In recent years, companies have been looking to offshoring practices to boost and grow their businesses. With technology constantly changing, finding skilled workers who can meet the tech needs of a company is becoming harder. And this is where offshoring can help.
That being said, there are a number of advantages and disadvantages to this business model. In this article, we will look at these in detail to ensure any business knows what they’re getting into with offshoring.
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What is offshoring?
Offshoring, not to be confused with outsourcing, is simply when a business relocates part of the business process to another country. Companies tend to do this when they want to keep business costs down.
It’s also not a recent thing. Back in the 2000s, a growing number of companies began offshoring when telecommunications became much better. This was simply because it enabled companies to remain in much better contact and communication with workers around the world.
Many manufacturing companies have started using this practice in the US. These firms have adopted offshoring to leverage cost advantages, access skilled labor markets, and expand their production capabilities. They set up operations in countries with lower operational costs to maintain competitive pricing while aiming to adhere to quality and regulatory standards.
While not in quite the same wheelhouse, the iGaming industry has also begun offshoring too. In the US, online casinos are not legal in many states. Because of this, gambling companies have set up offshore casinos and betting sites. These are located and licensed within countries where gambling is legal. This allows US players to access these sites like those on a list of the top 10 best offshore casinos of 2023, giving them access to top-rated casino games in a situation where they otherwise wouldn’t be able to.
There are many large shopping platforms that also successfully offshore. Companies such as Amazon do it: they offshore various aspects of their business, including customer service, IT, and back-end processing, to countries with lower costs and robust technological infrastructure.
Tech giants such as Google and Microsoft capitalize on offshoring for software development, IT support, and innovative tech solutions development. This not only helps in cost reduction but also in tapping into a global talent pool, fostering innovation, and achieving round-the-clock business operations.
For businesses that have, or are considering offshoring, particularly when it comes to the tech side of things, there are a number of positives.
Reduced labour costs
Possibly the biggest factor for offshoring, this allows businesses to pay foreign employees a lower wage. This is simply because these qualified professionals have a lower salary in their own country than an equal employee in the US. Often, this offshore workforce has the same or better expertise but at a lower cost than workers at home.
In addition to saving costs on salaries, offshoring allows businesses to save in other areas too. As these foreign workers are under the business’s care, they are entitled to benefits too. However, these are often much lower in cost overseas, so the company can save across these areas as well.
Other areas cost less abroad as well. For instance, general infrastructure, office space, hardware and so on, cost a lot less in other countries.
Depending on the country where the business is offshoring, there are also financial incentives in place. These are there to specifically encourage foreign businesses to bring work to these countries. The idea is to encourage offshoring in these countries, allowing them to boost their own economy and stimulate economic growth for themselves. As such, these countries make sure that the country is enticing for companies to offshore there.
Returning earnings to the home country
Importantly, even when the business has segments offshore, this doesn’t mean that all funds and profits go to that country. In fact, typically the majority of the profits will return to the original home company. This means that workers within the US can benefit from increased wages. On top of this, companies can also use the profits gained to develop their business as a whole, making further investments and researching new products for the business.
Problems with offshoring
Of course, there are also a number of problems that can arise without careful planning such as registering an offshore company successfully, or removing income from the home country.
With some workers overseas, quality control is a must. However, without being there in person, it can be harder to ensure the high standards are met. That being said, in the tech world this is easier to manage as the results will be seen across the company right away.
Time zones and organization
It can also be hard to ensure that deadlines are met. Some offshoring companies may be located in multiple countries. This means various time zones must be factored into deadlines. As such, organization and planning can go awry if it is not managed properly.
Often, countries where a business is offshored will speak a different language. Of course, English is typically the common language spoken, but not all workers will speak it to the same degree or proficiency. This can lead to challenges and miscommunication if the company is not careful.
On top of this, cultural and social issues can also arise. Many countries have vastly different outlooks on the way a business is operated or the way that workers can be spoken too. It’s important that any business takes into consideration local traditions and customs to ensure a smooth working environment.
Overall though, the positives of offshoring far outweigh the negatives, especially in the tech world.