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Debunking 8 Common Offshoring Misconceptions Holding Your Business Back

May 22, 2024

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Offshoring has become a powerful option for businesses to streamline operations, access talent, and expand their reach. However, some misconceptions and anxieties surrounding this practice may prevent you from enjoying the benefits it can offer your business. Let’s shed light on some common offshoring myths.

 

What is Offshoring?

Offshoring is a business strategy where a company relocates certain processes or services from its home country to another country. This relocation can involve various functions, including manufacturing, customer service, IT operations, or any other business activities. The primary objective behind offshoring is to leverage the operational, economic, or regulatory advantages offered by the host country.

 

Offshoring vs. Outsourcing

The main difference between these is their locations. While both are viable options for businesses that are looking to reduce costs, scale processes, and expand operations, they are not interchangeable terms.

Offshoring specifically refers to relocating entire business processes or operations to a different country. This can involve setting up your own manufacturing plant overseas, like a car company building a factory in Mexico, or partnering with an existing firm to handle customer service calls, a tactic employed by many tech companies. Offshore locations may offer lower labor rates, tax breaks, or readily available resources that can significantly reduce operational expenses. Beyond cost savings, offshoring can unlock access to a wider talent pool with specific skillsets or position your company closer to foreign markets, streamlining logistics and distribution.

Outsourcing, however, involves delegating specific tasks or functions to an external vendor. This vendor can be located anywhere in the world, but the key is that it’s a separate entity from the core company. Suppose you run a marketing firm, you could outsource your web design to a freelance graphic artist in California or your inventory management to a software company in India. By delegating tasks to specialists, you gain access to expertise you might not have in-house. This frees up your team to focus on core competencies and potentially saves on training and infrastructure costs.

 

Common Misconceptions About Offshoring

Despite the benefits, there are still some assumptions about the practice.

 

Misconception 1: It’s Merely About Cutting Costs

While cost savings are a significant advantage of offshoring, they’re not the sole benefit. Companies also go offshore to access a global talent pool, expand into new markets, and achieve 24-hour productivity through different time zones. This broader perspective ensures that offshoring contributes to both top-line growth and bottom-line savings.

 

Misconception 2: With Offshore Teams, Quality is Compromised

Nowadays, offshoring destinations like India, the Philippines, and Eastern Europe are home to highly skilled professionals who adhere to international standards. With the right partner and management practices, offshoring can maintain or even enhance quality.

 

Misconception 3: It Leads to Job Losses in the Home Country

A recent study found a significant skills gap in U.S. organizations, with a majority acknowledging its presence and the challenges it poses in recruitment and retention.¹ This shortage is especially noticeable in areas like technology and manufacturing, where specific skills are essential. Another report by Deloitte predicts that by 2028, there will be a shortage of 2.4 million skilled workers in the manufacturing sector alone.² This shows how urgent it is to find skilled workers that the U.S. doesn’t have enough of right now.

Through offshoring, companies can fill roles that are currently underserved domestically, ensuring that they remain competitive on a global scale. This doesn’t mean getting rid of American jobs but rather augmenting the existing workforce to meet demand that cannot be immediately addressed domestically due to the skills gap.

 

Misconception 4: Communication Barriers Make Offshoring Ineffective

Technology has made it much easier to communicate across distances. Apps like Slack, Zoom, and Microsoft Teams let people work together and talk instantly, even if they’re in different time zones. Plus, many people who work remotely can speak more than one language, and many of them are good at communicating in English, which helps a lot.

 

Misconception 5: Cultural Differences Hinder Collaboration

Building a team with people from different countries can be a great way to get new ideas and perspectives. A study by McKinsey even found that companies with a diverse workforce are 36 percent more profitable.³

The key to making offshoring successful is to help everyone work well together. This means training new team members in your company culture and how to work with people from different backgrounds. These efforts bridge communication gaps and ensure everyone can work effectively together.

