Over the past few years, businesses in almost every industry have turned to business process offshoring.
The upward tick in offshoring can be attributed to the growing demand for expert talent and globalization. And with benefits like cost savings and easy business expansion, the process is here to stay.
But what exactly is business process offshoring?
In this article, we’ll discuss what business process offshoring means, its pros, and its cons. We’ll also discuss key tips for successful offshoring.
This article contains:
(Click on the links below to jump to a specific section)
- What is business process offshoring?
- 4 key benefits of business process offshoring
- 4 major limitations of business process offshoring
- 3 simple tips to offshore successfully
- Top 3 offshoring industries
Let’s get started.
What is business process offshoring?
Offshoring or offshore outsourcing is a type of business process outsourcing (BPO).
The process involves a company hiring a third party provider in a different location to handle its operations.
Business process offshoring is a cost-effective business strategy that gives a company access to a skilled talent pool, technology, business scalability, and other resources.
However, offshoring can sometimes be confused with other types of business process outsourcing — including nearshore and onshore outsourcing.
Here’s how the two are different from offshore outsourcing:
- Nearshore outsourcing: When a company outsources a business operation to a BPO vendor outside its home country but within the same continent.
- Onshore outsourcing: When a company outsources operations to a BPO provider within its home country.
Now that we’re clear on what business process offshoring means, let’s look at its four key advantages.
4 key benefits of business process offshoring
Here are some of the important benefits of offshoring your business operations:
1. Increased cost savings
Offshoring is usually a cost-effective affair. This is often the primary reason why most businesses opt for it.
Here’s how offshoring can help you cut costs:
A. Labor costs
Hiring skilled talent from popular offshoring destinations like India and the Philippines is much more cost-effective than hiring the same talent in North America and Eastern European countries.
For example, in 2022, hiring skilled labor for data entry services would cost you approximately 3,021 USD in New York City. Offshoring the same talent would only cost you around 274 USD in a developing country like the Philippines.
B. Hiring costs
When you offshore, you’re only paying the service provider for their work. Unlike insourcing, where you’d have to hire and train in-house employees, you won’t be dealing with these additional costs through offshoring.
Additionally, you can save on the capital you’d otherwise spend on employee benefits, bonuses, and other overhead costs.
2. Access to a skilled talent pool
Offshoring can allow businesses to easily access any expertise they can’t find within their home country.
An example of this is the software developer shortage in the USA. According to the Bureau of Labor Statistics, the shortage of engineers in the USA will likely exceed 1.2 million by 2026.
The lack of specialized skills has led companies to turn to foreign countries like Ukraine, Poland, and India for software development services. These offshoring hubs can provide companies with a large and educated talent pool.
3. Increased business scalability
Offshoring can aid international business expansion and scalability in various ways.
With business process offshoring, you can:
- Understand the market in a different country before setting up a business.
- Save on various labor costs and invest the capital into scaling the new business.
- Engage in product offshoring to set up manufacturing units in an offshore location and save on production costs.
- Speeding up the timeline of project and development deliverables for the expansion.
4. Access to technology and resources
Your business may be engaging in both core and non-core business operations.
It’s usually possible to invest in technology, resources, and training for core competencies.
However, your company may not be able to invest in the same resources for non-core activities.
This is where outsourcing service providers come into the picture!
Offshore outsourcing companies usually have specializations in a particular business function and access to the latest technology.
Additionally, an offshore tech company also has a skilled and trained human resource to deliver quality work in high volumes.
Today, an offshore BPO service can give you access to the latest technology related to artificial intelligence, automation robots, data analytics, design thinking, and more.
Now that we’ve looked at the advantages of offshoring, let’s dive into its limitations.
4 major limitations of business process offshoring
Business process offshoring may not be suitable for all business models — especially since it comes with considerable risks.
Here’s a look at some of them:
1. Weak supply chain management
Production offshoring to international destinations can lengthen your supply chain. Your business may then have to deal with increased costs owing to transportation needs.
Additionally, a decentralized supply chain can be difficult to manage. And mismanagement in such cases can lead to inconsistencies and create a lack of quality assurance.
Sometimes, the added costs and the risk for mismanagement can outweigh the benefits of offshoring your supply chain. This is why it’s crucial to thoroughly assess the economic outcomes of offshoring your operation.
2. Intellectual property concerns
Your company’s intellectual property (IP) is as important as its physical assets. This can be in the form of patents, trademarks, copyrights, and other confidential information.
Business process offshoring can expose your IP to third-party vendors outside your organization.
This is why it’s crucial to conduct a risk assessment and identify if transferring business knowledge to an external provider can compromise your company’s data. This includes understanding the offshore country’s laws and regulations.
For better risk management, you can take measures to establish ownership over your IP.
For instance, if you were to offshore a call center, you could propose a service level agreement (SLA) between your provider and your company. The SLA agreement can include clauses that protect your IP, along with other performance metrics.
3. Compliance issues
Compliance is an umbrella term for all things regulated by authorities. This can include data handling procedures, data routing channels, user information, minimum pay requirements, and more.
With offshoring, you’ll have to be on the lookout for both domestic and offshore compliance requirements.
