Offshore outsourcing means that a company moves part of its operations and employees abroad, often to less developed countries with inexpensive labor and resources. The company can organize offshore operations both with and without outsourcing its business processes to a third party.
Over the past few years and under the influence of the pandemic, offshoring has changed and now meets the increased needs of customers, not only ineffective cost reduction but also in a greater return on investment, scalability, better flexibility, and effective risk management. According to experts, today 80% of the world’s largest companies depend on offshore teams.
Let’s take a brief look at the advantages and disadvantages of offshoring, as well as current trends in the industry.
Pros
- Reduction of labor costs. One of the main advantages of offshoring is that companies can reduce costs when hiring employees to perform some tasks in other countries where the cost of labor is lower.
- Creation of new sales markets. The creation of an offshore representative office allows companies to find new markets in other countries and, thus, expand their global presence and increase competitiveness.
- Advanced knowledge of foreign markets. Local employees of the offshore team have a better understanding of regional market trends and cultural peculiarities.
- Tax benefits. Some countries offer tax incentives and financial incentives to attract foreign companies.
Cons
- Differences in regulation. As well as tax breaks, there are also foreign laws that may interfere with standard business practices.
- Time zones. The time difference between time zones can hinder the timely solution of current tasks and increase the time for solving important issues. On the other hand, with proper organization of work, it becomes possible to organize round-the-clock uptime, for example, 24/7 technical support.
- Logistical issues. Possible logistical issues that are an integral part of working with a company located in another country or continent.
- Information security. The transfer of internal project information to a third party may lead to the disclosure of confidential corporate information.
Trends
Strategic offshore partnership
Previously, the outsourcing concept was based more on reducing costs and hiring “cheap” labor, and although it solved current tasks, as a result, it was not sustainable in the long term. The lack of customer orientation, poor-quality work, and mediocre products led to a constant change of contractor.
In response to the needs of clients in solving more complex strategic tasks, the concept of creating specialized global development teams appeared on outsourcing. And this approach is becoming more and more popular. By creating a strategic partnership with an offshore company and a dedicated team in an emerging technology hub (such as India or the Philippines), companies gain access to “talent” that they cannot find locally. They can also control the quality of services and products since these “talents” are remote employees, not the 3rd party.
Shifting focus to new offshore locations
Currently, India is the number one offshoring location in the world. However, as the demand for qualified developers increases, more and more companies are considering new offshore regions in Eastern Europe, America and Asia. According to experts, the Philippines is becoming another popular choice for offshoring. Developers from Eastern Europe (Russia, Belarus, Ukraine and Poland) take the leading positions, having business knowledge and excellent communication skills. And Latin America is a favorable offshore region for companies for which time differences are crucial. In total, the top 8 countries favorable for offshore outsourcing are the Philippines, Poland, China, Romania, Argentina, Bulgaria, Ukraine and India.
New technologies
The new realities of the global economy and the latest advances in technology, such as cloud platforms, have made changes in the work of offshore companies and brought them to a new level. The introduction of digital collaboration tools as a link between local and offshore teams helps to avoid misunderstandings between employees, control deadlines and costs. Some of the best collaboration tools when working with offshore teams are Podio, Trello and Asana.
Improving data security
One of the most important trends in the field of IT offshoring is the solution to data security problems. Some companies question the security of intellectual property and confidential data with their distributed team due to multiple cases of data theft and therefore consider offshoring as a threat to the preservation of their trade secrets. It is no coincidence that at the last specialized exhibitions and forums, such issues as end-to-end encryption, protection of critical infrastructure, cyber insurance, etc. a lot of attention was paid to data security issues.
Based on these trends, the offshore industry will continue to develop rapidly as new technologies become available. Companies that are no longer limited by geography will use more and more business opportunities that offshoring provides them.
You can always contact Openix Solution for advice or project development.
