Are you a small business with limited budget, or a medium or a big company who wants to downsize the overall cost and mitigate project risks? Then Offshoring is definitely something you must consider. Offshoring is a business practice of hiring skilled professionals from other countries to take advantage of cost reduction.
Offshoring can provide the same level of efficiency or even higher compared to hiring labor domestically. India is particularly a popular destination for offshoring due to its growing economy and abundance of skilled professionals. Offshoring allows businesses to operate 24/7 because of the time zone difference, which means that employees in other countries can continue to work when employees in the home country are asleep.
What is Offshoring?
Offshoring refers to the process of acquiring services from overseas as a way of cost cutting and increasing profitability. Companies offshore either through an outsourcing arrangement with a third-party or by establishing their own Global In-house Center (GIC) present in the offshore location, among other business structures.
Types of Offshoring
When the products manufacturing happens in different country and is imported for sale in domestic market, it is termed as Product Offshoring.
One example of product offshoring is the production of Apple’s iPhone. While Apple is headquartered in the United States, the company outsources the production of iPhones to contract manufacturers in countries such as China, Taiwan, and South Korea. The main reason for offshoring the production of iPhones is cost savings, as labor costs in these countries are lower than in the US.
It involves hiring a company or individual from another country to carry out tasks or provide services for a lower price. Common examples of offshore services include call centers, software development, and accounting.
For instance: Amazon has customer service call centers located in several countries, including India and the Philippines. It consists of a support team that handles customer inquiries and concerns.
By using service offshoring, Amazon can provide round-the-clock customer service and take advantage of lower labor costs.
There are further 3 types of offshoring namely: Onshoring, Nearshoring and Farshoring.
The onshoring is a company delegating tasks to another company but from the same country.
- Onshoring refers to the process of bringing business operations or processes back to the company’s home country.
- It is also known as “domestic sourcing” or “inshoring”.
- The goal of onshoring is to decrease reliance on outsourcing and offshoring and to support local economies.
- Onshoring can also improve communication and reduce the risks associated with language barriers and time zone differences.
- Example: If a US firm chooses another US. firm for its accomplishment of tasks, it’s called onshoring.
Nearshoring is a company acquiring its workforce from a nearby country.
- Nearshoring involves outsourcing business operations or processes to a nearby country with a similar time zone, culture, or language.
- It is also known as “regional sourcing”.
- The goal of nearshoring is to reduce costs associated with offshoring while maintaining a level of geographic proximity.
- Nearshoring can lead to lower production costs compared to onshoring or offshoring but may still offer cost savings.
- Nearshoring can also improve communication and reduce risks associated with cultural differences and language barriers.
- Example: If a US business appoints a Mexican company. It’s called nearshoring, as Mexico is in close proximity to US.
Farshoring is company acquiring its products of service offshoring from a faraway country.
- Farshoring involves outsourcing business operations or processes to a distant country, often with a significant time zone, culture, or language differences.
- It is also known as “offshoring” or “outsourcing”.
- The goal of farshoring is to reduce production costs by utilizing lower wages, less stringent regulations, or other cost-saving measures in the foreign country.
- Farshoring can lead to lower production costs compared to onshoring or nearshoring, but may also come with increased risks and challenges related to language barriers, cultural differences, and time zone differences.
- Farshoring can also lead to job loss and other negative effects in the home country, which is why onshoring and nearshoring are becoming more popular options in some industries.
- Example: If a US business delegates its tasks to an Indian firm, it’s called farshoring, as India is very far from the US.
Offshoring v/s Outsourcing
What is Offshoring?
Offshoring is a business strategy that involves relocating certain business functions or processes to other countries with lower labor costs or greater expertise in a particular field. One of the primary reasons why companies engage in offshoring is to gain a competitive advantage by reducing labor costs and increasing return on investment (ROI).
Benefits of Offshoring
- Cost savings: Offshoring can result in significant cost savings for a company, as labor and operational expenses in foreign countries are often much lower than in developed countries like the United States, Canada, or Western Europe.
- Increased efficiency: In some cases, offshoring can help improve efficiency and productivity by allowing companies to tap into skilled and specialized labor markets in other countries.
- Access to new markets: Offshoring can provide companies with the opportunity to enter new markets and establish a global presence, which can lead to increased revenue and profitability.
- Improved scalability: Offshoring can enable companies to quickly and easily scale their operations up or down to meet changing demand or market conditions.
- Enhanced flexibility: By utilizing offshore resources, companies can focus on their core competencies while outsourcing peripheral tasks to partners in other countries.
- Reduced regulatory burden: Offshoring can provide companies with access to regulatory environments that are more favorable or less stringent than those in their home country.
- Less time-to-market: By leveraging offshore resources, companies can accelerate product development and time-to-market by tapping into a 24/7 development cycle that spans multiple time zones.
- Risk Diversification: Offshoring can help companies diversify their risks by establishing operations in multiple geographic locations, which can help mitigate the impact of regional or global economic downturns.
