Let's see what is offshore outsourcing and what makes offshore outsourcing a concrete measure for all businesses?
What Is Offshore Outsourcing?
A process involves job relocation from one place to another lowering the labor costs. It generally stands for distributing selected office jobs to countries with equal expertise.
Third-party service provider companies elaborate on outsourcing as an advantage of globalization.
Large multinational companies involve setting up a remote staff that supplies services involving communication, finance, retail, manufacturing, technology, transport.
The Growing Trend Of Offshore Outsourcing
Offshore outsourcing began in the 90s. Initially, unskilled workers were sent to countries, which were sent from developed nations to developing nations.
Progressively, due to the constant development and the complex level of solutions seen in the businesses and companies, the importance of skilled experts increased rapidly. These experts demand a higher income. In order to avoid paying a handsome amount to these experts, the company prefers switching to offshore outsourcing.
Offshore outsourcing helps in making the resources available to the company at lesser costs. This feature of cost-saving continues to the major benefit of offshore outsourcing which makes the company adopt this strategy.
Offshore outsourcing also brings talented workers in the company. The skilled and experienced experts produce an outcome of higher quality. In addition, the strategy is beneficial to the firm by three basic means- competitive, managerial, and structural, namely.
Offshore outsourcing has become crucial for industries, which are spread worldwide. It increases the flexibility of work. Outsourcing helps the companies to meet the objectives or challenges of the process involved in the business.
Also, it improves the quality of the service provided by the company to its customers.
Outsourcing can be stated beneficial to the companies who have adopted the strategy. In addition, it provides a job to the aspiring and skilled candidates. It helps the firms to create new opportunities in the worldwide market.
The companies can afford to buy advanced technologies and expand their program of training. The benefits of offshore outsourcing are not limited only to the developed countries, but to an underdeveloped or developing country as well.
The future of offshore outsourcing continues to be positive. Technology enables communication amidst two nations separated by geographical boundaries. In this manner, technology plays a crucial role in offshore outsourcing.
The increasing confidence in the offshore outsourcing industry leads to increasing companies adopting the strategy.
How to Differentiate Offshoring, Outsourcing, and Nearshoring
In today's business trends, offshoring, outsourcing, and nearshoring are quite common terms. However, to use these services for your business requires a good understanding of the differences between these three different practices. Here in this post, we’ve come up with the information on three different processes.
Offshoring is used to define the transfer of a part of the production process to a third country. The favorite destinations for the Offshoring are Poland, India, China, Czech Republic, and Singapore.
Outsourcing is used to define the displacement of the company's services to other countries. The services that are most outsourced are customer service, programming services.
Features of Offshoring
The main advantages of offshoring are usually lower costs, greater availability of qualified people, and faster work through a pool of global talent.
The main drawbacks are the criticism received by the parent company for the transfer of jobs to other countries, geopolitical risk, linguistic differences and lack of communication, etc.
- It is the form that some companies have found to delegate business functions to an agency or specialized firm.
- It allows for obtaining the best capabilities of any industry without the need to train personnel.
- It provides services inside and outside the country of origin.
- It helps to redefine the strategic areas of a company, which reduces costs.
Features of Outsourcing
In general, companies subcontract to take advantage of specialized skills, cost efficiencies, and labor flexibility.
The main drawbacks of outsourcing include the disparity of interests between customers and suppliers, greater reliance on third parties, lack of internal critical knowledge in business operations, etc.
It is an activity known as "outside the border" and involves moving production systems or factories to another territory or country.
- Labour and resource costs are less expensive.
- There is a greater availability of qualified people for the tasks they perform.
- Work can be done faster through a global talent pool.
Features of Nearshoring
Nearshoring is one of the ways to outsource services in a company, similar to offshoring. Specifically, it is known as nearshoring the outsourcing process of a company's work activity through subcontracting with other companies.
- Nearshoring implies that this outsourcing is carried out in a relatively close country, this being one of the main differences found between nearshoring and offshoring.
- The nearshoring is therefore based on the outsourcing of a part of the processes related to the labor activity of the company, in a nearby or neighboring country, seeking to bring the production processes of a company closer to its market.
