Offshoring Pros and Cons: Things You Need to Know
February 01, 2019 by Aley Brown
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If your company has been thinking about outsourcing any of your processes, you’re probably interested in learning about any offshoring pros and cons that could impact your decision.
But before we get into offshoring pros and cons, let’s go over what “offshoring” actually means, and why some companies look into offshoring as a potential business solution.
Offshoring is kind of like outsourcing. You’re taking a process or function of your business, and then paying another entity to do that work for you. The only difference is that when you offshore something, the entity you are paying to do the work is overseas. Hence the term “offshore.”
An example of this would be if you wanted to offshore the manufacturing of your tech gadget to a factory in China. Or maybe you are looking to offshore your Spanish marketing materials to a marketing agency in Latin America. Both of these would be examples of offshoring.
So, why would a company want to offshore parts of their business? Well, as you will soon find out as we go through the offshoring pros and cons, you can save a lot of capital by offshoring.
Yes, I am talking about the costs of actually completing the business function, such as manufacturing a tech gadget.
But I’m also talking about secondary costs as well. If you have markets overseas, it could be more cost effective to offshore parts of your operations to that area of the world, because you will have to pay less in shipping.
See? There are tons of reasons to offshore your business.
Now, let’s get into the the offshoring pros and cons…
Offshoring Pros and Cons: The Advantages
When looking at offshoring pros and cons, it’s pretty easy to see why so many companies choose to offshore parts of their business.
The first advantage of offshoring is that the costs are generally much lower than completing the process at a facility in your location. This is why so many big manufacturing companies locate their factories overseas. The cost of labor is significantly cheaper, as well as the overhead of renting a facility.
This can increase profit margins, thus boosting your company’s competitiveness in the market.
In some areas of the world, your company might even be able to get a tax credit or break if the government is looking to stimulate a local economy. This can save you a substantial amount on taxes, which can be significantly higher in other places in the world.
Another advantage you should consider when reviewing the pros and cons of offshoring is the ability to more easily reach new markets. In the previous example, we talked about offshoring marketing operations to a marketing agency in Latin America. This could be done to better market to a Hispanic market segment. This would be an example of using offshoring to more easily reach new markets.
This example also shows another pro of offshoring: expertise. If your company is located in the United States, you’re probably experts about marketing to your audience there. But you aren’t experts on the people, consumer behaviors, and other factors that come into play when trying to market your product or service to another part of the world.
Finally, another advantage of offshoring is that it can help with human resources issues like motivation and overall job satisfaction. If your employees are stuck doing monotonous tasks in their jobs, it can be really demotivating. Especially if your employees are highly educated.
Offshoring those tasks can help with their overall job satisfaction, and the productivity of your company. This will make them happier, and free them up to do more strategic things at your company, which in the long run will result in more value.
Offshoring Pros and Cons: The Disadvantages
Now that you know all about the advantages, we should go over the less glamorous part of offshoring pros and cons: all the negatives associated with offshoring.
Before your company decides to partake in offshoring, it is very important that you review the cons associated with your particular situation, since they can have such a huge impact on your business.
The first con of offshoring has to do with ethical concerns. In recent years, ethical concerns have been raised about the process of offshoring due to the low pay and poor conditions associated with the factories that some companies use overseas.
In today’s hyper-connected world, it is very easy for news of unethical worker treatment to spread online, and tarnish your brand. Consumers are more picky than ever, and are willing to stop using a brand’s products because of ethical issues like this. So make sure that you take this into account when looking into offshoring.
The second con of offshoring has to do with cultural barriers and communication. Due to the difference in time zones, it could be extremely hard to communicate with the offshoring site. Decisions that would only take a day if all parties were in the same location could now take several weeks due to the difference in working hours.
And this is just the tip of the iceberg when it comes to communication and cultural barriers. If you have someone at your company who isn’t well versed in the culture, customs, and language of a different part of the world, it can be extremely hard to operate your business there.
For example, it is customary in some countries to provide a gift to the head of a company before signing a contract. If your employees don’t know this, they could blow through several different deals, and lose your chances of operating in said location in the first place.
Finally, it can be very hard to create good working relationships when you don’t speak a common language with someone. Words get lost in translation, and mistakes happen. Multiply this by being several thousand miles away from said offshoring site, and the venture can get more and more difficult.
The last con of offshoring that we’ll cover is security. If you have expensive equipment overseas, you will need to make sure that you have security onsite to ensure the safety of the machinery. Certain countries have more volatile climates, and might be more susceptible to violence or political unrest. Because of this, you will want top notch security.
Offshoring Pros and Cons: The Final Say
If you are looking to offshore part of your business operations overseas, make sure that you are fully aware of all of the pros and cons associated with offshoring. You should make a choice based on the objectives of your business strategy, and then create a plan to mitigate any cons associated with offshoring that could impact your operations.
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