ECONOMICS PROJECT
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Table of Contents
Introduction................................................................................................................................3
Description.................................................................................................................................4
Conclusion..................................................................................................................................6
Self-Reflection...........................................................................................................................7
References..................................................................................................................................8
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Introduction
Offshoring is the relocation of a business process to another country. The
offshoring operation can be performed by a subsidiary of the same company,
or by an offshore services provider. Offshoring can either be production
offshoring or services offshoring. Production offshoring is the relocation of
physical manufacturing processes to another country while services offshoring
is the relocation of a company’s administrative and technical services such as
accounting and finance, human resources, sales services, and software
development.
Reasons for offshoring
You’re saving money
Obviously one of the most attractive benefits is the cost savings you
can achieve when implementing an offshore workforce.
You’re increasing operational capacity
without the traditional overheads
When your workforce grows, so do your fixed costs such as rent, IT,
equipment and utilities to name a few. Add in the time spent on
training, induction and managing the human resources requirements
and it becomes a costly exercise. An offshore services provider looks
after everything, so all you have to worry about is keeping your
offshore employee busy.
Free up your key staff to work on more
important tasks
It happens every day, key staff completing low priority admin tasks,
which while important, are not adding any value to the business.
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Utilising an offshore workforce can allow lower priority work to be
delegated efficiently allowing local staff to focus on higher-value work.
Your competition is doing it or is
considering it
Rapid technological development, lower barriers to entry and an
increase in service providers have made it easier than ever to
implement an offshore workforce. If you aren’t thinking about it or at
least considering it as part of your forward strategy, you will find it
increasingly difficult to compete.
You’re actually growing YOUR workforce
in a cost-effective manner
You’ve probably heard a few negative things about outsourcing or you
may have actually had a bad experience with a rogue provider.
Offshoring is a completely different concept to outsourcing in that you
have complete control over the employee. You can invest time in
developing, training and mentoring them just like you would locally.
They can actually become a long-term asset, depending on how
effective implementation is.
You’re probably doing it now (well kind
of)
A growing trend recently has been the increased usage of remote
workforces, hot desks and working from home. If you’re doing any of
the above, you’re basically already operating the same way you would
with offshore staff.
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You can manage workflow effectively
Your offshore employee can work hours that are suitable for you,
including a night shift. If you find your local staff are finding it difficult to
complete certain work tasks before the close of business, you can
utilise your offshore workforce to complete it overnight, reducing stress
and allowing you to get through more work quicker!
It’s innovative
Although innovation can be considered as an overused buzzword,
businesses that identify innovative ways to use technology, increase
capability and reduce operational costs find it easier to achieve growth
and success, particularly in saturated industries. An offshore workforce
solution is an innovative way to achieve a number of positive business
objectives.
Advantages of Offshoring
Companies obtain many offshoring benefits when they relocate their business
operations to overseas locations. The following are the major advantages:
Lower labor costs – It is more affordable for companies in the United
States to pay foreign employees who have lower salaries compared to
employees within the country. Offshoring will make a good business
practice for business owners if offshore workers can do the same type of
work as their American counterparts for much lower labor costs. This
is especially important for labor-intensive businesses such as
manufacturing and service jobs where reducing labor expenses can help
in reducing costs of operations, increasing revenues, and maximizing
income.
Cost savings – Aside from salaries, other types of compensation and
benefits are much lower in offshore countries compared to the United
States. Employers can save from lower costs in Medicare taxes, Social
Security benefits, health insurance, workers compensation, and
other costs associated with employees based in the U.S. Costs of utilities,
infrastructure and materials are also lower in developing countries like
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the Philippines, India, and other countries that are cost-effective for
labor-intensive industries such as manufacturing and call centers.
Tax benefits and financial incentives – Many offshoring destinations
such as the Philippines offer tax holidays, financial incentives and fewer
business regulations to attract foreign direct investments and stimulate
growth in industries such as offshoring and business process
outsourcing. Those tax holidays and financial incentives make it more
affordable for companies to relocate to offshoring destinations.
Returning earnings back to the U.S. – A company earning more
revenues from tax benefits, financial incentives, and other costs savings
from offshoring will be able to achieve its goal of more income and
maximum profits. It can return those revenues to its U.S. operations by
making additional wages and benefits for local employees, investing in
research and development, returning the profits for investors and
shareholders, and paying state and federal taxes.
24/7 operations – Companies can cover time zones not handled by their
operations through offshore subsidiaries or by hiring offshore service
providers that offer 24/7 operations. For business process offshoring,
the local team in the U.S. can turnover unfinished tasks to the offshore
team so there is continuous work on a project until it is finished.
Availability of skilled labor – Offshoring locations such as the
Philippines and India have a vast pool of skilled labor from which U.S.
companies can recruit employees for their offshoring operations. These
countries have a rich pool of talent in terms of English language
proficiency, college degree earners, and the skills of their workforce.
Top Offshore Development Risks Your Company Should Avoid
Risks and diving head first makes or breaks a business. However, in the early stages of an
organization, risks need to be addressed.
