When most people think of outsourcing services, they tend to focus on offshore outsourcing. This is likely due to the common benefits associated with this type of outsourcing, such as lower labor costs and access to new markets.
However, if your organization is contemplating outsourcing its services, it’s important that you understand the outsourcing models available. If you have already decided offshore outsourcing is the right choice for your organization, then look no further; this article is designed to equip you with all the information you need before choosing your outsourcing provider or supplier.
What is Offshore outsourcing?
Offshore outsourcing is when an organization hires an external supplier to perform certain services or create products in a country other than where the company itself is based. This strategy is often employed to capitalize on lower labor costs, access specialized skill sets, and even improve efficiency by leveraging time zone differences for round-the-clock business operations. Offshore outsourcing companies also enable businesses to focus on core competencies by delegating non-core activities to external, specialized firms.
The Benefits of Offshore Outsourcing
Access to the Best Talent
One of the main reasons why companies outsource is because provides access to a vast pool of skilled professionals and specialized expertise that might be scarce or more expensive in the home country. Additionally, organizations can use their access to top talent to either grow their existing offering or venture into new industries.
One of the primary advantages is significant cost reduction, particularly in labor and operational expenses. Companies can take advantage of lower wage limits and the weaker economies of other countries to reduce overall operating costs. However, organizations need to consider the ethical implications and exploitative nature of using suppliers in certain regions, as this has the potential to damage your organization’s reputation.
The significant time zone differences in offshore outsourcing can be leveraged for continuous, 24-hour operations, ensuring that work is being done even when your organization’s headquarters are closed. This is particularly useful for services that require 24/7 support, such as customer help desks.
Diverse Market Insights
Working with an offshore partner can provide valuable insights into global markets, which is beneficial for companies looking to expand internationally. For example, a larger organization could trial an expansion into a new country or region with an outsourced team, as this will help to reduce initial setup costs and means that the volume of service can be increased or reduced based on demand, lowering the financial impact of hiring an entirely new team.
Potential Drawbacks of Offshore Outsourcing
Hiring an external individual or team means that the organization will likely have to share confidential information with their chosen partner. This is understandably a concern for more organizations, as they want to ensure their customer’s data remains secure, which can’t always be guaranteed when data is shared with third parties.
Aside from all the benefits of offshore outsourcing, you must remember you’ll always have less control over any work outsourced. For example, you may experience less flexibility within projects, as any changes may require significant renegotiation due to communication of changes and updating statement of works documents, leading to a delayed response for project changes or a reluctance to change key parts of your project.
You may also need to be ready to relinquish control of certain operational processes. The external provider may have different methods or standards, which might not align perfectly with your organization’s established practices.
Moreover, your business needs are often dependent on your supplier’s timelines. Unlike in-house operations, organizations cannot expect outsourcing suppliers to prioritize their projects over other clients.
A Conflict in Time Zones
A difference in time zones can be both a blessing and a curse. Whilst different time zones mean additional hours can be covered in a 24-hour period, it also often means that you’ll have limited hours to work and communicate effectively with your outsourced team. Both you and the client will have to optimize your working schedules to work efficiently, otherwise, there may be delays in response and communication.
Offshore vs Onshore Outsourcing
To put it simply, the main difference between offshore and onshore outsourcing is the location. Offshore outsourcing refers to hiring a company in a different country, whilst onshore outsourcing refers to contracting services within the same country.
Onshore outsourcing is often more expensive due to higher local labor costs, but its benefits are that it offers easier communication and collaboration, with no language barriers and no changes to time zones.
In essence, the choice between offshore and onshore outsourcing depends on a company’s budget, communication needs, and the nature of the work to be outsourced. Offshore is preferred for cost efficiency and broad skill access, while onshore is ideal for projects needing closer collaboration and cultural alignment.