What is Outsourcing?
- Outsourcing is a business strategy that involves delegating certain functions or tasks to external companies or inadividuals.
- This practice has become increasingly popular among businesses of all sizes and industries.
- As it can provide a range of benefits such as cost savings, increased efficiency, access to specialized expertise, and the ability to focus on core business functions.
- When a company decides to outsource a particular function, they will typically seek out a service provider that has specialized skills or expertise in that area.
- For example, a software development company may outsource their customer support function to a third-party call center that specializes in providing customer service for technology companies.
- This allows the software development company to focus on their core competency of developing software, while the call center handles the customer support tasks.
- Outsourcing can be done both domestically and internationally, with many companies choosing to outsource to countries where labor costs are lower.
- This is known as offshoring, and it has become a controversial topic due to concerns about job loss and the impact on local economies.
Benefits of Outsourcing
- Cost savings: Outsourcing can help reduce labor and operational costs, as the company can take advantage of lower labor costs in other countries and avoid investments in infrastructure, equipment, and training.
- Access to specialized expertise: Outsourcing can provide access to specialized skills and expertise, particularly in IT, accounting, and marketing, that may not be available in-house.
- Improved efficiency: Outsourcing non-core business functions can allow companies to concentrate on their core competencies, resulting in increased efficiency.
- Flexibility: Outsourcing can provide flexibility in staffing and resource allocation, allowing companies to quickly adjust to changing business needs.
- Time savings: Outsourcing can help save time by freeing up internal resources and allowing companies to focus on more strategic priorities.
- Improved quality: Outsourcing to specialized providers can lead to improved quality of work, as providers are focused on delivering high-quality services to maintain their reputation and retain clients.
- Access to new markets: Outsourcing can provide access to new markets, especially in other countries where outsourcing providers may have a presence and can provide local expertise.
- Risk reduction: Outsourcing can help reduce risk by transferring certain risks, such as financial and operational risks, to the outsourcing provider.
- Scalability: Outsourcing can provide scalability by allowing companies to quickly increase or decrease resources as needed, without making long-term commitments.
- Competitive advantage: Outsourcing can provide a competitive advantage by allowing companies to focus on their core competencies and differentiate themselves from competitors who may not be outsourcing.
|Definition||Hiring external companies or individuals to perform specific tasks or functions||Relocating business processes or functions to another country, typically to reduce labor costs|
|Purpose||Cost reduction, access to specialized skills, increased efficiency, and focus on core business functions||Cost reduction through lower labor costs|
|Examples||A software company outsourcing its customer support to a third-party call center||A car manufacturer moving its manufacturing plant to a country where labor is cheaper|
|Type of labor||Non-employees||Can be employees or non-employees|
|Location||Can be within the same country or outside the country||Involves moving to another country|
|Risks||Quality control, loss of control over the work being performed, legal and cultural barriers||Cultural barriers, communication issues, political instability, legal issues, loss of local jobs|
Why offshoring is good for your business?
One of the primary advantages of offshoring is the ability to acquire highly skilled workers at a lower labor cost than hiring locally. Compared to outsourcing, offshoring provides companies with greater control over the talent that they hire. Unlike outsourcing, where companies rely on third-party service providers to manage their projects, offshoring enables businesses to manage and control the entire process from start to finish.
India the most preferred country for Offshoring
Source: Grid Dynamics
India is widely regarded as the best offshoring option among Asian countries. It is the top destination for offshore outsourcing, with nearly half of the world’s top 500 companies having established partnerships with Indian firms. The country is a major exporter of IT services, business outsourcing services, and software workers, with four out of ten remote workers in technology and software development based in India.
India is a hub for IT experts and you can get numerous choices to choose from. That too, at way lower cost than that of the country the company is based in. The country’s digital innovation is highly advanced, with initiatives like Digital India and India Stack driving digital transformation. India has a large tech population and education system, with 2.6 million STEM graduates, second only to China. The average software developer in India charges between $18 and $40 per hour, making it one of the cheapest outsourcing destinations. (Source: Griddynamics )
Companies such as GlobalEmployees help in effectively recruiting quality offshore resources from India at lower costs.
In conclusion, offshoring is a strategic business tool that enables companies to focus on their core competencies while accessing a diverse pool of skilled workers. It is crucial to choose a trusted partner who can provide a smooth transition, offer quality services and ensure the project is completed on time and within budget. According to a survey conducted by Rishabhsoft, 72% of employees are offshored across the globe.
GlobalEmployees is a reputable offshoring partner for US businesses, with a track record of successful partnerships with top companies such as Salesforce, InternetBrands, and WebMD. With a team of highly skilled and experienced professionals, GlobalEmployees can provide a wide range of offshore services that can help businesses reduce their operational costs while maintaining quality standards. You can easily get in touch with us through our website at https://globalemployees.com/contact-us/ and receive customized solutions that meet your unique business needs.