Looking to expandyour business without the added costs? Offshoring and outsourcing might be thebest option for you, but be sure to weigh up the pros and cons before decidingon which one (if any) best suits your business needs.
The terms“offshoring” and “outsourcing” have been, more often than not, usedinterchangeably in recent years. This is because some of the aspects of each ofthese processes are present in the other and vice-versa. Let’s identify one ofthe processes from the other before proceeding with their risksandbenefits.
Offshoringhappenswhen you relocate work—the production of products and/or services—to adifferent country. Outsourcing, on the other hand, may or may not involve anoverseas location, but simply contracting work out to an external organisation.
Benefits of offshoring
Businesses that choose to go into offshoring will definitely reap both short-term and long-term benefits. Offshoring allows business owners to focus on strategising business growth as it takes off tasks like accounting and marketing from their hands without worrying about the possibility of a decline in the quality of work.
Disadvantages of offshoring
Offshoring also has its disadvantages, with the most prominent one being exposing the business to the risk of a data breach or a cyber-attack. Choosing the right kind of outsourcing agency is also very important since failing to do so could cause the business to fall trap to hidden costs and even a drop in customer engagement.
Some of thebenefits tooffshoring and outsourcingwork processes include thefollowing:
- Lower costs
- Focus onbusiness development
- Attain flexibility andbusiness expansion
- Lower risks
- Exercise more control
Some of theirchallengesinclude:
- The risk of exposing confidential data and/or information
- Calibration and synchronisation
- Covert costs
- The lack of customer focus and engagement
Lower costs
Lateststatistics reveal companies save around 30 to 50 per cent compared to the costof Australian-based employees for substantially the same level of performanceand skills.
There isalso a greater availability of skilled and experienced employees for differentroles and positions abroad. You can also save on employee salaries andotherlabour-related expensessince the cost of living in countrieswhere you outsource or offshore tend to be much lower.
In certaincirc*mstances,offshoring and outsourcing eliminate recruitmentcostsaltogether. Your third-party service provider already has thenecessary expertise and experience to get the job done.
It willalso be responsible for its own cost of operations. On the other hand, you willneed to invest in both the hiring process and infrastructure when you decide tostart an in-house department from scratch. Your third-party vendor won’t needto ask additional training expenses from you, too.
Focus on businessdevelopment
Outsourcingand offshoring enable you to free up your allotted labour fund and reinvest itinstead into your business. This will allow you toexpandyourservices and offerings. Simply, you’re now growing your business, instead ofjust spending for it.
The idealsof globalisation and the free trade have given rise to both the offshoring andoutsourcing processes. Companies say that both processes make sense—when aproduct or service can be produced at a much lower cost elsewhere, it does makesense to offshore or outsource said product or service than produce it locallyor within your company.
Attain flexibilityand business expansion
It is nowpossible for you to have your business managed 16, even up to 24 hours. Timezone differentials make way for greater flexibility, thanks to offshoring andoutsourcing. And since these processes reduce, if not terminate, hiring costs,you enable your company to quickly expand and contract staff elsewhere,depending on your business needs.
Lower risks
Your teamsacross multiple locations not only provide your company specialised services,but also enable you to reduce the risks of work lags, insufficient customerengagement and communication, and similar challenges. Adjusted work shiftsensure that your business needs are attended to every hour of the day, everyday, by the most suitable employees available.
Exercise more control
Offshoringand outsourcing also strengthen and expand your control on operations andproduction by allowing you to form a dedicated core group of staff to work andfocus on your company only.
Contrary tothe belief that they take away your control of your business, offshoring andoutsourcing actually enable you to sophisticate your processes, by establishingyour control on all aspects of every business particulars. As the sole sourceof direction, you train your staff and see to it that everything is done androlled out the way you want it.
This leadsto more productivity and sense of accountability from each member of your coregroup of staff, all while you’re certain that your other business needs areattended to by select teams of the highest calibre.Readmore on offshoring benefits here.
However,before you finally decide on outsourcing and offshoring, you also need toaccount for the risks and challenges they may pose.
The risk ofexposing confidential data and/or information
When workis outsourced or offshored, especially HR (human resource) and relatedservices, there is always the risk of exposing confidential and sensitiveinformation to a third-party service provider, besides the already obviousdisadvantages of outsourcing payroll and HR.
Be suretoonly contract with a trusted third-party firm and be certain about theextent of the company information you are willing to share.
Calibration andsynchronisation
Ensuringyou select the most trustworthy and competent outsourcing and/or offshoringpartner cannot be overemphasised.
This isbecause when your third-party service provider doesn’t deliver, you mayencounter delivery lags or stretched delivery time schedules, sub-standardquality output, and inappropriate responsibility categorisation, which mayprove more costly in the end.
Covert costs
Lower costis certainly one of the biggest reasons why companies outsource and offshore.It will then defeat the purpose of deciding on these processes if your contractinvolves hidden costs you are unaware of.
Thus, it isimportant to seek professional advice from your accountant and/or lawyer, toante up your preparation before signing that contract and writing that check.
The lack ofcustomer focus and engagement
Youroutsourcing and offshoring partner may also be catering to severalorganisations at a time. This means you are not the only business it services.
When thishappens, be clear with what you want from them, including the specifics of howeach product and/or service is to be produced and delivered. You can do duediligence here, too.
Important takeaway: Before entering into acontract, make sure you have done the necessary research and investigation intothe trustworthiness and competence of your third-party vendor.
Source: Article written by Gino Lisondra for MyBusiness.com.au