Hiring an experienced and trusted outsourcing partner can help resolve these issues as they’re well-versed with compliance requirements.
It’s also recommended to hire a few in-house legal experts to help you navigate any legal dispute.
4. Cultural and linguistic barriers
Offshoring services, globalization, and telecommunication may have shrunk our geographical boundaries. But working with professionals from different countries still comes with cultural and linguistic barriers.
Popular offshoring destinations like India and the Philippines have a large English-speaking workforce. However, English is usually their second language.
As a result, you can face issues with differences in accents, use of informal language, vague phrases, and more.
Additionally, there’s a lack of mutual understanding of local cultures between companies and their offshore providers.
For example, the USA celebrates New Year on the 1st of January, whereas China celebrates Lunar New Year on a different date every year. A lack of this knowledge can complicate an American company’s collaboration with an offshore team in China.
This is why it’s important to train your company’s management to understand and bridge these language and cultural differences.
Now that we’ve looked at the pros and cons of business process offshoring, let’s discuss three simple tips to offshore successfully.
3 simple tips to offshore successfully
Here are three easy tips to help make your offshoring bid a success:
1. Resolve the 3 Ws of offshoring
The three Ws of offshoring are what, where, and who.
Before you consider executing your offshoring strategy, it’s key to understand the answer to these three Ws.
Here’s a closer look at the three Ws of offshoring:
The first step towards successful offshoring is understanding what business function you want to offshore in the first place.
It’s best to offshore your company’s non-core business activity. This lets your in-house workforce focus on the core competencies and ensures minimal dependence on outsourcing vendors.
The next step is to pick your offshoring destination. Depending on the offshoring destination you choose, there can be a significant difference in risks, benefits, and capacities.
Every offshore country has tech hubs and cities catering to certain industries. Once you’ve chosen a country, you can dig deeper to evaluate the different cities.
Finally, you can narrow down which offshore service provider you want to work with.
Note that most offshore companies have certain areas of specialty. These offshore activities include:
- Customer service.
- Software development.
- Human resources.
- International management.
- Back office services, and more.
It’s important to check the track record, scale, and expertise of your BPO company before working with them.
2. Start small
If you’re new to offshoring or you’re working with a new BPO company, it’s best to start by offshoring a smaller task.
You’ll be able to estimate your BPO company’s efficiency and turnaround time if your offshoring task is:
- Small in scale.
- And measurable.
3. Manage process migration
The success of your offshoring process largely depends on the effort you put into the migration process. This refers to the short period after you begin working with a new offshore company.
The migration period usually lasts for three months and involves:
- Carrying out detailed project planning.
- Initiating knowledge transfer.
- Migrating necessary data.
- And managing your offshore team’s performance.
One way of managing your offshore team’s performance is by introducing advanced employee productivity management software like Time Doctor.
With Time Doctor, you can:
- Track the time your offshore team spends on your project.
- Calculate billable hours to pay your team accurately.
- Manage projects and budgets to maximize your offshore team’s efficiency.
- Use productivity reports to determine if the offshore team is productive at work.
- Track employee productivity across apps using Time Doctor’s powerful Chrome browser extension.
Check out the complete list of Time Doctor’s features for more details.
Ensuring you touch all these bases within the first few months of working with an outsourcing company can help make way for long-term success.
Let’s now discuss the top industries that engage in business process offshoring.
Top 3 offshoring industries
Here are the top three industries that carry out and benefit from offshoring:
1. Information technology
Information technology (IT) offshoring is one of the most popular offshoring industries.
As of 2022, the global contract value of IT outsourcing is 66.5 Billion USD.
IT services offshoring involves outsourcing IT-reliant business processes, application services, and infrastructure solutions.
Additionally, services such as cloud computing and software as a service (SaaS), are also a part of the IT BPO sector.
Countries such as India, Ukraine, Poland, and China are some of the most popular offshore destinations for the IT industry.
2. Knowledge Process Outsourcing
Knowledge Process Outsourcing (KPO) is another popular offshore industry. Even amid the COVID-19 crisis in 2020, the KPO global market was estimated at 53.9 Billion USD.
KPO is the process of outsourcing data-driven and knowledge-intensive business operations that involve gathering, analyzing, and delivering insights into businesses.
KPO services include:
- Data analytics.
- Data entry.
- Market research.
- Data management, and more.
Countries like India, Mexico, and Malaysia are popular destinations for KPO offshoring.
3. Customer support
Offshoring is a popular practice in the customer support industry. The customer care BPO market is expected to grow to around 30.4 Billion USD by 2027.
Offshore companies specializing in customer service handle emails, social media, live chat support, etc.
These companies can even set up call centers to support inbound and outbound customer calls.
When companies outsource these services across the globe, they have expert customer care teams available 24/7.
The Philippine and Indian BPO industry have years of experience catering to the customer care needs of businesses worldwide.
Offshore outsourcing can give you a competitive advantage, help a business expand, and make profits at a lower cost.
However, the popular business strategy has both pros and limitations. That’s why it’s important to understand if offshoring is the right choice for your business and then choose the right offshore outsourcing partner.
You can go over the tips we’ve discussed in this article to do business process offshoring the right way!
Andy is a technology & marketing leader who has delivered award-winning and world-first experiences.