What is offshoring? Offshoring (a.k.a Offshore outsourcing) involves migrating services to another country to take advantage of lower costs. It is a form of outsourcing but across borders.
And to comprehend this unique delivery model for outsourcing, it is necessary to understand what outsourcing entails and how offshoring has become a significant Outsourcing vehicle for executing global projects.
There are three (3) primary models for delivering outsourcing services based on where the services are provided.
- Local (In-country) Outsourcing: This describes when an outsourcing service is implemented in the same country where it is received. For instance, a leading Telco provider in Nigeria, outsourcing its Call Centre function to another firm in-country.
- Nearshoring: This involves executing an Outsourcing service in a neighbouring country with relatively lower labour rates. A South African business outsourcing to another in Botswana is a good example.
- Offshoring: As already described, this model involves migrating services to another country with significantly lower labour rates than those where the services are received. The distance is often significant, thereby distinguishing this delivery model from Nearshoring. For example, a company based in the United States outsourcing its Customer Service function to Nigeria.
Over the years, global organisations have adopted various strategies to improve efficiency and keep their businesses running profitably. And offshoring is top on the list of techniques that have helped organisations reduce cost, improve speed to market while increasing business flexibility and agility.
Benefits of Offshoring
In the last few years, cost reduction has been the primary objective driving offshoring. In the 2020 Deloitte Global Outsourcing Survey, about 70% of the respondents identified cost reduction as the main reason to outsource. Other than cost savings, however, there are more benefits for global businesses that choose offshoring. These include:
- Access to a vast pool of skilled and quality talent – typically not abundant in the organisation’s source country – at a significantly lower cost.
- Offshoring also allows businesses to scale up operations effectively without the additional effort and cost of sourcing and training new employees. Therefore, the organisation is capable of responding flexibly to workforce demand relative to the scale of operations.
- Working with an offshoring service provider allows businesses to have a ‘round-the-clock’ business operation model due to a workforce that is distributed globally in different time zones. This helps drive efficient customer service and improves customer satisfaction.
- An international workforce can help organisations access new markets in other parts of the world. The offshored staff is more likely to provide an informed analysis of the local market, trends, pitfalls that must be avoided and give insights to the most viable destinations for business success.
Models of Offshoring
The success of your offshoring initiative is dependent, among other factors, on the offshoring model selected. There are four (4) offshoring models you can consider, depending on your business objective and the type of support required.
- Freelance – This is one of the most popular offshoring models. Here, you pay an individual (the freelancer) to complete a given project. This model is handy when working with a limited budget and teamwork is not required. Note that since the freelancer is not working on your project full-time, it is advisable to outsource tasks that are not time-sensitive.
- Offshore subsidiary – This involves incorporating a subsidiary of your company in another country. The global business is responsible for setting up the offshore subsidiary, including getting a suitable location, sourcing the required infrastructure, facilities, talent etc. The company is also responsible for the daily management of processes and productivity. This model best fits a large business (with the required budget and resources) wanting to extend its team to enhance its products or services, expand internationally and commit to long-term operations in the selected country.
- Comprehensive Offshoring – In this model, a Business Process Outsourcing firm is engaged to manage everything – across talent, infrastructure, performance, operations management and quality assurance. Here, the offshoring party is not required to have any local knowledge or spend time recruiting or managing the staff. With this model, the Businesses can completely hands off the day-to-day execution and management of processes while focusing on more strategic initiatives and business development.
- Managed Offshoring – This model involves partnering with local service providers at the offshore location to set up a company’s offshore division/department to perform specific functions. Here, there’s no need to incorporate a local subsidiary of your company. The service provider’s input will be limited to setting up your local business frontier, facilities management, IT, staff recruitment, HR and Admin. You will, however, be responsible for managing the quality and productivity of the staff. With this model, you get a work-ready team you can easily integrate into your business while retaining complete control of the team’s processes, tasks, KPIs and service quality.
Typical Roles to Offshore
Knowing what roles to outsource is a common offshoring question. This is due, in part, to the emergence of new technologies, making more opportunities open up in the Offshoring space. The following should be considered when deciding on what roles to offshore:
- Does the position require knowledge that is only available onshore?
- Does the role require physical presence onshore?
- Are there systems and processes in place to support the role offshore?
- Are there regulations/legislation preventing the offshoring of specific functions?
Here is a list of typical roles that are offshored by global businesses.
- Human Resources Staff
- Administrative Staff Operations Staff
- Customer Support Executives
- Finance Operations Staff
- Sales Specialists
- Software Developers and Programmers
- UI/UX Design Specialists
- Data Entry Personnel
- Data Analysts
- Web Designers
- Digital Marketing Specialists
As global organisations offshore for lower costs and higher operational efficiencies, it is advised that businesses seeking to multiply their profit margins should take advantage of this trend immediately.
Are you looking to explore the possibility of establishing an Offshore outsourcing initiative for your organisation? Begin here with a FREE consultation with an offshoring expert.