Offshoring takes place when a company shifts the location of a production process or service abroad. This includes businesses that shift production or services to a location overseas without outsourcing the job and businesses that outsource to foreign companies.
The increase in the number of companies offshoring some or all of their processes is because of the benefits gained from the modern global economy.
The benefits of offshoring include:
- Reduced cost
- Business growth
- Reduced risks
Generally, companies save around 30 to 50 per cent of the cost compared to the cost of Australian-based employees for substantially the same level of performance and skills.
In certain cases, there is a greater availability of skilled and experienced employees for different roles and positions overseas. And because of the lower cost of living in countries where processes are offshored, expenses for salaries and other labour costs are also much lower.
In some situations, offshoring also helps businesses save by eliminating recruitment costs. A third party service provider is responsible for its own cost of operations and the necessary expertise and experience to get the job done.
On the other hand, business owners will have to invest in both infrastructure and the hiring process if they decide to create an in-house department. In addition, the third party agency won’t need to ask for additional training expenses from business owners should they decide to offshore their business.
Because of reduced labour costs, offshoring allows business owners to free up allotted labour funds to be reinvested into their business—expanding their services and offerings.
Companies that offshore their businesses centre their business decisions on free trade and globalisation. They posit that offshoring makes sense when a product or service can be produced at a much lower cost elsewhere—it does make sense to import said product or service than produce it locally.
Time zone differentials make way for greater flexibility. Offshoring enables businesses to adjust work shifts and makes it possible to have the business managed for 16—even 24—hours by third-party offshore agencies. And since offshoring reduces, if not terminates, hiring costs, business owners allows the company to quickly expand and contract overseas staff as required by the business needs.
Offshoring also gives business owners more time to focus on expanding their business. Instead of managing vacation and sick leaves, attending to absenteeism and punctuality issues, career coaching and uplifting employee morale and motivation, business owners are now able to focus on looking for more opportunities for the company’s business and financial growth.
Since there are a number of teams across multiple countries providing specialised services for the company, business owners are now able to reduce the risk of work lags, insufficient customer engagement and communication and other similar challenges. This ensures that business needs are attended to 24/7 by the most skilled employees available in the world.
Contrary to the belief that it takes away business control, offshoring actually allows business owners to have a firmer grasp on operations and production—enabling businesses to form a dedicated core group of staff to work and focus exclusively on the company.
Business owners are the sole source of directives, guidelines and staff training, everything done and rolled out according to the business owner’s preference. Doing so leads to more productivity and a sense of accountability for each member of the core group of staff, while being certain all other business needs are attended to by select teams across the globe.
Learn more about offshoring benefits—and pitfalls—SMEs need to know.
Offshoring isn’t the opposite of the traditional hiring and employment scheme. Rather, it is an enhancement and the strengthening of the employment and labour needs dynamics as it allows more options in running the business and seeing to it that business needs are met with only the most excellent services and skills the world has to offer.