Most businesses are seeing a constant crunch in managing their daily operations. This is consistently burgeoning for the past year due to uncertain market trends and economic downtime. Surely, it took a toll on many small and large businesses and their leaders are still not sure how to handle such situations.
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During such distressing scenarios, every business owner looks for some kind of service provider who could efficiently manage their business processes and bring a boost to their regular activities. In such scenarios “Outsourcing” comes as a rescue for most businesses. Often mismatched with offshoring, both these terms bring ambiguity into the minds of other leaders as to which one should they use. The global business market has definitely heard about both these terms but isn’t sure of when to use them, how it works, and the significance and benefits of offshore software outsourcing.
So, to burst this bubble of lack of understanding of Outsourcing and what offshoring means in general terms. In this blog post, we will be discussing in-depth Offshoring, Outsourcing, its definition, advantages, and disadvantages of offshoring. In addition, we will also be sharing some pro tips that will help you effortlessly use offshore outsourcing for your organization.
So, let’s get started.
1. Types of Outsourcing
Have you ever wondered why both of these terms- offshoring and outsourcing are often interchanged or misunderstood by one another? It is because both these terms are mostly used together and offer special aids to businesses when utilized appropriately.
Outsourcing is a business process where one company collaborates with another business to carry out their core business tasks which they were unable to accomplish with local employees. It is a business practice where the client collaborates with a third-party company for a specific time period to harness their expertise and technology specialism.
Technically speaking “Offshore” is a location where businesses outsource their services to a company located off the shore. This means it is geographically relocated and managing operations from offshore- another country or continent. Here in “Offshoring”, shore means a location, and off means distant. So, total offshoring means working with an offshore team at overseas locations from your company’s geographic location.
Offshoring can be of mainly two kinds – production offshoring and services offshoring. If we have to define production offshoring then we can say that it is a process of physically relocating the manufacturing operations from one country to another. While in the same context services offshoring means the relocation of administrative and technical services to third-party with/without changing the location.
Now when we combine both these terms, “Offshore Outsourcing” then we can define it as a business practice of handing over essential business operations to a company that is located in a different country. Lower operational costs, labor costs, easier access to the global workforce, ever-increasing competition, and greater quality of services are some of the major reasons why businesses look for offshore outsourcing.
This is not a new trend. But most businesses have already followed this pattern of trading business functions with different companies for many years. Moreover, many developing countries have started offering tax benefits and financial incentives to attract foreign direct investments to support this growing industry. Companies had an intent to expand their business growth with this emerging use of offshoring. The perspective is still the same but with a new name called outsourcing. Basically, you need to outsource the services in three main ways on the basis of demography. There are three types of Outsourcing services
1. Onshore Outsourcing
2. Nearshore Outsourcing
3. Offshore Outsourcing
To define in brief, Onshore Outsourcing is a type of outsourcing where businesses have the opportunity to outsource in the same country or maybe the same state or city. While in Nearshore outsourcing, businesses have access to talented resources located in neighboring offshore countries. If we take an example for developed countries like the USA, the nearshore locations are Canada or Mexico for software outsourcing.
This blog is majorly focused on offshore outsourcing and we have mostly covered what offshore outsourcing is, and what significance it brings to an ordinary business. Now, in the upcoming section, we will be discussing the many benefits of offshoring for your organization.
2. What are the Advantages of Offshore Outsourcing?
With a spike in cloud adoption, European organizations have spent over $20bn on IT & business process outsourcing in the year 2020. This is like a 7% increase when compared to 2019 – while global as-a-service deals rose to around $33bn says a ComputerWeekly– a leading print magazine of hi-tech technologies.
From the above statistics, we can see clearly that a large number of businesses are getting inclined to offshore outsourcing. So, what is making these businesses adopt this cutting-edge culture of outsourcing to a faraway location? There are numerous benefits that business owners can tap on when they use software outsourcing for their business.
So here are some of the offshoring benefits for your business domains and industries.
2.1 Access to Experts
Offshore outsourcing companies are specialized in technical aspects of business and well-equipped with all types of technical resources with an all-rounder skillset. Offshoring specializes in niche skills as per the regional trends and market dynamics at a rate lower than what they spend in the house and provides skilled labor.
You cannot constrain Outsourcing to just one domain or vertical or country or labor (in software terms technical experts). But most of the services used in outsourcing are custom software development services, financial services, healthcare data management services, market research, intellectual property research, development design, and more.
2.2 Economic Efficiency
Suppose you own an interior studio, and you want to expand your business not only in your country but around the globe. To expand your business, and travel all over the globe for potential clients is not a cost-savings solution. It would cost you a fortune if you do so. Instead, if you partner with multiple clients located in different geographies. With this, there will be lower labor costs and fewer business risks, plus it is a cost savings approach. Moreover, the chances are that you might get the same results.
