The Hidden Costs Of Offshore Outsourcing

For decades companies expanded their conglomerates by buying other companies. Initially, these companies were related businesses—often suppliers—but soon the conglomerates began buying companies with no relationship to their business.

Having continuous business operations will help you deliver better customer service and increase client satisfaction. By benefits of offshore software development having teams distributed in other parts of the world, in different time zones — you can have your company operate 24/7.

Lower Labor Cost

It increases your productivity when you are completely focusing on your core missions. If you prefer, we can call this “focusing on your core business,” but it amounts to the same thing. Not understanding the culture of the outsourcing provider and the location where you outsource to may lead to poor communication and lower productivity. When the physical infrastructures are moved overseas, there is a risk for the local employees to lose their jobs if they are not able to work in other areas of the company. This can negatively impact the local perception of the company if a lot of people lose their jobs as a result of offshoring. Although the initial appeal of offshoring was due to the low labor costs of other countries, recent data shows that the costs of labor in those countries are rising.

  • Additionally, business organizations found that they were often able to get work done faster, more efficiently, and at lower cost by accessing another firms’ expertise.
  • The impressive roll of companies that are outsourcing to countries like India, Pakistan, Bangladesh, and the Philippines tells its own story.
  • Thanks to advances in information technology, businesses can track providers’ efforts in real time.
  • Due to reduced labor costs and taxes, companies can reinvest their revenues to expand services and improve products.
  • You relocate activities to an offshore location but continue to manage them from within your company.

Involving employees with opposite values can result in difficulties with performance control or subordination. Thus, you may need to consider like-minded cultures with a similar work ethic. Below are the top reasons why it may turn out a great idea for your company. We will provide you with statistical data regarding the number of developers in Ukraine and their average salaries.

Service Offerings

If there are incomplete tasks in your parent company, your local team can hand over those tasks to your offshore staff. This will ensure that there’s a continuous workflow on projects in both your parent and offshoring company. This is a high-end service that requires processing large volumes of information. Setting up this process involves a lot of effort and resources; it’s much better to outsource this to an offshore partner. For example, you need to factor in how much it costs to maintain the software after the offshore development team has delivered it.

Signing up with an inefficient outsourcing partner leads to delay in end delivery with quality which in turn paves way for inconvenience and regrets. It in turn improves your company’s productivity since it will keep you focused on achieving your primary mission rather than losing control by multi-tasking the secondary missions. There is always a huge financial savings upon outsourcing and finishing the particular exercise. Apart from the problem of finding new clients or persuading old ones to buy more, increased turnover implies increased capacity. There are two ways to increase profits, and most businesses try to implement them both. To improve profit, you can try to increase turnover, but as any business owner knows, that’s easier said than done.

Offshoring vs. Outsourcing: What’s the Difference? – ThomasNet News

Offshoring vs. Outsourcing: What’s the Difference?.

Posted: Mon, 03 Aug 2020 07:00:00 GMT [source]

With all these pros and cons of outsourcing to be considered before actually approaching a service provider, it is always advisable to specifically determine the importance of the tasks which are to be outsourced. It is always beneficial for an organization to consider the advantages and disadvantages of offshoring before actually outsourcing it. Outsourcing refers to an organization contracting work out to a 3rd party, while offshoring refers to getting work done in a different country, usually to leverage cost advantages. It’s possible to outsource work but not offshore it; for example, hiring an outside law firm to review contracts instead of maintaining an in-house staff of lawyers. It is also possible to offshore work but not outsource it; for example, a Dell customer service center in India to serve American clients.


In addition to the rising costs of labor, the costs of shipping and other duty fees are also on the rise. So, it is wisely said that Outsourcing reduce costs for all businesses who decide to outsource. Also, it aligns with what business wants to invest and on that basis what they can achieve. Outsourcing involves contracting some internal services to a third party company, which could be anything from manufacturing, assembly, marketing, accounting, freight management, etc. Outsourcing does not necessarily mean the operation will be moved outside of the country. Offshoring is defined as moving manufacturing or other business processes overseas versus having them operate domestically.

advantage of offshore outsourcing

Typical offshore outsourcing destinations have extremely dense populations with rapidly growing middle classes. These educated classes often flock to industries that allow them to compete in wealthy markets, such as IT and software development. Since the pool of skilled IT experts in the United States and other wealthy nations isn’t growing fast enough, this supply of additional labor is extremely valuable for these firms. Seen under this light, it might mean maintaining control over core business functions and complex projects in-house while outsourcing smaller portions of those projects offshore that later plug into the end-product. Perhaps the best-known benefit of offshoring is its potential for cost-savings. We’ve already explained offshoring, but companies may sometimes choose a modified form.