- It has been shown that nearshoring improves the quality of service compared to offshoring outsourcing models, given that the nearshoring model takes advantage of the advantages of outsourcing, and of the proximity of work centers.
- The selection of nearby or bordering countries to outsource part of the productive process supposes greater proximity to the distribution centers. It implies a reduction in transport costs compared to other forms of outsourcing.
- Closeness also allows greater control of outsourced processes, also assuming an improvement in the quality of production or service.
- Although it may not seem important, it is one of the biggest problems caused by traditional outsourcing models. Sharing the same language or the same time slot facilitates interaction between departments. In addition, sharing similar labor regulations also facilitates the start-up of nearshoring.
IT Offshore Outsourcing Benefits
IT offshore outsourcing is one of the ways that help to remain in the competition in today's' competitive global world. This outsourcing trend in IT companies has been increased since the past decade.
IT offshore outsourcing is one of the ways that help to remain in the competition in today's' competitive global world.
This outsourcing trend in IT companies has been increased since the past decade. Some of the factors due to which the firms have decided to outsource the IT offshore are the lack of expertise, the non-availability of specialists of this field, the improved output, and the cheaper cost of labor.
Few benefits of outsourcing IT Offshore are listed below.
Expertise from outside business outsourcing:
IT offshore outsourcing helps in saving the time that is utilized in the recruitment of specialists and its training as per the business requirement.
It helps in linking with competitive and skilled individuals. Outsourcing companies have specific tools, techniques, and experts in the required field.
It helps in achieving goals from the environment of good work ethics and specialized educated professionals.
Reduction of costs:
IT offshore outsourcing is one of the best solutions when the experts are required, and they are available at high rates in the domestic market.
It decreases or cuts the labor costs. And due to the implementation of the latest techniques such as optimized outsourcing which is reliable, service optimization and calculable sales, it helps in achieving goals more effectively.
It also focuses on the excellence of its operations and the integration of its operating model.
The rise in productivity:
Offshore outsourcing solutions provide the work ethics that attract employees to work more effectively. Offshore outsourcing provides more time for organizations to strengthen the other core processes of their business.
In countries of different time zone, time can be fully utilized. As a task is outsourced to the company of the opposite time zone may work when it is the time of rest.
The task assigned gets completed at the outsourced company of different time zone. Next day that work can be checked and finalized. It helps a lot in increasing productivity and the rise in the business.
Adaptability and sharing of risk:
The offshore outsourcing allows the businesses to adapt and react rapidly as per the changes and demands of the market.
Outsourcing a project to any outsourcing company legally imposes the responsibilities of the companies providing outsourcing services.
All the risks of business become the liability of the outsourcing company. But they have specialists of the required field, they already plan to deal with the risk factors.
The companies that provide outsourcing services have professionals to work. The provided by such companies are of high quality and increases the chance of getting more business.
Wages are one of the most concerning factors of offshore outsourcing. Hiring an employee on salary increases the cost of the company.
But in IT offshore outsourcing the finances incurred are much lesser than the regular employee.
Work on time:
IT offshore outsourcing companies assure to provide work on time and they also do so. Its introduction to any business increases the punctuality of the work, which again is a powerful quality of any business.
Outsourcing of the projects has sufficient and knowledgeable resources that are required to start any of the projects.
To start a new project within the company, need specialized personnel and time to train them as per the projects' requirements.
Outsourcing companies already have such experts to fulfill the demand of the business.
Offshore Outsourcing – Cons & Risks
Cons Of Outsourcing
Barriers of language, culture and time zone
When a project is outsourced, there are certain barriers that create problems in the successful completion of any project. This problem arises when the company providing outsourcing services does not understand the communication in either English or any other language.
It really acts as a hurdle when the knowledgeable and specialist outsourcing company does not clearly understand the demand of the business. The cultural factors also lead to the communication gap that further reflects on the project completion.
Different time zones of different countries also create a problem in comfortable and proper communication for the business requirements.
Cost-effective and expected quality
The main objective of outsourcing a project is cost-cutting. Some of the outsourcing companies agree to complete the project at low prices but the work they provide is not of the quality as expected by the business.