 

Misconception 6: It’s Only for Big Companies

Offshoring isn’t limited to Fortune 500 companies. Small and Medium-sized Enterprises (SMEs) can tap into offshore talent pools to access specialized skills and expertise that may be scarce or costly domestically. Whether it’s software development, digital marketing, or customer support, SMEs can find offshore partners to augment their capabilities and compete more effectively in the market.

 

Misconception 7: It Exposes Businesses to Security Risks

There will always be security risks in businesses, and the key to it specifically in offshoring is by choosing the right offshore partners and setting up stronger security measures. Some offshore providers specialize in enhanced cybersecurity and data protection, offering security levels that meet or even exceed what you find at home.

By carefully checking out potential partners with due diligence and using encrypted communication channels, you can ensure your data and intellectual property stay safe.

 

Misconception 8: It’s a Short-term Solution

When integrated into a company’s long-term strategy, offshoring can provide sustained benefits, including innovation, market expansion, and continuous improvement in efficiency and quality.

 

How to Choose the Right Offshore Partner

Offshoring can be a strategic decision, but it also requires a good approach. Here’s a comprehensive guide to help you choose the ideal offshore partner for your unique needs:

 

1. Define Your Goals and Needs

Before diving into partner selection, take a step back and identify your goals for offshoring. Are you looking for software development expertise, customer service representatives, or specialized back-office functions? Having a clear understanding of the specific skills and experience you require will guide your search and ensure potential partners align with your objectives.

 

2. Research Potential Locations

Popular offshoring destinations offer a range of benefits, from cost-competitiveness to a large talent pool. Research countries like India, the Philippines, or Eastern Europe, considering factors like time zone differences, language barriers, and cultural compatibility.

 

3. Evaluate Expertise and Experience

Once you have a shortlist of potential partners, review their expertise. Look for companies with a proven track record in your industry or with experience in similar projects. Do they have a team of qualified professionals with the necessary skills to handle your specific requirements?

 

4. Assess Process Competency

Strong processes are the backbone of successful offshore partnerships. Evaluate the potential partner’s project management methodologies, communication protocols, and quality control measures. Inquire about their approach to client onboarding, training, and ongoing project management.

 

5. Verify Client References and Reputation

Don’t solely rely on a company’s website or marketing materials. Reach out to past clients and ask about their experience. Were deadlines met? Was the quality of work satisfactory? Understanding real-world experiences will give you valuable insights into the partner’s capabilities and work ethic.

 

6. Consider Security and Intellectual Property

Data security and intellectual property (IP) protection are critical concerns. Ensure the offshore partner has robust security measures in place, including data encryption, access controls, and Non-Disclosure Agreements (NDAs) for all employees working on your project.

 

7. Evaluate Cost and Value

While cost is often a significant factor in offshoring, don’t be solely swayed by the cheapest option. Look for a partner that offers a competitive price but prioritizes quality and a strong value proposition.

 

UNLOCK THE POWER OF OFFSHORING TO STREAMLINE YOUR BUSINESS OPERATIONS

Raso360 will help you navigate the offshoring landscape and achieve success. We believe every business is unique, and your offshoring strategy should be too. Our white-glove, tailor-fit approach is designed to give you exactly what you need, how you need it.

Don’t let misconceptions hold your business back from enjoying the advantages of offshoring. Contact us today to start a conversation about how we can help.

 

References

1. Wiley. “US skills gap rapidly widening, survey reveals” Phys Org, 24 Jan 2023, phys.org/news/2023-01-skills-gap-rapidly-widening-survey.html.

2. “2018 skills gap in manufacturing study” Deloitte, 2018, www2.deloitte.com/us/en/pages/manufacturing/articles/future-of-manufacturing-skills-gap-study.html.

3. Dixon-Fyle, Sundiatu. Dolan, Kevin. Hunt, Dame and Prince, Sara. “Diversity wins: How inclusion matters” McKinsey, 19 May 2020, www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters.

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