Offshoring is when you relocate work to a different country, usually to take advantage of cost saving. When offshoring, you can manage your offshore company’s administration and operations, or you can hand over the work to your offshoring partner. Services offshoring is when you relocate your company’s administrative and technical services like finance, human resource management, and software development. Go through the pros and cons of outsourcing mentioned here to help you decide whether you should start using offshore outsourcing services.

advantage of offshore outsourcing

Offshore outsourcing company takes this headache away from you and you will not lose money or sleep if the company you contract fails to make your task done. There are a lot of factors that have changed since offshoring became popular. As such, it is important to consider the advantages and disadvantages of offshoring before deciding whether it is a good business decision for your company. Different countries have different languages which are not standard and is one of the hurdles for businesses to communicate. There is a cultural gap between your local team and your offshore partner which may lead to contradictory opinions and often disputes which will be demonstrated in the performance. Imagine you have placed a valuable object at a distant location so that no one can have access to it. Similar is the case with businesses who outsource their valuable business operations to an offshore location.

Access To Experts

Time zone differences and linguistic and cultural barriers make matters worse. The paper introduces a new concept of access, which can help to more reliably predict performance outcomes of offshoring initiatives. Recommendations are also provided to practitioners dealing with offshoring initiatives. If you think you should have access to this content, click to contact our support team. Offshoring those tasks can help with their overall job satisfaction, and the productivity of your company.

After knowing the pros and cons of offshoring, you would now think that you are all set to outsource to a third-party offshore team from other countries. But before you outsource there are few pro tips that we have hand-selected with our experience of developing multiple customized software. It lets you easily scale up your business and gives you access to skilled labor at a lower labor cost. And it caters to all business models for sectors like IT services, call centers, and more. Outsourcing is when you hire an outsourcing company to offer services or manage a specific business operation at a lower cost. You’d normally outsource specific tasks to an outsourcing partner or a freelancer if your team doesn’t have the capacity for them. These financial benefits, rapid globalization, and advancements in modern technology have led to a spike in both services and production offshoring globally.

HP, IBM, Intel, Microsoft, Cisco, and Accenture are just a few of the big names that are taking certain functions offshore. If important functions are being outsourced, an organization is mightily dependent on the outsourcing provider. The lower cost of operation and labor, and reduction in overhead costs makes it attractive to outsource.

Here are some routinely cited challenges CxO’s face with offshore outsourcing key departmental functions. When companies look at the extent to which they codify work and use metrics to measure process quality, they’ll see that their processes fall into four distinct categories (see the exhibit “Evaluating Operational Risk”). Reduce operational costs by ensuring superior service quality in medical billing & coding, pharmacy, transcription, & teleradiology, etc.

advantage of offshore outsourcing

In the consumer goods industry, for instance, executives usually rate product-development processes higher than customer-service processes, while in the hotel industry, the opposite is true. Next, managers must ask, In relative terms, to what degree does each process enable my company to capture some of the value that it has created for customers? They must rank each process along these two dimensions, then add the two rankings together to arrive at a total ranking for each process. Sometimes, executives may feel that one of the two dimensions is more important in the industry or for their company. In that case, they must calculate the total rankings after assigning greater weight to the more important aspect.

If you need help understanding the offshore outsourcing definition, you can post your legal need on UpCounsel’s marketplace. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb. Some experts say that organizations that outsource overseas can, on average, expect savings of around 15%. These savings are realized through lower labor costs, cheaper materials, increased efficiency and greater service offerings which drive earnings. It is also an ideal location to provide non-voice live agent activities, including chat and messaging management and IT help desk support. Simply put, offshore outsourcing means moving one or more of an organization’s business activities or processes to another country .

Any company looking to outsource must keep in mind the pros and cons of outsourcing before deciding to take the plunge. Take a look at this list of advantages and disadvantages of outsourcing. To define in brief, Onshore Outsourcing is a type of outsourcing where businesses have the opportunity to outsource in the same country or maybe the same state or city. While in Nearshore outsourcing, businesses have access to talented resources located in neighboring offshore country. If we take an example for developed countries like the USA, the nearshore locations are Canada or Mexico for software outsourcing. It’s vital to consider offshoring pros and cons before choosing to offshore outsource any part of your business operations. You’ll need to choose the right agency to avoid issues like hidden costs and possible security risks.

Companies began outsourcing work to the lowest bidder and lost sight of the effect it had on the company in every area except for finances. The ability to write clear specifications is also critical to achieving offshore savings. EXP+™️ creates a robust ecosystem around your individual business needs by harnessing the power of four connected product families. You may suddenly discover that one team member you could best communicate with has been allocated to a different project. We could fill out pages if we were to go into the reasons that make offshoring lucrative for companies. Outsourcing promised the world to global companies, only to reveal that there were pitfalls hiding under what seemed to be a smooth road surface. Read our detailed article which will help you in selecting an ideal vendor for outsourcing.

Profits started falling, and companies began to retract to their “core” businesses. Next, they discovered that they could shed even core functions by hiring them out to companies that could do them more efficiently and, thus, less expensively. Payroll processing was subcontracted; shipping was farmed out; so was manufacturing; companies were hired for collections, customer call centers, and employee benefits. In outsourcing, specialized companies provide their services to client companies at a lower cost than the client companies would ultimately incur doing the work in-house. Outsourcing this work to “foreign” or “offshore” companies, solely to take advantage of lower labor rates in those countries, became known as offshoring. Offshore outsourcing is an attractive option for companies trying to take advantage of lower labor costs available overseas, in contrast to North America, where employees and contractors can demand higher salaries.

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