More and more companies than ever are considering outsourcing and offshoring some of their business functions as a possible way to lower costs and streamline their operations.
Outsourcing and offshoring are technically different, though used interchangeably. Outsourcing is an arrangement in which a company hires an external agency to conduct some of its operations. The third-party may or may not be within the country. For instance, a company in the US can assign some of its tasks to another company within the US.
Offshoring is a process in which business functions are delegated to professionals in overseas countries, usually within a different time zone. An example is a US company seeking offshore solutions in Brazil. Many companies seek either of the two or a combination of both, called offshore outsourcing.
Differences between Offshoring and Outsourcing
There are some vital differences between offshoring and outsourcing:
This comprises of contracting work to a third party that may or may not be located overseas. It is quite possible to outsource work to a local vendor without assigning the work to offshore companies. For example, a US company may assign its accounting tasks to another professional accounting company within the US instead of burdening an in-house team for the same.
This is an arrangement in which a business assigns some of its functions to professional companies abroad, especially in third world countries where labour costs are low, but expertise is of top quality. The key point is that the work can be assigned to offshore teams of the same company without outsourcing it to a third party. For example, a US company may get its work done by setting up its call centres in India to serve its American customers.
Benefits of Offshoring
• Reduced costs of labour:
One potential benefit of offshoring is that a business can save money by using the services of overseas workers at a fraction of the cost in the home country (US).
• Expand to new markets:
Offshore presence can empower a company to expand its customer base to foreign countries.
• Superior understanding of overseas markets:
Foreign employees provide better expertise about cultural norms, business risks, market and regional trends in their country better than American employees.
• Tax incentives:
Many foreign countries offer tax incentives to attract foreign companies to set up offshore services in their territory.
Benefits of Outsourcing
• Saves expense on inhouse resources:
By shifting part of the workload to a third-party company, the in-house resources of the company can be devoted to core business functions.
• Reduce costs of operation
Sub-contracting work can reduce expenses on overheads as well as the need for more in-house employees.
• Access to external expertise
Through outsourcing, a company can get the chance to hire an external vendor who has the expertise in a business function that it lacks.
• Faster service
A specialized outsourcing company will have the resources and talent to finish a task more efficiently and faster.
One method to enjoy the possible benefits of offshoring and outsourcing is to mix the two, which enables tremendous savings in costs. Offshore outsourcing implies delegating tasks to a third-party company in an overseas country.
Offshore outsourcing has the following benefits:
• Reduced costs
As per the latest statistics, companies can save around 30% to 50% compared to the cost of US employees for work involving the same level of skill and expertise. Also, there is more access to expert talent in overseas country. Save on employee salaries and benefits since the cost of living in the overseas country might be much lower.
Often, the US company can save on cost and time of recruitment as the third-party company will already have the experience and expertise to get the work done. The offshore company will have reduced costs of operation. This is much more cost-effective than building an in-house team from scratch.
• Focus on development of business
By offshore outsourcing, you can free up money and invest it in the core functions of the business. This helps in the expansion of your services. In simple terms, you can grow your business while cutting expenses.
The case for free trade applies equally to offshore outsourcing. Companies say that it makes sense to offshore and outsource a product or service when it can be produced at a much less cost than locally.
• Business expansion and flexibility
With offshore outsourcing, it is possible to enable business tasks to be completed 24×7. Differences in time zones enable greater flexibility through offshore outsourcing. Also, the cost of hiring will be reduced or terminated as the company may expand or contract staff based on business needs.
• Reduced risks
When teams are located in different regions, it helps reduce risks of communication, inadequate customer engagement, work lags and other challenges. Adjustments in shifts of work ensure that your business needs are catered to every day and every hour of the day by the most appropriate employees.
• Exercise better control
Offshore outsourcing can expand and strengthen your control on production and operations by permitting you to set up a core group to focus and work only on your company. As opposed to the wrong notion that offshore outsourcing takes away the control of your business, the fact is that it enables you to make the process sophisticated by setting up your control on every aspect of your business.
You can train your staff and ensure that all aspects are rolled out and completed the way you desire. This results in greater productivity and accountability from every member of the staff of your core group. You are also assured that your other business needs are catered to by the choicest teams with high expertise.
But, prior to making a decision to opt for offshore outsourcing, you must weigh the risks and challenges posed. These include the risk of compromising confidential data, issues of synchronization and calibration, hidden costs and lack of focus and engagement with customers.
In sum, offshore outsourcing is neither an economy busting monster nor a cure-all for companies. Offshore outsourcing to companies that complete business tasks more cost-effectively and efficiently makes sense, so long as costs stay low in the long run and are completed with concern about its impact on people. Hence, outsourcing, and offshore solutions in Brazil are ideal for US companies.