So, it is wisely said that Outsourcing reduces costs for all businesses who decide to outsource. You can see huge cost benefits with no compromise with quality. Also, it aligns with what the business wants to invest in and on that basis what it can achieve.
2.3 Competitive Advantage
Compared to peers who are working in the same software sector, there is a huge difference in the apps they develop versus what they expect. Most of the time, businesses are concerned with the quality of the app, the amount they invest, and the profit they gain versus when they outsource. You have fulfilled all these parameters which will give extra time to the enterprises for strategic planning for their business.
2.4 Faster Turnaround Time
An outsourcing development team is dedicated to working 24*7 for your business and so the productivity will be higher. The turnaround time will be higher compared to competitors in the same business because they are experienced and have developed innovative applications on a regular basis.
2.5 Round-the-Clock Availability
Time zone differences are another essential advantage of Offshoring. It offers businesses the liberty to use the dedicated vast pool of resources whenever they need it. In fact, Indian outsourcing companies employ a team that works for clients in the USA as per the time when the US company functions. This shows the availability of resources on time and over other time slots as well. Now we will delve into the other side of the coin. We can call it as limitations or drawbacks of Outsourcing.
3. What are the Disadvantages of Offshore outsourcing?
When businesses decide to outsource to an overseas location, there are a few disadvantages of outsourcing that make them hesitant to outsource. The reasons can be based on someone’s experience, the company’s past experience or reviews, testimonials, references, or quality not matching parent company requirements. People might have found the disadvantages of offshoring and so reduced its operations. Though, there are some challenges that make offshore less preferred.
3.1 Lack of Trust and Control
Imagine you have placed a valuable object at a distant location so that no one can have access to it. The place is safe but it is quite far and you are unable to access it. Definitely, you will have a fear of loss. Similar is the case with businesses that outsource their valuable business operations to an offshore location. Hence they lack trust, control, and access. One of the primary reasons for businesses being restricted to outsourcing to a faraway location.
3.2 Language and Communication Barriers
Different countries have different languages which are not standard and are one of the hurdles for businesses to communicate. There is a cultural gap between your local team and your offshore partner which may lead to contradictory opinions and often disputes which will be demonstrated in the performance.
3.3 Intellectual Property and Data Security Risks
Your business is your valuable asset and you cannot afford to lose any kind of data related to your business. Enterprises Offshoring operations have a fear of security breach, that their vital and confidential data or even property rights will be leaked to a third party.
Businesses should draft a Software Agreement or an NDA. It will be a smart solution for all who want to have the rights reserved for their developed application. So as to take benefits of offshoring services.
4. Tips for Effective Offshore Outsourcing
After knowing the pros and cons of offshoring, you would now think that you are all set to outsource to a third-party offshore team from other countries. But before you outsource there are a few pro tips that we have hand-selected with our experience of developing multiple customized software.
4.1 Align Goals with All Stakeholders
It is very important to convey to your offshore outsourcing company what you want to accomplish using this software development. Ensure that all the project stakeholders are aligned on the same page.
4.2 Frequent Communication
Communicate constantly to gauge what is going on within your offshore outsourcing company. Select a prime method to communicate with businesses, make regular updates, make discussions and give instructions.
4.3 Develop Trust
One of the strong pillars of offshoring successfully is by developing trust. Make sure you trust your outsourcing partner and their tactics for doing business. You have selected this team with a lot of research and references, so entrust their services and you will be able to reap benefits from it.
4.4 Understand Cultural Changes
Become adaptive to the culture of the client so that you know more about the client. In this way, you can build a great rapport with the company for a lasting business engagement of years.
4.5 Set Realistic Goals
Not all organizations can work under pressure and sometimes chasing deadlines may deliver unfortunate outcomes. So, set a target and a plan which is real and achievable.
4.6 Develop a Software Agreement
This is the last point but the most considerable one. Developing a software agreement with clauses that suits both parties of the business. This will be a written agreement that will safeguard both parties from any future disputes.
Towards the end of this blog post on the benefits of offshoring, we hope we have helped you gain insights into what offshore outsourcing is, and what are the offshoring pros and cons. Without a biased viewpoint, we have discussed two different sides of offshore outsourcing. This will help your company to make a judgment based on the considerable points of outsourcing. Offshoring has always been a profitable aspect for all scales of businesses. With our highly skilled employees and their dexterity in developing software applications, we hope your business is able to gain fruitful and sustainable outcomes.