What You Need to Know About Offshoring: Definition, Advantages, and More
The practice of offshoring has been around since the conception of globalization. It helped companies grow despite the world’s economy.
What Is Offshoring?
Offshoring is the process of transferring certain business functions to a third-party provider located in an offshore destination, usually in developing nations. Companies outsource offshore due to a lot of reasons, but mainly to save on costs and take advantage of the perks that these locations offer.
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A prime example of offshoring is companies outsourcing their customer support services to call centers in the Philippines and India. This is a proven, successful, and strategic move for businesses worldwide. As a result, the industry expanded. Other tasks and responsibilities aside from customer service, like engineering, IT, and administrative roles, are now also being outsourced offshore.
What Roles Do Businesses Outsource Offshore?
Today, due to technological advancements, businesses can outsource nearly their entire operations to an offshore location. However, the most common roles that companies transfer are the following:
- Virtual assistants
- Bookkeepers
- Engineers
- Telehealthcare providers
- Content writers
- Copywriters
- Telemarketers
- Customer service agents
- Technical support representatives
- Lead generation specialists
- Digital marketers
- Graphic designers
Offshoring vs. Onshoring and Nearshoring
People often interchange and mix up offshoring, onshoring, and nearshoring. It’s time to clear the confusion regarding these terms.
Offshoring
As mentioned above, offshoring is the process of moving certain parts of a business to an offshore location for various reasons. Offshore outsourcing is transferring business functions to faraway outsourcing destinations. If the company’s headquarters is in the United States or Canada, then its offshore locations would be on the other side of the world, including the Philippines, India, China, Indonesia, Singapore, and other Eastern countries.
People usually confuse offshoring with outsourcing. Keep in mind that outsourcing doesn’t necessarily mean offshoring, while offshoring automatically means outsourcing your business functions.
Onshoring
Onshoring, also known as domestic outsourcing, is a different kind of outsourcing. It is the practice of transferring business functions to a third-party provider located in the same country or city as the firm’s headquarters. Its purpose is to reduce costs, conserve office space, and delegate the overseeing responsibilities, among others.
In addition, onshoring can be defined as the practice where businesses that have done offshore outsourcing for specific business functions move these operations back to the country from which it was initially located. Some benefits of onshoring include similar time zones, similar language and culture, smaller travel expenses, easier physical quality assurance checks, and more.
Nearshoring
Nearshoring is a business strategy and form of outsourcing. It is when a company decides to delegate some of its business activities to an external services provider located in a nearby country. If a company’s main office is located in the United States, nearshoring means transferring work to an outsourcing provider located in nearby countries like Mexico, Canada, or any part of Latin America.
Additionally, nearshoring can mean that a company is transferring its previously offshore outsourced services to an external provider from a nearby country. Some benefits of nearshoring include lower costs (compared to hiring in-house), same time zone, and geographically closer offices.
Advantages of Offshoring
It won’t come as a surprise that offshoring came with a few advantages. From creating a better path for working professionals to providing inexpensive yet quality services.
Listed below are the top four advantages of offshoring. These are the very reasons why companies started practicing the model in the first place.
Cost-Efficiency
As mentioned above, foreign countries have lower labor costs, especially in developing countries.
What’s cost-effective about lower labor costs? Companies receive the same service and quality of products for a significantly lower price. Profits go up, as well as revenues. The cost per unit and billed seat doesn’t go much higher compared to hiring onshore workers.
Most, if not all, offshore companies hold responsibility for their agents’ health insurance, government-mandated benefits, and taxes. As an overseas partner, make sure that your offshore vendor delivers the quality you’re paying for.
First-Hand Access to Overseas Market Trends
When offshoring, your company will have the opportunity to track overseas market trends from the inside.
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What this means is that you can be ahead of the competition. Be the first while your competitors scramble around trying to run marketing campaigns before the trend inevitably dies down. Buy or sell out your stocks before a recession hits your home country’s shores.
Keep in mind that market trends are like the ocean waves, unpredictable, and they hit hard.
Lowers In-House Expenses
No more extra seats and desks, extra equipment, and expansion when not needed. Offshoring will lower your overhead expenses. Offshored employees work for you, but they work with the third-party company you partner with.
As mentioned above, offshore companies shoulder your agents’ paychecks and insurance. This could mean that you could expand your services further without worrying about physical expansion.
Lower in-house expenses mean you can focus more on resource delegation. Allocating expenditures in departments that need more support.
After-Hours Business
If you want to deliver 24/7 services to your customers, then going offshore is the way to go.
More likely than not, your business is operating on the other side of the world. 9 AM for you is 9 PM for your agents and vice versa. Since your offshored workers are already on the night shift to provide services, why not take it a step further? The mid-shift exists for this very reason.
Challenges Companies Face When Offshoring
More and more companies have tried offshoring. It has many benefits for a business, helping companies expand their operations and labor workforce more easily and at a cost-effective price.
However, like any other business decision, offshore outsourcing is bound to have some challenges.
Data Security Issues
One of the main reasons businesses are doubtful about offshoring is that they do not trust the data security measures that offshore business process outsourcing (BPO) providers undertake. It’s hard to make business decisions by relying on doubts and misconceptions.
Cultural Incompatibility
One of the usual issues companies face when offshore outsourcing is cultural incompatibility. This can range from language and cultural barriers to different work cultures.
However, communication is key. Always make sure to communicate clearly and efficiently. In addition, this can be a great opportunity to learn more about other cultures, which can contribute to creating a more dynamic and world-class pool of talent.
Different Time Zones
Offshoring means working with a remote team that operates 12 hours before you do. Companies may think that this could result in missed deadlines and weird working hours. However, this has already been fixed by offshore BPO services providers.
BPO companies in the Philippines operate depending on their clients’ work hours. When you visit the Philippines, you’ll notice that major cities and business districts come alive at night. This is because work usually starts at 9 in the evening for the majority of BPO employees. They adjust their work schedules to match those of their foreign counterparts for easier communication and more efficient workdays.
Why Companies Are Turning to Offshore Agencies
Other than lessening the overhead expenses, organizations turn to offshore companies to expand their businesses without allocating too many resources. Expansion is a tough path to walk. Offshore agencies can help you mitigate expenses that come with expanding your business. Processes such as sourcing, hiring, and onboarding can all be done by your partner firm. All seats and office space are theirs to cover.
Start Offshoring to the Philippines Today
The Philippines is known for its decadent cuisine, resilient people, and remarkable hospitality. The country also boasts bustling business districts that sprawl across its three main islands: Luzon, Visayas, and Mindanao.
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In Luzon, the areas of Makati, Taguig, Ortigas, and Eastwood are primarily known as central business districts. These cities are a popular destination for foreign and local companies to set up camp. So, if you’re looking for a cost-effective strategy looking for offshore companies in this area is the best way to go.
Learn more about offshore outsourcing and how to begin with SixEleven. Contact us today!
