Offshoring is defined as the relocation of a business process to another country. Businesses often outsource administrative tasks to an offshore provider to increase efficiencies and cut costs. But outsourcing isn’t without its risks. This article delves deeper into the advantages and disadvantages associated with offshoring.
Advantages
The potential for higher profits has been one of the biggest drivers of offshoring in modern society. Using subcontractors in overseas locations can help facilitate cost savings, provide access to an abundance of labour resources and increase efficiencies.
1. Cost Savings
Low-cost countries offer substantial labour savings compared to westernised countries. It is estimated that business’s save approximately 30 to 50 per cent on labour costs as opposed to hiring New Zealand based employees, and in most cases, the level of work performed by workers in offshore locations is of a comparable standard to that of New Zealand’s employees. Outsourcing can also eliminate recruitment costs because the third-party provider who facilitates the offshore transition will already have the employees and resources to complete the job. This is the biggest factor behind most business offshoring decisions.
2. Access to an Abundance of Resources
Due to the shortage of jobs in developing countries, records show that it is easier for subcontracting businesses to recruit overseas employees. As of September 2021, the unemployment rate in the Philippines averaged 8.9 per cent. This means that there is an abundance of labour resources to choose from – allowing business owners to find the perfect match for them. It is also favourable that most of the workforce in the Philippines are equipped with strong English-language skills, reducing language or communication barriers compared to other nations with lower English proficiency levels.
3. Improved Company Focus
By outsourcing business operations to a third-party provider, businesses can improve their overall company focus. Employees can be more efficient when they are not consumed by tedious administration duties. This can then free up internal resources for use in other areas. This allows businesses to focus on their core objectives and tasks at hand, while simultaneously empowering organisations to exceed their goals and become a strong competitor in their market.
Possible Limitations
Relocating a business function to another country is not an easy decision. It can present possible limitations which are often dependant on the type of task being outsourced, who the function is outsourced to and where the offshore location is situated around the world.
1. Language & Communication Barriers
The distance between one country to another may impede effective communication, especially where both countries speak different languages. It can be hard to discuss company processes, manage employees or suppliers and establish coherent workflows when both parties communicate in a different language. That is not to say that offshoring cannot work in these circumstances – as translators are generally available on call and can be used to facilitate contact. But using a translator can become a hindrance to smooth communication and is not always inconvenient for both parties. Instead, research has found that outsourcing to countries who speak the same language is more ideal in business practice. This is one of the reasons why offshoring has been so successful in countries such as India and the Philippines – because the population has high English proficiency.
2. Cultural Differences
Culture and religion can greatly impact consumer preferences so it’s crucial to be aware of these factors before offshoring. For instance, if a business outsources its marketing department, then it should be aware of different consumer tastes and preferences. Take the example of McDonald’s – a multinational company who is constantly responding to local tastes and preferences. McDonalds introduced a dessert offer during Ramadan in Dubai called the McBrownie Sundae and has their famous McArabia value meals in the Middle East.
In a similar vein, cultural differences will be present challenges amongst the workforces and can impact human resource management. Toyota found that the Mexican workers are self-reliant and independent, while the Japanese workforce focuses on teamwork and cooperation. Businesses should consider implementing staff training to facilitate successful integration and to ensure that cultural differences do not prevent overseas expansion.
3. Quality of Service
Service quality may become an issue for customers dealing with offshoring call centres or technical support centres. These concerns might be attributed to time differences or language barriers. While it may be cheaper to hire an overseas consultant to answer your phones, businesses might trade-off quality customer service in the process. This is not to say that overseas employees cannot be trained, however, it might be more suitable for them to complete back of house or administrative tasks first before they delve into the deep end by speaking directly to clients.
What is the main takeaway?
Offshoring can be risky and without stringent processes in place, it might result in a loss of control over your process quality. In saying that, offshoring has grown exponentially in recent years as more companies seek ways to improve their operational efficiencies and cut costs. It’s therefore important to conduct a cost-benefit analysis before using offshore resources. TMC has a team located in the Philippines, providing offshoring solutions to over 1000 clients. If you would like to discuss your options, please get in touch with our team in Wellington on 0800 230 000, or alternatively fill our website form.
