First of all, what is offshore outsourcing? Offshore outsourcing refers to when companies outsource some key responsibilities and roles to staff in another country.
But before we get ahead of ourselves, you should know that there are two kinds of offshore outsourcing:
- One is where you outsource a part of your business you’re no longer doing in-house. For example, you might outsource your IT necessities.
- The other is when an external partner, like Remote Employee, provides a way for your business to have offshore employees. You still manage and train these team members, and you never lose any company values, culture, or quality.
Companies are also known to outsource IT responsibilities, research and development, manufacturing, sales, collections, and much more. Although there are a wide range of benefits, many companies use outsourcing primarily to reduce the costs of expanding their team.
A knowledgeable offshore outsourcing company can save you 40-65% on labor costs. That’s a huge boost to the business budget.
Outsourcing is actually in use by companies across almost all industries. In 2022, 37% of small businesses were regularly using some form of outsourcing. Global spending on outsourcing is steadily increasing each year, as more and more companies take advantage of the benefits of working with a remote team (and not needing to handle hiring internally). Although some companies believe it’s best to do everything locally, many businesses use offshore outsourcing to increase efficiency, reduce cost and provide high-quality service. One important reason that offshoring has become more accepted is the dramatic trend toward remote work over the past few years. Employees now desire more remote opportunities, and businesses have figured out that remote work can be both simple and cost-effective.
Businesses across industries benefit from offshore outsourcing, from the largest corporation to the smallest family-owned business. One kind of business that often reaps the most measurable benefits, however, is the start-up.
Start-up businesses are notoriously demanding and difficult to grow. Employees are often working long overtime hours for months or years without seeing great results. The combination of a small budget and limited staff resources often causes many start-up businesses to fail before they really get off the ground.
Using offshore employees dramatically helps small businesses create success. By outsourcing certain processes and services, start-ups can gain the time and budget to grow and improve. Time-consuming yet necessary tasks are handled remotely, so the local staff can focus on core business activities.
When hiring staff, you’re going to encounter the terms offshore, onshore, and nearshore outsourcing. Although all are forms of outsourcing, there are key differences as well as pros and cons.
Outsourcing simply means using an external company, division or individual to provide goods or services. It’s not always practical or affordable to handle all business operations in-house. If a company does not have the time, expertise or resources to adequately perform certain tasks, they may choose to outsource these tasks to a third party.
Offshore
The definition of offshore outsourcing is hiring staff from another country, often overseas, in a different time zone. Benefits may include lower costs, increased hours of operation, and a wider talent pool.
Onshore
Onshore/local outsourcing refers to hiring external staff located within the same country, region or time zone. Benefits may include no language barrier.
Nearshore
Nearshore outsourcing means hiring staff that are in a neighboring country or region not far from the main company. Benefits may include more affordable labor and the ability to visit the location easily if necessary, but there may be issues with accent and dialect.
Offshoring can be used for many different purposes, including business processes, like admin work; IT offshore outsourcing; and marketing, just to name a few. Offshore outsourcing companies offer a wide variety of services to help fill skill gaps and perform essential functions.
Business Process Outsourcing (BPO)
This type of outsourcing refers to services and tasks performed externally for a business. A business process may include internal back-end tasks like HR. On the other hand, the offshore outsourcing company may deal directly with front-end customers on behalf of the business, like they would in a customer service role.
Business process outsourcing (BPO) is one of the biggest sub-industries of outsourcing, alongside IT outsourcing.
Some of the examples of roles outsourced in BPO include:
- Payroll
- Accounting
- Customer support
- Manufacturing
- Marketing and sales
- Research
- Revenue cycle management
Information Technology Outsourcing (ITO)
IT accounts for $66.5 billion in global outsourcing contract values, and dominates offshore outsourcing services. Many companies choose to outsource their IT, but not only because it reduces a major yearly expense. Another main reason is offshore IT outsourcing companies have a larger number of qualified employees, and it’s easier to find expert staff than it is to recruit locally. When companies outsource their IT, they might be looking for:
- Application and software development
- Web hosting
- Tech support
- Telecommunications
- Website maintenance
- Cybersecurity
Knowledge Process Outsourcing (KPO)
This is when a company hires a third party to handle integral, advanced or highly technical aspects of their business, like research and development and handling finances. KPO requires subject matter experts who are highly trained in their field. These employees focus on managing data and delivering insights.
Examples of KPO roles include:
- Financial consulting
- Technical analysis
- Research and development
- Business operations management
- Data interpretation
- Legal services
Recruitment Process Outsourcing (RPO)
RPO involves all aspects of a company’s hiring process. A third party may handle all or part of a business’s recruiting activities.
