In a rapidly changing business environment, businesses must adapt in order to remain competitive. With geographical borders being torn down by digital technology advancements and a truly global business climate. However, remaining competitive is challenging – businesses need to scale up their operations and ability to service their customers without increasing their costs.
Adding rising wage costs and constantly changing local business regulations, being competitive and successful in Australia is becoming an unrealistic objective. Finding the skills and talent to drive business growth is difficult with incredibly high wages and shallow talent pools.
These problems have led to a resurgence in the adoption of offshoring as a business strategy. Offshoring allows businesses to tap into the cost-effective and highly-skilled labour market. Where businesses once found it difficult to find, on-board and retain talent, they now have access to an extensive pool of ready and willing workers.
Most importantly, the costs of offshoring in terms of setting up and retaining employees are offset as service providers will usually manage this aspect of the offshore process.
The insights gathered in a recent survey into the state of offshoring uncovered that businesses are not looking at offshoring just to cut their costs, rather, they are having trouble finding the local talent and have had to look to the global labour market in order to fill key functions of their business. More and more businesses are also realising the offshore workers do possess excellent skills and ability and with communication tools like Skype, interacting with them is as easy as talking with someone working from home.
Points to ponder
In a particular case, offshoring in Australia is considerably a growing industry. However, there is still a lot to be learnt about successfully integrating an external workforce into a business’ operations. Consider the following:
- Offshoring will continue to grow as a business strategy
- Offshoring is considered to be a highly valuable business strategy that if executed properly, can deliver valuable results for organisations of all sizes
- Offshoring has a critical role in making businesses more competitive
- Knowledge transfers and efficiency were among the biggest challenges faced by those who have offshored
- It takes six to twelve months before momentum is gained form an offshore approach
- Significant cost savings can be realised by adopting an offshore strategy
- Offshoring does not impact existing local employees
- Businesses that have used offshore strategies would recommend it to others
Offshoring as a smart strategic decision
87% of the Australian companies pointed out offshoring as a smart strategic decision. However, although the companies took this on a positive note, 13% responded that using the offshore approach was not.
A number of factors might have caused this result. One in particular could have been unrealistic expectations with regard to offshoring – the period of time where cost and effort in getting the program running may be higher than expected.
Australian companies must need to get their approach right to enjoy the strategic benefits offshoring can deliver, especially when it comes to selecting a provider who can meet and anticipate all business needs and requirements by clearly understanding the company and its pain points.
Offshoring has an important role in becoming competitive
To stay competitive and be on top of the game, 80.70% of the Australian companies perceive offshoring has an important role in making their respective businesses competitive. If done well, offshoring can deliver many benefits that aid in increasing competitiveness.
Most importantly, utilising offshore resources can allow businesses to grow quickly into international markets and also deliver significant service, cost effectively 24/7.
Challenges faced when offshoring
As part of any business strategy, offshoring does not readily give benefits; rather, companies face challenges before they even reap what they sow.
Based on the report conducted by Diversify, the biggest challenges when offshoring were as follows – knowledge transfers and efficiency which accounts for 35.14%; finding a qualified provider 21.60%; and, integrating an offshore staff member at 16.22%.
Businesses without efficient and documented processes locally are going to have significant issues in realising any efficiency. This links in with the second challenge of finding a qualified provider. If a competent and skilled service provider is not engaged to undertake the offshore implementation, businesses are likely to experience the difficulties highlighted in the largest challenge identified.
That being said, how a company outplays these challenges will greatly affect on how long it will gain momentum from the offshore program. In fact, 41.67% noted that it took between six to twelve months while 33.33% indicated that they gained traction within the first six months. Only 25% indicated that offshoring took about 12 months or more.
Depending on the size of the business, the time frame for momentum can be drastically different. For instance, a medium-sized business looking at a team of five offshore employees will gain traction quicker than a larger business with an offshore team of 10 or more.
Impacts on cost savings and local workforce
Implementing a well-thought offshore program will lead to astounding benefits. As mentioned earlier, significant cost savings is one of the primary factors why Australian companies resort to offshoring.
In fact, 70.27% indicated that they had achieved significant cost savings, while 18.92% indicated that they had not – presumably that these companies are still on the initial stages of an offshore program. Only 10.81% indicated that they had not achieved any significant cost savings.
When it comes to local workforce, 48.60% of the Australian companies indicated that offshoring had no impact to local employees and that no local jobs were lost. This is followed by the perception that offshore labour can complement local workforces by allowing them to offshore processes and labour intensive tasks, whether skilled or low skilled. This in turn allows the companies to allocate employees to strategic initiatives that deliver more value.
Another interesting factor was that offshoring did not affect local hiring activity as companies were able to scale up growth with key roles by reducing expenditure on back office roles. However, although taking this on a positive note, 24.32% said that they did not make any local hiring redundant but they did freeze local hiring activity.
Promoting offshoring as a business strategy to other Australian companies
Putting all together the overall experience from offshoring, 88.89% indicated that they would recommend offshoring as a viable business strategy to other businesses.
This is a positive note indicating that although implementing an offshore program needs a well-thought plan that requires expansive time, effort and investment, these companies are confident enough that what they have experienced will cascade with other businesses as well.
In summary, offshoring plays an important role in driving business growth. If carefully planned, you will experience real benefits not only limited to significant cost savings but also access to a high quality labour force and innovative processes and practices that will enhance your business operations.
Before considering offshoring, you should carefully assess critical areas within your business through knowing in-depth key pain points that triggered you to resort to this strategic approach. Resources such as people and technology should be taken into account as these two key elements play an important role for you to achieve a successful offshore program.
Australian companies used in this material pertain solely to those who answered the survey Diversify have previously conducted. This term does not represent the entirety of the companies based in Australia.
For more insights and analysis on the effect of offshoring, download our report on the State of Offshoring in Australia today.