What are the Benefits of Offshoring?

The practice of offshore outsourcing has become increasingly popular among companies in the last several years. It involves moving all of a company’s activities to another nation. Offshoring to a foreign nation is a popular option among organizations due to several reasons.  When deciding whether to offshore, as well as where to offshore, it is important to look at several benefits and drawbacks.

This article focuses on offshore software development to examine its various types, advantages, disadvantages, tips, and more.

1. What is Offshoring?

Offshoring refers to a process or practice of moving certain business operations or tasks to a foreign-based staff. The tasks may involve software development, accounting, and other similar activities. The offshoring model is prevalent, and many factors can influence a company’s decision to move its operations to another country.

2. Offshoring Based on Types of Jobs

When looking for ideal remote employees, offshoring can be a beneficial choice. Offshoring, which involves outsourcing to a specific foreign country, provides more advantages. It’s important to note that offshoring is a subset of outsourcing. There are two main types of  outsourcing jobs:

2.1 Production Offshoring

Under this category, industrial production processes are relocated to other countries to take advantage of cheaper labor and resource prices. There are two types of production offshoring: front-office and back-office. Solutions for the front desk include remote assistants, technical support, telemarketing services, call centers, and help centers. Solutions for the back office involve activities including accounting, human resources, web development, visual design, and recruitment.

2.2 Service Offshoring

The main activities associated with service offshoring are outsourcing of IT operations, including network management, software development, and technical assistance. Services outsourcing has flourished in India because of the country’s large pool of technically skilled and English-speaking professionals. Companies like Microsoft, Oracle, IBM, and HP have set up business in the nation because of its well-developed communication networks and the abundance of qualified employees.

3. What are the Advantages of Offshore Outsourcing?

Most firms find that the benefits of offshoring exceed the expenses. There is a simple way for small and medium-sized organizations to save money and address talent gaps. Enterprises can grow in both output and geographic reach.

Below is a list of the top advantages of offshore that company owners can benefit from. 

3.1 Access to Experts

Offshore outsourcing companies specialize in the technical aspects of business and are well-equipped with a diverse range of technical resources and versatile skills. Offshoring focuses on niche skills based on regional trends and market dynamics, offering skilled labor at a lower rate compared to in-house expenditures. 

You cannot constrain outsourcing to just one domain, vertical, country, or labor (in terms of software, and technical experts). Most of the services used in outsourcing are custom software development, financial services, healthcare data management market research, intellectual property research, design development, and more.

3.2 Economic Efficiency

Suppose you own an interior studio, and you want to expand your business not only in your country but around the globe. Expanding your business, and traveling all over the globe to find potential clients is not a cost-saving solution. It could be costly if you do that. Instead, if you partner with multiple clients located in different geographies. With this, there will be lower labor costs and fewer business risks, it is a cost-saving approach. Moreover, the chances are that you might get the same results.

It is wisely said that outsourcing reduces costs for all businesses who decide to outsource. You can see huge cost benefits without compromising quality.  

3.3 Competitive Advantage

Compared to peers working in the same software sector, there is a significant disparity between the apps they develop and their expectations. Businesses are often concerned with the quality of the app, the investment amount, and the profit they gain when compared to outsourcing. By meeting all these parameters, enterprises will have additional time for strategic business planning.

3.4 Faster Turnaround Time

An outsourcing development team is dedicated to working 24*7 for your business so the productivity will be high. The turnaround time will be faster than that of competitors in the same business because they are experienced and have developed innovative applications regularly. 

3.5 Tax Benefits and Financial Incentives Reference 

Some countries provide tax exemptions and financial incentives to companies that invest in their economies. The Philippines is an example of an offshore location. Their jurisdiction has specific regulatory measures to encourage company owners to invest directly in the nation from abroad.

Financial incentives, including tax breaks, can reduce the cost of relocating to an offshore destination. When your offshore firm generates more revenues through tax savings and other advantages associated with offshoring, it will contribute to maximizing profits.

3.6 Increased Productivity

Outsourcing labor to another country’s team helps reduce the amount of time your local team spends on tasks. Reliable overseas staff can carry out several routine maintenance tasks for your firm. In this way, workers on-site can handle unpredictable tasks, such as addressing a security breach, without delays.

3.7 Decreased Operational Costs

Managing labor and real estate expenses can significantly reduce your budget. Offshore workers require lower wages and do not require office space. Additionally, you do not need to make payments for social security benefits.