Types of Offshore Outsourcing
Production Offshoring (Business Process Outsourcing)
Business Process Outsourcing (BPO) often involves outsourcing non-core business processes. These processes and functions fall into two categories: front-office and back-office solutions. Front-office solutions cover customer-facing services such as customer support (including call centers and help desks), inbound and outbound telemarketing, virtual assistants, and technical support. Meanwhile, back-office solutions deal with internal business functions, including HR and recruitment, accounting, and bookkeeping, as well as mobile and web development and design and graphics services.
System Services Offshoring or Information Technology Outsourcing (ITO)
System Services Offshoring is a type of outsourcing that focuses on IT-intensive services, such as software development, IT support, network management, data storage and management, cloud computing services, and more.
Reshoring, also known as onshoring or backshoring, refers to the process of bringing back business processes or other types of outsourcing from overseas to your organization’s home country. This trend is essentially the reverse of offshoring and is often driven by various factors, such as a need for improved control, responsiveness to changes in the market, or ethical or environmental considerations.
What Kind of Business Activities Can be Outsourced Offshore?
Offshore outsourcing is effective for businesses of all sizes, as its versatility offers solutions to meet specific business requirements. With access to such a large pool of talent, outsourcing understandably covers a wide range of industries and services. Some of the key services have been outlined below.
IT services cover a range of technical support and infrastructure management tasks, including network management, cybersecurity, cloud computing services, and more. Outsourcing services surrounding server and network maintenance is common, as differences in time zones help to provide additional working hours to monitor the security and performance of organizational networks.
Customer success is one of the most common types of outsourcing, as it enables companies to cover customer support for an extended period of time, e.g., the ability to offer 24/7 customer support. Offshoring customer support is used to handle customer inquiries and complaints and can also be used to cover the after-sales service. Additionally, offshoring the customer service department and support allows businesses to leverage different languages for different markets, manage large volumes of customer interactions effectively, and free up their existing teams to concentrate on more complex tasks.
Software Development Services
Are you may be aware, software developers primarily work with code, and fortunately, coding is written in the same universal language worldwide. Offshore software development involves outsourcing tasks such as application development, software maintenance, or the implementation of system updates. This approach is often advantageous, as it can help organizations speed up the development process and tap into cutting-edge technological expertise.
Other Front Office Services
Beyond the commonly known services, there exists a wide array of additional core services that can also be outsourced. This category includes a variety of customer-facing services such as telemarketing, sales support, digital marketing, content creation, and more. By outsourcing these tasks, businesses can focus their in-house resources on core business activities or trial additional outreach methods at a reduced cost.
Should Companies Outsource in 2024?
To put it simply, yes. The outsourcing industry has continued to grow in 2023 and isn’t showing any signs of stopping in the coming year. For example, a report from the Statista research department showed that the ‘Managed services market’ grew by 11.9% from 2022 to 2023 and is forecasted to increase by a further 10.3% in 2024.
Additionally, the total spending on IT services worldwide has continued to increase in 2023, with an increase of 8.8% or $115.21 Million. Business Process Outsourcing (BPO) stood out in particular, with a report from Grand View Research showing that the global BPO market reached a value of $261.9 billion in 2022 and is on track to double this and reach $525.2 billion by 2030.
What Is the Best Country for Offshore Outsourcing?
Although many countries provide some offshore outsourcing services, certain countries offer distinct benefits over others. When searching for the right offshore provider company to partner with, you may be presented with several locations, such as Vietnam, China, Bulgaria, Costa Rica, Bulgaria, or Nigeria. Make sure to research the top spots for finding tech talent to understand the benefits, drawbacks, and how each geographical offering will impact your organization.
How to Pick the Right Offshore Outsourcing Company
To summarise, here are the key steps for choosing the right outsourcing partner:
- Determine which services you’ll need to outsource
- Understand what type of outsourcing you need
- Evaluate each outsourcing location and select the most suitable option for your organization
Tek Experts Offshore Outsourcing Services
As an IT outsourcing service provider, Tek Experts understands the power of offshore outsourcing and how it transforms organizations through offering cost savings, 24/7 support, tech expertise, and more. Regardless of your organization’s goals in outso