RPO enables businesses to avoid the expense of in-house recruiters. It also helps them find qualified candidates more easily, without having to conduct lengthy searches and interviews. The third party takes care of human resources and administrative duties, complies with all employment laws, and contributes to decreased turnover rates.
Examples of RPO roles include:
- Putting up job postings
- Interviews
- Market analysis
- Onboarding
It’s clear offshore outsourcing services can be a valuable resource. But what are the main offshore outsourcing benefits for your business?
Cost Savings
The main reason companies seek offshore outsourcing services is to decrease expenditures. Companies may spend up to 75% of their budgets on labor costs. Outsourcing reduces the cost of labor by up to two-thirds. It also decreases a business’s overhead and operational costs.
One of the most pronounced benefits of offshore outsourcing for small businesses is the ability to provide higher quality services at a much lower cost than onshore outsourcing. Local businesses are able to make the most of their limited budgets by using offshore outsourcing companies. If you’re looking for a cost-saving initiative, offshoring is an excellent option.
Increased Availability of Services
If a company’s call center or customer service department is located in a separate region, they can greatly expand their hours of operation. When employees in the company’s home country sign off for the day, their offshore employees can seamlessly take over and provide continued service.
Longer hours of service provide round-the-clock convenience for customers and help reduce overall wait times, leading to higher satisfaction and customer retention.
Knowledge of New Markets
Offshoring may provide a company with a deeper understanding of another country’s business trends, markets, potential risks and culture. Hiring employees in other regions can help companies expand into new markets with the local expertise necessary to succeed.
If your business is looking to expand, employees who live and work in your target market region can provide valuable insights. These culturally embedded employees also help your business navigate new customs, risks, opportunities, and cultural norms.
Access to More Qualified Employees
Offshore outsourcing offers a much greater number of professionals than the available local pool. With ongoing recent labor shortages, businesses are having a hard time finding and keeping employees. Offshoring can fill these gaps, especially since many of these team members have been working offshore positions for years.
As most offshore employees are already trained to perform their role, you also save time and staff resources trying to set up each new employee and provide training.
Compared to hiring onshore for entry-level positions, hiring offshore for the same positions guarantees a high quality of work, dedication, and experience for the reasons listed above.
Offshore IT outsourcing is one sector where the wealth of talent is especially apparent. IT professionals are in high demand, and companies struggle to find and retain IT experts. Offshoring provides access to a much wider pool of talent in the IT industry.
Increased Efficiency
Outsourcing certain business operations to offshore workers enables a company to focus on its core business activities. Offshoring saves time, increases productivity and broadens the services a company is able to provide its customers.
Faster Turn-Around Time
Due to increased hours of business and a wider number of qualified workers, offshoring can lead to significantly quicker completion times for projects and goals. While companies using only local workers often struggle to meet deadlines, offshore outsourcing helps these companies achieve their targets on time.
Although many countries provide some type of offshore outsourcing service, certain countries offer distinct benefits over others. When searching for the right company to partner with, you may have a choice of several different locations.
India is a great example of a country with top-quality outsourcing companies, a skilled labor force, and affordable rates. Although still developing, it is a rapidly emerging market, with one of the fastest growth rates in the world right now.
Here are just a few of the benefits of outsourcing in India.
Offshore Outsourcing Advantages in India
India consistently ranks as one of the best countries for outsourcing, but why? Cost of labor, skill level and culture all play important roles.
Language
Companies often have the misconception that outsourcing will result in an incomprehensible language barrier. This potential issue is easily overcome by working with the right company in the right location. India is an ideal country for offshore outsourcing because of the language and accent.
Indian English is generally considered a recognizable and accepted variation of English around the world, but with some nuances to consider. Due to India's large population and growing economic influence, Indian English is increasingly understood and accepted internationally, particularly in business settings.
While there may be some differences in accent, vocabulary, and grammar compared to other English dialects, most native English speakers can understand Indian English without difficulty.
Cost Savings
India has a comparatively low cost of living. Companies that choose Indian offshore outsourcing can save over 50% on labor costs.
Growing Infrastructure
India’s infrastructure development has helped the country’s economy grow significantly. The government of India is consistently very supportive of offshore outsourcing opportunities.
Outsourcing makes up a tenth of the country’s economy, and provides valuable jobs for almost a million workers. The country’s growing infrastructure also makes it especially suitable for offshore IT outsourcing services.
