What Is Offshoring? What Is Outsourcing? Are They Different?

For the most part, companies opt for offshoring in order to gain access to specialized talent at a lower cost. Offshoring is a more recent recruitment phenomenon fuelled by the internet and the information technology revolution. It is increasingly accepted and embraced as a valuable addition to existing business management strategies. There are many other processes that are outsourced to other countries apart from software development. Companies regularly outsource customer care, cold calling, data services, and other BPO and KPO work. Companies can turn to offshore outsourcing for almost every business role – whether they’re in need of customer service teams, virtual assistants, bookkeepers, graphic designers, IT consultants, and more. Further, before diving into the world of offshore outsourcing, it’s best to be informed of its pros and cons.

Given the distance, it may be difficult to verify the capability of vendors and check their internal processes. A large number of IT offices have mushroomed in these locations that do not have mature processes and are unable to meet the quality standards prevailing in the industry. Developed countries have a demand-supply mismatch of skilled professionals. It’s not to say that the U.S. and Canada don’t have skilled professionals — but they don’t have enough to cater to market demands. The offshore manufacturer usually works in a different currency than U.S. dollars, and the price you negotiate will be in the foreign currency. With as much sarcasm as I can muster, I must say that none of this seems intuitively likely to increase the odds of success, but it does have the «advantage» of being really cheap. Almost every article I read on the subject points out that a programmer in India makes $5,000 — $6,000 per year while an «equivalent» American programmer earns $60,000+ per year.

Offshore Outsourcing

It will at some point in time need to seek the services of third party vendors. B2B transactions can also be viewed as outsourcing if the client company seeks services or products on an ongoing basis. For example, in the situation described above, Apple has more to focus on the color of the flowers at its head office. By hiring gardeners java desktop application frameworks based in Seattle, Apple can free up resources to focus on making better gadgets and computers. As another example, we can look to the U.S. government, deciding to hire security professionals in the Middle East, not only for their expertise in the local security issues and environment but also for its cost effective solution.

More recently, offshoring drivers also include access to qualified personnel abroad, in particular in technical professions, and increasing speed to market. Moreover, cultural differences like different approaches to tackling projects and decision-making styles can affect workflow, quality control, etc. Additionally, by building offshoring teams, you’ll be able to establish remote workforces in foreign destinations. Another benefit of outsourcing company activities to a foreign country is scalability. For example, offshoring regions like the Philippines offer financial incentives and fewer business regulations to attract foreign investments in their country. Most developing countries have lower labor costs than developed countries.

The Outsourced Manufacturing Market Size

Although outsourcing had been viewed as a way to lower costs and gain efficiencies, it is increasingly becoming a strategic tool for companies. Companies might find, too, that they can streamline production and/or shorten production times Extreme programming because the third-party providers can more quickly execute the outsourced tasks. Relocating work or services to people in nearby, often bordering regions and countries. Eastern Europe and Asia may be offering the best prices in the world.

What is BPO how it works?

Business process outsourcing (BPO) is the practice of contracting a specific work process or processes to an external service provider. Front-office services pertain to the contracting company’s customers, such as marketing and tech support. BPOs can combine these services so that they work together, not independently.

Businesses are contracting to various third party businesses by aligning their needs with respect to three major factors- location, relationship, software development firm and contract. There are innumerable other reasons that contribute to outsourcing depending on what business requirements are.

Major Cons Of Offshore Outsourcing

Instead of hiring and training an in-house team to handle non-core operations, you can rely on the external entity to provide the right workforce for your needs. This way, you’ll have more time and resources to focus on core tasks and grow your company. Offshore outsourcing helps companies save costs and gain a competitive advantage in their industries.

  • To top it off, the entire process can take from six months to a year, depending on the nature of the relationship.
  • That has even made organizations to critically think before going forward with an off-shore outsourcing company.
  • Minimal cultural differences and reduced labor costs play key roles in streamlining your remote teams with project requirements.
  • Outsourcing software development to an offshore development company is much more affordable.
  • And this team is concentrated on executing the projects of that customer.
  • , which means a third party located overseas takes over a certain aspect of a business’ operations.

The materials and components you ship to the manufacturer and the products shipped back to you may be subject to tariffs. Consider the costs of the tariffs themselves as well as the costs of clearing the materials through a customs broker.

Labor Cost In U S. Vs. Outsourcing

Once you know the costs for offshore manufacturing, examine the related costs that this process entails. Even if you transfer all your manufacturing abroad, some materials and components may have to come from the United States and the manufacturer has to ship the finished products back to you. One side effect of domestic outsourcing may seem minor, but it can dramatically affect business reputation and customer loyalty.

Europe experienced less offshoring than the U.S. due to policies that applied more costs to corporations and cultural barriers. Offshoring is often enabled by the transfer of valuable information to the offshore site. Such information and training enables the remote workers to produce results of comparable value previously produced by internal employees. When such transfer includes protected materials, as confidential documents and trade secrets, protected by non-disclosure agreements, then intellectual property has been transferred or exported. The documentation and valuation of such exports is quite difficult, but should be considered since it comprises items that may be regulated or taxable.

Offshore Outsourcing: 3 Examples Of Successful It Outsourcing

These unilateral agreements come with mandatory clauses that cannot be manipulated by any bearer. For any businesses deciding to outsource, it is essential to understand the team structure and then initiate offshore outsourcing. Though this wouldn’t be an ideal way every business processes but the majority of them do. After the whole decision on which business partner to choose, it’s now time to choose a method to engage with the shortlisted business. The engagement can be flexible based on the projects or a dedicated development team or a short-term engagement model. This is based on the requirements and objectives that the business targets to achieve. Outsourcing is an option from which a client gets some of their work done by subcontracting it to a third party.

What are the different types of outsourcing?

Types of outsourcingLocal outsourcing (choosing a company in your own country);
Offshore outsourcing (finding a team somewhere in Asia, for example, in India);
Nearshore outsourcing (a company in a country that is not far from yours, like in Eastern Europe, if you are located in Western Europe).

It also saves you the cost of having to rent a larger office building or additional offices. On top of that, you only pay when the work is performed — which means you don’t have to pay someone on a regular basis for the work done once every third month. Offshore outsourcing refers to the practice of hiring a foreign third-party company or an individual to perform certain tasks for your business. It’s a practice that was formally identified as a viable strategy in 1989, and since then it has seen a continuous increase in popularity. Further, there has also been record numbers of small to medium-sized enterprises turning to outsource in the Philippines in recent years. In fact, Outsource Accelerator focuses and helps SMEs to save 70% on staffing costs while getting world-class services from their remote teams.

Aligning Business Needs

They have already setup an office in Bangalore and so begin hiring new software engineers there.Oracle decides to upgrade all its computers at its Redwood City office. It purchases an undisclosed number of desktops and laptops from a retailer in San Diego, because the quality of those computers is very reliable.ElectronicApple decides to purchase its microchips from a company in Korea. Gardeners in California are more expensive team development process than those from Washington. Ford doesn’t want to hire full time call centre employees at its Michigan head office location.Now that we have understood what the terms mean, let us take a look at their advantages. Software Development outsourcing encompasses a contract based voluntary relationship between vendors and clients, wherein a client outsources a part or all the business activities to the concerned vendor.

For example, they outsource because they’re unable to hire in-house, full-time employees with the specialized skills and experience needed to perform certain jobs. In this article, I will give some examples of offshore sourcing for business to you and we will look at the top 5 benefits of overseas outsourcing.