Topic – Offshore Outsourcing – Definition and Benefits

Offshore outsourcing is the process of hiring a vendor outside the company to perform certain business functions, such as manufacturing, in an offshore location. Although offshore outsourcing generally refers to a company contracting with another entity across national borders, it can also refer to hiring within your own country but outside of your corporate structure or local area.

Although, Offshoring vs outsourcing comes with two different approaches to software development, offshore outsourcing is the best of both where a company hires a service provider in another country to perform business functions for them. This could be anything from database management to customer support. Some common examples include Indian software development centres for U.S. companies and Chinese manufacturing plants for U.S.-based retailers and distributors.

Outsourcing is often less expensive than having employees perform the same work in-house, although this depends on many factors, including the nature of the product or service being outsourced and the current economic conditions of both countries where the work will be performed and where it will be used.

Top Five Benefits of Offshore Outsourcing

Companies can benefit from offshore outsourcing by shifting time-consuming and expensive functions, such as accounting or payroll management, outside their own offices so they can focus their attention and resources on core competencies. The following are some of the benefits that companies may realise from offshore outsourcing:

Cost savings

The most common reason cited for offshore outsourcing is cost savings. Manufacturing costs overseas are typically much lower than those in the United States. For example, a company that manufactures goods in China may pay $1 per hour for labor compared with $20 per hour in the United States. Even when these cost savings are shared with an offshore outsourcer, significant savings may still be generated.

Turn Fixed Costs into Variable Costs

One of the primary benefits of offshore outsourcing is that it can turn fixed costs into variable costs. In other words, you can hire more people when you need them and let go of them when you don’t. That’s a big advantage in terms of flexibility, especially if you’re worried about the uncertain future of your business or industry.

A business owner is able to shift fixed costs into variable costs which means that he/she will only be paying for the results. The company will no longer need to invest in capital equipment needed for an operation but can instead pay for their services when needed. This allows them to save a significant amount of money, which can then be used for other purposes such as expansion or marketing campaigns. It also reduces the risk of failure because there will no longer be any capital investment required.

Focus on core business activities 

Outsourcing can help a company stay focused on core business activities because they do not have to worry about anything else. When you outsource non-core functions, you are allowing your employees to focus on their jobs and not have to worry about other things that might distract them from what they should be doing. This means that productivity levels will increase since people are doing what they are supposed to do.

Offshore outsourcing frees up your time so you can give more attention to your core business that makes a difference to your bottom line, such as developing new products or services, strengthening relationships with customers, and managing employees more effectively.

Access to global talent pool 

Offshore outsourcing also gives you access to more talent. You can hire people with skills that aren’t available locally or find people with specific language skills for projects that require them. You might even find people who are willing to work for less money, but who are more talented than their local counterparts. 

Outsourcing companies have the ability to tap into a larger talent pool than their onshore counterparts. This is because there are many highly qualified individuals living throughout the world who are unable to find jobs in their own countries. These individuals have the same level of experience and expertise as onshore employees but are able to perform tasks for a fraction of the cost. 

Outsourcing companies can also use freelancers who work remotely for various clients around the world. Freelancers provide even more flexibility to teams by allowing them to add additional resources when needed without worrying about project constraints and deadlines.

Increased efficiency 

One of the most common benefits of offshore outsourcing is increased efficiency. This can happen in a number of ways. 

In some cases, outsourcing allows companies to focus on their core competencies. Core competencies are an organisation’s strengths. For example, a company that designs software may not want to spend the time and money to create its own customer service department to handle technical support calls. Instead, it can outsource this responsibility. This frees the company up to focus on its business goals and core competencies while still providing service to its customers.

In other cases, outsourcing can increase efficiency because it takes advantage of economies of scale (the quantity discounts that come from mass production). Manufacturers often work with external suppliers who sell the raw materials needed for production at a lower cost than if the manufacturer had to produce them itself. 

And sometimes companies outsource tasks because they don’t have the expertise in-house or because they want to take advantage of new technologies that outside firms provide. Often these technologies are founded on innovations made by companies whose sole purpose is researching and developing new tools and processes.

Takeaway 

There’s no doubt that offshore outsourcing has many benefits. It can help companies achieve their goal of saving time and money while achieving the same results. But before going to such extremes, it would be wise to investigate the pros and cons carefully so that the option is a win-win for your business.

If you’re a company considering offshore outsourcing, it’s very important to conduct proper due diligence and research. The key to a successful outsourced project is effective communication, clear objectives, and open follow-through from your potential supplier. Without these three things, you run the risk of losing money, time and ultimately faith in your supplier.