’t be sorry!
The Pros and Cons of Offshore Outsourcing – Final Thoughts
There are many pros and cons to consider when thinking about offshore outsourcing. Many companies have had great success doing so, and it would be wise to look into how they did it.
Remember to read the horror stories, too, as this can give you some idea of what to avoid doing. Whether Americans agree with it or not, it is wise to do what is best for you and your business. But make sure that you are following all rules and regulations and taking into account foreign workers’ cultural differences.
All the very best in your business success!