Few large outsourced companies provide quality work but the amount they charge is quite high. To have the quality work at low cost is a sort of a huge challenge for a business.
Delay in project delivery
Outsourcing companies may provide the work quite late against the deadline decided at the time of sharing a project.
The individual already provides the time limit to the outsourcing company and therefore the company shall be responsible to provide the task on time and with the qualitative work.
Sometimes these delays are so frequent that it affects business growth.
Confidential elements disclosure
There is always a risk of disclosure of confidential data provided to the outsourced firm.
The outsourcing company can disclose your confidential data to the third party that you have provided them for project completion.
Risks Of Outsourcing
Security of IP
An outsourced company may not have a proper secured IP, which is a risk of leaking or losing the data. There is always some news about the data loss by the companies due to their outsourcing.
Many cases have been noticed that the outsourcing company has charged an extra amount for providing extra efforts to the project. Such extra charges are those that are never been discussed while assigning the project. Various outsourcing companies are therefore providing the fixed rates facility for their work.
The productivity of work cannot be monitored due to the distance of the outsourced company. It is harder to analyze the quality of manpower empowered by the outsourcing firm that affects the time and quality of the project completion.
Deficiency of skills and advancement in technology
The introduction of technology is not the same in every country and it is the most effective tool for any work. Sometimes outsourced companies do not have the updated technology that meets the project standards and that leads to a bad impact on business.
Solutions for cons and risks of outsourcing
The outsourcing company may be chosen and awarded a project only after considering the below factors:
- Duration of the company's establishment, the number of employees working in it, and the project size. A team integration model shall be checked that proves the skills and abilities of the outsourcing company.
- To identify a genuine outsourcing company, a survey should be done that includes an internet survey. The website of the company should be checked and observed. Its ranking should also be considered. Its reviews and complaints shall be checked etc.
- The outsourcing companies that are always up to date of the new technologies shall be considered for a project assignment.
Companies Providing IT Offshore Outsourcing
Computer Economics had provided IT outsourcing statistics, which showed that outsourcing has picked up speed in this technology-driven world.
The statistics show that large companies spiked their expense on outsourcing from 6.3% to 8.7%. Small and mid-sized companies have reported an increase in expenses of 1.1% and 1.8% respectively.
Most of the western countries prefer countries like Poland, India, Russia, and China for outsourcing services. IT offshore outsourcing is called ITO (Information Technology Outsourcing).
Key factors playing a role in the growing trend of IT outsourcing are:
- Lack of expert professionals in certain business process
- Low-cost labor availability without compromising quality and efficiency of work
- Feasibility to divert focus on core business functions
According to statistics, nearly 60% of European companies outsource their IT projects rather than having IT specialist in-house.
Why IT Outsourcing Is Preferred By Big firms?
- Offers better budget flexibility and control. Firms only have to pay for the services they require when they require it.
- Reduces the time and effort required in hiring and training specialized staff.
- Outsourcing ensures job handling by expert professionals which in turn guarantees safe and right project delivery according to the requirements.
- Effective utilization of time by outsourcing work to companies in different time zone. This ensures work completion faster than onshore work progress and increased productivity.
Global outsourcing has put several businesses on the international radar. There are several companies providing IT offshore outsourcing worldwide, one of them is Apphawks.
What Is Offshore Software Development?
In Offshore Software Development, the IT applications of domestic companies are handed over as an outsourcing task to third-party software developers in other countries.
The outsourcing of tasks can be to an agency or an individual developer. It can be the outsourcing of a whole project or a certain part of a project. It can also be done by hiring a developer or an entire team of developers.
What Is Offshore Software Testing?
Offshore Software Testing will validate whether the applications ultimately meet the technical and business requirements. The basic tests carried out by every testing service are functionality test, performance and load test, compatibility test, security test and user experience tests.
The Offshore Testing Services are best provided by those who also share an onshore office.
For obtaining effective software testing, a personalized approach is required. This requires test service providers to be familiar with the client’s products, workflows, and technology.
This way any loophole can be rectified and also ensures that the application can provide end to end smooth workflow.