Educated, Motivated Workforce
Indian youth workforce is also growing. 97% of Filipinos are literate, and many have higher education. Indian workers are employed in a wide range of industries. Offshore work provides these workers with important advancement opportunities, and they are highly motivated and hard-working.
Offshore Outsourcing Is Taking Jobs Away from Local Workers?
As we touched on earlier, many of the jobs that get outsourced to overseas countries are jobs that are simply not able to be filled locally. This gap may be due to local workers viewing these types of jobs as less desirable, or it may be due to a shortage of qualified workers.
Another factor to consider is that offshore jobs are often the direct result of a boom in innovation or technology in Western countries. As Western economies grow, the need for skilled workers and services increases.
The cost savings created by using offshore labor also helps businesses grow and become more profitable, leading to stronger companies at home.
As we’ve already covered in a few areas, more companies are looking into software offshore outsourcing—mainly by adding team members to their software development projects. It’s both a great way to address the skills shortage and save thousands on labor costs.
Ways to Win with Offshore Software Outsourcing
The good news? Companies benefit from offshore outsourcing in more ways than addressing skills gaps and cost savings—overseas team members improve the way enterprises do business.
- Speed Up Delivery Before Deadline
Amplify your product development pace without sacrificing quality with offshore software outsourcing. How? When you use an offshore software outsourcing company, you can speed up your product development pace without sacrificing quality.
The advantage of different time zones ensures that there’s always someone working on your project, offering round-the-clock development.
Offshore outsourcing software development brings more experts to take a look at your code, reducing the likelihood of overlooked bugs. This means fewer project launch delays, swift time-to-market, and minimal last-minute bug rectifications.
- Reduce Costs
Development expenses can escalate rapidly. While ensuring a top-tier product, there are indispensable tools and resources that demand investment. However, offshore software outsourcing can be a game-changer for cost reduction.
Software developers from abroad generally have competitive rates compared to their counterparts in the United States, ensuring you always get top-quality work without straining your budget.
Moreover, with offshore staff, your company isn’t burdened with having to provide additional employee benefits. Many nations offer tax benefits to businesses who maintain offshore operations within their territories. This not only trims down project expenses but might also present financial advantages.
- Corporate Growth
Offshore software outsourcing offers your enterprise a golden opportunity to branch out into new geographic regions. By employing local professionals, you not only improve operations but also enhance brand visibility and recognition. This grassroots approach accelerates your market presence through organic word-of-mouth.
Venturing into offshore outsourcing software development can usher in unforeseen prospects. Engaging with offshore software developers might also be the gateway to tapping into an entirely new demographic.
It may not be the right fit for every company. Case studies, however, have consistently shown that offshoring leads to higher profits, improved customer satisfaction, and increased development of core competencies. Even if you’re not sure how offshoring fits into your business model, it’s worth checking out. You may identify services or processes that you didn’t even realize could be outsourced.
Initial migration costs and complexity will naturally vary from business to business. This process has become infinitely easier in recent years, however, thanks to the cloud and other data-sharing technology. It has never been faster or easier to communicate, share information, and get set up.
The more closely you work with your offshore company, the simpler this process will be. Thanks to the digital transformation over the past decade, initial migration doesn’t take nearly as long as it used to, leading to reduced overall cost.
Every offshore outsourcing agreement begins with a comprehensive contract. This contract will lay out exact responsibilities, expectations, and payment details, so you won’t have any surprises down the road.
A contract should include clear deliverables and a detailed scope for all activities. Make sure you understand the timelines and communicate expectations with your team.
Once you are working with offshore employees, you can easily check in with them to ensure they are meeting your targets. Thanks to our interconnected world, it’s easy to get in touch with employees around the clock, even from a remote country.
How long you employ an offshore company, and the budget you spend, are both negotiable. You’re only locked in for as long as you agree to in the initial contract. If you don’t like the company or the services provided, you can always cancel.
Collaboration between offshore and local employees is not only possible—it’s the ideal solution. Although your offshore team can work independently, you will achieve the best results from both teams working together.
Collaboration helps you maintain a consistent brand and company voice across all interactions. Your team presents a united front to your customers, and your work appears cohesive no matter which employee is completing it.
Due to some employees being in completely different time zones, you may face some challenges coordinating meeting times. Technology and secure data sharing, however, make it simple for employees to work together on projects. As long as they have an internet connection, they can serve your company from anywhere in the world.
You shouldn’t view your offshore team as a separate entity. Instead, think of them as an extension of your local team. All your employees should be focused on providing high-quality services and a consistent company brand. Look for offshore companies that make it easy for you to manage your remote team.