One misstep and your business goes down the drain. While not all risks are of grave impact,
we recommend avoiding each one with proper caution and management especially in
offshoring!
In today’s age of globalization, outsourcing has become an inevitable route that enterprises
use to help them scale their businesses. In fact, the outsourcing industry continues to
experience steady growth over recent years with no signs of slowing down.
Offshore development offers many advantages to businesses. It is a cost-effective way to hire
top-notch IT experts and build software solutions. However, it’s also important to keep an
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open mind about the potential risks associated with such a decision. Before outsourcing your
business, you might need to consider these critical risk factors.
Top Offshore Development Risks
Data Privacy and Security Risk
Concerns about privacy should be a top priority for companies that store and process data
such as customer’s names, credit card numbers, and email addresses.
When doing your research, check if the offshore vendor offers robust security measures. Find
one with solid security policies and a dedicated team to enforce them.
Make sure that you sign security protocols and non-disclosure agreements before sealing the
partnership. Doing so protects your company’s data from possible infringement on privacy
and security.
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Hidden Costs Risk
Generally, outsourcing offers companies cost-effective benefits. But, there could be hidden
costs that may arise during the development stage.
These expenses stem from unforeseen changes that need immediate adjustments. We
recommend that you discuss all explicit costs and extra charges with your offshore vendor
before signing the agreement.
Communication Risk
To meet outsourcing project expectations, it has to be supported by seamless communication
flow between vendors and clients.
English is the primary language used in international communication. While many people
read in English, not everyone can write and speak in the same proficiency. In addition, you
need to consider the cultural and local context when communicating with each other.
Offshore and onshore teams must always collaborate throughout the project. Use emails,
messaging apps, and project management tools to discuss the project and manage
multifunctional teams.
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Get Started with Full Scale
Organizational Structure Risk
Workplace organization in the US tends to be flat and more straightforward than its offshore
counterpart.
A hierarchical social structure has a tendency to limit independent thought, creativity, and
soft skills. This doesn’t imply that all offshore vendors function in this manner, but these are
legitimate issues that you need to address early on.
Government Regulation Risk
As more and more global companies outsource their critical business processes, a number of
legal issues are also on the rise. Before you outsource, it’s important that your company made
the due diligence to research applicable laws concerning intellectual property and data
protection.
Take note that rules of governance are different among countries. Always consider two legal
systems when outsourcing. Since there are no standard legal rules to follow, we recommend
that you discuss all legal aspects with your outsourcing provider.
Make sure that your offshore partner complies with all government regulations and provide
adequate and accurate transparency when company audits are made.
Service Delivery Risk
Despite best intentions, vendors can fail on their obligation to deliver the level of service
expected of them. This isn’t always the case, but it can happen even with solid methodologies
in place.
The dedicated offshore team must provide high-quality service even with minimal
supervision. Choose a reputable offshore vendor that meets your technical and business
requirements.
Check the vendor’s portfolio if they have worked on similar projects and assess its
complexities. This is to give you an idea if they have the experience and skills to do the job.
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Quality control problems – For manufacturing offshoring, ensuring
that a product is strictly built according to the parent company’s
standards may be a challenge under the offshore location’s
manufacturing set-up. Even if the parent company provides quality
guidelines, the differences in working culture, language, logistics and
supply chains of the country where the factory is located may affect the
quality of the finished product.
Effect on jobs in the home country – The parent company may have to
terminate the employment of its local workers if it offshores their jobs
to overseas subsidiaries or hire the services of offshore services
providers. This can contribute to a high unemployment rate in the local
community where the workers were laid off and affect its economy.
Another issue is the impact on the remaining jobs in the factories or
offices where the company laid off many workers. Stagnation of wages,
uncertainty about job security, and low morale could affect the output
of employees. This could eventually lead to low productivity and affect
business operations. The company’s public image may also be damaged
if there is a lot of negative publicity generated in the media about the
local economy losing jobs to other countries.
Conclusion
Offshoring has tremendous benefits to firms. When done right, it can
improve productivity, enhance efficiency and increase profits. But it is
important to know that offshoring is not a magic pill. Firms need to invest
time and effort to make it work.
Offshoring can provide the following benefits:
Operate more efficiently
Get access to a diverse skill set
Add more value to their onshore work
Retain employees
Reduce costs and relieve competitive pressure
Firms stand to yield the best results by taking note of some important tips:
Strategic planning from the leadership team can help minimise future
risks and ensure solutions to possible challenges are mapped out.
Onshore team members need to be informed of the purpose and
process and what role they’re going to play in the strategy.
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When preparing to offshore, ensure that your organisation has the
right systems and processes in place.
Onshore team must clearly map out all processes prior to offshoring
to avoid future problems.
Implement quality control standards within the onshore team first.
This business strategy comes with some risks and challenges:
Those who want more diversity in their work can look for another job
People are looking forward to advancing in their careers
High levels of competition in various places can impact employee
turnover
Firms may be discouraged by countries with poor regulatory
frameworks.
Cultural differences (i.e. language barrier) can negatively impact a
firm’s offshoring strategy.
Body
Conclusion
References
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