3.8 Lowers Salary Costs

The average base salary in the US for a developer is $149,599, whereas the average salary of a software engineer in the Philippines is $7000. There is a significant disparity in the salaries of IT professionals in the United States compared to those in overseas locations. The cost of living in the Philippines is often more affordable compared to other wealthy countries. The disparity in living costs has a direct impact on the anticipated pay.

In addition, the currency exchange rates between the Philippine Peso (PHP) and major currencies such as the US Dollar (USD), Euro (EUR), or British Pound (GBP) frequently benefit enterprises who choose to offshore to the Philippines. Companies that pay in more valuable currencies might take advantage of exchange rates to provide competitive salaries in PHP without facing significant expenses in their currency.

3.9 Better Control Over Operations

Outsourcing certain aspects of your business operations to a third-party organization may reduce your direct control over the outsourced activities. However, you can mitigate this issue by setting up an outsourcing firm, enabling you to retain control over your business activities.

Offshoring enables you to place orders, offer training to your employees, and execute all other tasks according to your preferences. However, you retain the primary authority over tasks while your offshore partner carries them out following your instructions. Employing this approach allows for greater adaptability compared to engaging the services of an external outsourcing firm.

3.10 Less Paperwork

Several nations have a lower number of rules compared to the United States. Therefore, you can reduce the time spent on administrative paperwork when outsourcing from Asian countries. Nevertheless, opening your foreign departments often requires finishing certain procedures.

3.11 Round-the-Clock Availability

Time zone differences are another key advantage of Offshoring. It gives businesses the freedom to access a dedicated and vast pool of resources whenever needed.  Indian outsourcing companies employ a team that works for clients in the USA according to the working hours of the US company. This shows the availability of resources at different time slots. Now let’s shift our focus to the limitations or drawbacks of Outsourcing.

4. What are the Disadvantages of Offshore Outsourcing?

When businesses decide to outsource to an overseas location, they often encounter a few disadvantages of outsourcing that make them hesitant to outsource. The reasons can be based on someone’s experience, the company’s past performance, reviews, testimonials, references, or quality not meeting the parent company’s standards. People might have found the disadvantages of offshoring and consequently reduced its operations. However, some challenges make offshore less preferred.

4.1 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. You will have a fear of loss. Similar is the case with businesses that outsource their valuable business operations to an offshore location. Therefore, they lack trust, control, and access. One of the primary reasons businesses are restricted to outsourcing to a faraway location.

4.2 Language and Communication Barriers

Different countries have different languages which are not standardized, posing hurdles for businesses to communicate effectively. There is a cultural gap between your local team and your offshore partner can lead to contradictory opinions and disputes, ultimately impacting performance.

4.3 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 engaging in offshoring operations fear security breaches, that their vital and confidential data, as well as their property rights, may be leaked to a third party.

Businesses should draft a Software Agreement or an NDA. It will be a smart solution for those who want to reserve the rights for their developed application. To benefit from offshoring services.

4.4 Time Zone Differences 

An underlying challenge of offshoring or offshore operations is the common gap in time zones and physical locations between the two involved organizations. Coordinating projects between both teams can be challenging when dealing with urgent tasks or tight deadlines. If a firm requires prompt communication, it might experience a disadvantage due to the geographical separation between itself and its offshore staff.

4.5 Payrolling and Compliance Issues

Offshoring necessitates the management of two separate platforms for payrolling and compliance, one on the domestic site and the second in the offshore location. Undoubtedly, this will increase the paperwork you have to handle, adding to the hidden expenses linked with offshore operations.

Moreover, there is a significant possibility of being penalized if you unintentionally fail to meet a domestic or offshore compliance obligation. These problems could negatively affect the efficiency of your staff and the financial performance of your company. 

4.6 Day-to-Day Operational Challenges

Ultimately, the remoteness of offshore areas presents significant obstacles daily. The majority of firms encounter various types of communication challenges. When you add time disparities and language limitations to the equation, it becomes a genuine management problem. This reduces productivity across the board. 

4.7 Cultural and Social Differences

Offshoring teams are often located in countries with cultural norms different from those of their clients, which can lead to potential misunderstandings. Acknowledging these possible challenges and fostering connections across different cultures is essential for facilitating seamless and efficient communication.

5. Conclusion

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, as well as its pros and cons. Without a biased viewpoint, we have discussed two different sides of offshore outsourcing. This will help your company to make informed decisions based on the significant aspects of offshoring. Offshoring has always been a profitable aspect for businesses of all sizes. With our highly skilled employees and their expertise in developing software applications, we believe your business can achieve successful and sustainable outcomes.