The advantages and disadvantages of offshoring

Offshoring benefits

Cost Reduction: The most important reason or advantage of offshoring is to reduce labour costs and other operating expenses.

Cheap and Skilled Workforce: It is a chance to get competent and cost-efficient workforce available in a developing nation.

Concentrate on Core Business: When the company offshore its other tasks, it can focus more on its core functions.

Complete Assistance: Because the offshore team holds expertise in its field, they can provide a relevant solution to every problem related to the production or services offshored.

24/7 Operations: Another advantage is that the company can continue a 24/7 service such as customer support, which is otherwise not possible in the domestic business unit.

Tax and Other Benefits: Many developing countries will provide many types of incentives such as tax holidays, to attract companies for foreign direct investment.

Better Control: The business can ensure proper management and regulation of all its functions if it opts for offshoring.

Streamlines Process: It assures that a dedicated team is working on offshored production or services to complete the tasks effectively and efficiently.

Offshoring Risks

Offshoring services seem to be quite challenging. While relocating a part or whole business operations to another country, the management should not overlook the following risks it may tackle:

Cultural differences: Different communication styles, decision-making styles, approaches to tasks, attitudes towards conflicts – these were all cited as main cultural factors that caused a difference of opinion between the two workforces.

Long Distance Locations: The offshoring units usually are located in geographically distant locations, which makes it hard for the manager to often visit these subsidiaries.

Ethical Issues: In case the organization pays dissatisfactory remuneration to the offshoring team or if they feel that the facilities are improper, it results in ethical problems and spreading of negative brand image. 

Geographical or Political Unrest: The geographical or political problems like shutdowns, riots, political instability, protest, etc. may prevail in the country where the company relocates its unit; ultimately affecting the business.

Security and Safety Issues: The company’s offshoring unit mostly deals with a threat to lockout and closure if the natives find it to be harmful or unethical for their nation.

Language Barrier: When the company enters into a developing country for relocating its business functions; it finds a huge gap between its native language and the local language of the area due to the difference in language and understanding. Therefore, the company is hard to establish effective communication with the offshoring team.

Examples of Companies Offshoring to Other Countries

Offshoring has benefited a wide range of U.S. enterprises, from small to medium-sized firms with just local operations to huge multinational organizations with a global reach. In addition, they have gained significant benefits by outsourcing part or all of their manufacturing or business operations.

These are some examples of large American companies that have offshored their operations:

IBM has a subsidiary in India called IBM India Private Limited  with 131,000 employees. They provide consulting, software development, R&D as well as monitoring cloud-based computer systems for IBM’s international clients.

General Electric – They have a research and development center in Bangalore, India which is second-largest R&D in the world. The center is responsible for communicating with GE’s international branches, customers, partners, suppliers, and other technology centers.

Ford Motor Company (FMC) – Ford’s IT enterprise in India offers a number of IT services, and customer support. FMC’s software development center manages the company’s global e-commerce operations. Its call center manages the company’s entire support services for email support, live chat, and phone support.

JPMorgan Chase – JJPMorgan has offices in Metro Manila and Cebu City, Philippines.  Their Philippine operations provide financial processing, mortgage operations, IT services, and call center activities for the company’s retail and wholesale companies in the United States.

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