Five Reasons Why Companies Offshore their Business

27 Feb 2019

Offshoring of services usually has negative connotations. Consumers fear that they will get less of what they paid for due to the low level of services the outsourced partner can provide. This may be depending on the country the service has been offshored to and its reliability of providing quality service or otherwise. Another reason is that the service provider uses a traditional outsourcing strategy wherein they are more focused on reaching the required metrics rather than focusing more on the quality of service they offer. (see the difference between outsourcing vs offshoring)

The Truth to Why Businesses Offshore

In a time where unemployment is prevalent across different countries, most people criticise companies that offshore their business operations. However, most fail to recognise that businesses face challenges that most non-business savvy people are not aware of or fully understand. In this article, we will be discussing some of the reasons why companies decide to offshore:

1. Cost

Businesses are constantly seeking different ways on how to gain a stable source of revenue while at the same time sustain their day-to-day operations to stay competitive or even survive. However, due to the unpredictable and excessive fluctuations in the economy, most companies cannot merely maintain the cost of local activities and that is why they turn to offshoring as a viable strategy. For example, employing a local customer service representative in Australia costs an average of $60,000 a year while offshored salaries are almost a quarter of this price.

Through reducing overhead costs, businesses can redirect their resources to allow their local workforce to focus more on their core competencies, increase productivity, create more jobs and to prioritise revenue generating tasks.

2. Restrictive Regulation

One other concern that companies have to deal with are restrictive local regulations that hinder them from reaching long term business goals. Staying updated with local laws is vital for any business to operate continuously, but these regulations unintentionally cause added costs on operational expenses that later on leads to reducing competitiveness.

3. To Stay Competitive

In this interconnected world, businesses are now competing in a global stage wherein innovation is becoming a significant factor in determining the success of a company, and the constant demand for efficient customer service makes it more challenging for companies across different industries to stay relevant.

Offshore teams are composed of multi-talented people that keeps companies competitive.

For a business to stay competitive, it needs to increase efficiency, enhance operational procedures and innovate on delivering quality service to their customers. Offshoring allows companies to offer highly valued services such as 24/7 customer support and provide effective service level tasks with flexible work schedules.

4. Quality

Offshoring specific back-office tasks can bring valuable results to your company. However, the quality of offshored services may vary from each country, and it will widely depend on the goals that your business aims to achieve. If the business is seeking to maximise its production, most companies will offshore their manufacturing to China. On the other hand, if the business wants to enhance their after sales support, offshoring customer service representatives in the Philippines will be the ideal solution. The talent and skill that the global workforce can offer is irreplaceable and should be effectively harnessed by companies to help them reach their long-term goals.

Companies must innovate on how to have an efficient process flow within their business for them to enhance the quality of their products and services. With the help of modern technology, companies now have full control over their offshore team thus enabling them to ensure quality in what they offer by making sure that offshored inputs meet their own quality standards.

5. Skill Shortage

The declining number of available job opportunities in different countries is one of the main reasons why most people disagree with companies offshoring their business operations. However, despite this situation, various industries are also struggling with how to overcome the rising number of skill shortage or by the lack of qualified staff to do the job.

In the United States, several government efforts were made in an attempt to bring back Apple’s manufacturing jobs from China, but later on, failed due to the limited availability of local talent and infrastructure.  According to recent reports, Apple confirmed that it would build their Mac Pro computer locally. However, the initiative faced staffing and supply problems early on, leading Apple to continue offshoring the rest of its products.

Australia is also experiencing the effects of skill shortage in the automotive industry. According to a recent labour market research survey for automotive trades, vacancies attracted an average of 0.8 suitable applicants per vacancy compared with 1.1 in 2016. The number of applicants per vacancy has been reported to be the lowest since 2008 while the proportion of jobs filled is the equal lowest since 2011. More than 20% of employers were unable to fill their vacancies despite attracting suitable applicants. Reasons for this included applicants rejecting offers of employment, location issues, working conditions, and the lack of willingness to do the job.

Through offshoring, companies discovered that they could hire a team of highly qualified staff in low-cost countries who are motivated and ready to take on tasks that are frequently rejected by local employees.

Redefining Offshoring

Offshoring remains to be a viable business strategy for many different reasons. However, like any other strategy, it is also prone to abuse and should not be used solely for cutting costs. Offshoring should not be seen as a replacement for your staff but instead, use it to augment your
current team for further growth of your business. That is why this strategy needs to be carefully customised and tailor-fit with the company’s needs without disrupting ongoing operations.

Diversify Offshore Staffing Solutions has a very hands-on approach in helping its clients in analysing what roles they can effectively offshore and will collaborate with you to ensure a smooth offshoring implementation with your current operations, feel free to contact us today.