Offshore outsourcing has been a topic of discussion for many businesses in recent years. Companies often consider offshore outsourcing as a strategy to reduce costs, access specialized talent, and improve efficiency.
However, companies should still weigh the pros and cons of offshore outsourcing, especially in 2024, when the global business landscape is ever-evolving.
This article will explore the pros and cons of offshore outsourcing and determine if it is still worth considering as a business strategy in 2024.
Is offshore outsourcing still worth it in 2024?
Over the years, offshore outsourcing has been a helpful strategy for companies when it comes to staffing and resource optimization.
For one, this has helped businesses get a remote workforce with the restrictions in place during the pandemic. Service providers like MVP Asia Pacific helped small and large companies get used to working and collaborating with their teams online.
Delegating services offshore also became beneficial during mass resignations and widened labor gaps. While most establishments automate their functions, these processes are supported by offshore staffing that maintains systems and applies machine learning strategies.
With the rise of automation and AI, many businesses wonder if offshore outsourcing still holds the same benefits it did in the past.
The answer is not a simple yes or no.
Though, offshore outsourcing can still be a valuable strategy when approached strategically and properly.
Pros and cons of offshore outsourcing
In the next sections, let us understand the pros and cons of offshore outsourcing.
Outlines below are the advantages of offshoring services:
The possibility for cost reduction is one of the key reasons businesses choose offshore outsourcing.
Admittedly, salaries in developed countries such as the US are expensive, matching their equally-high cost of living. The Bureau of Labor Statistics estimated that the average compensation cost for private companies averaged US$40.79 per hour in March 2023.
Companies can allocate resources more efficiently by leveraging lower labor costs in offshore destinations.
This is because businesses can get an equally-talented workforce in destinations with lower average salaries, hiring them for a fraction of the cost of their local counterparts.
Tip: Businesses can check out their outsourcing savings through this Outsource Calculator.
Access to specialized talent
Labor gaps still exist, even with the number of workforce developed countries produce each year.
Startups face competition with established brands with more capability to provide competitive salaries, flexible arrangements, and a good work-life balance. The latter, meanwhile, is forced to break traditional ways of work and keep up with employee demands to retain them.
A study by Korn Ferry projects that talent shortages could cost global organizations around US$ 8.5 trillion by 2030. In addition, around 85 million roles could remain unfilled due to this skills gap.
Offshore outsourcing opens doors to a global talent pool, enabling businesses to access specialized skills that may not be readily available locally.
By tapping into a diverse talent base, companies can gain a competitive advantage and fulfill skill gaps within their organization.
Customers nowadays prefer quicker services and support provided by businesses. This is most especially true in both physical and digital goods.
However, making this possible in-house can be impossible. For one, the towering equipment costs, salaries, and other aspects can limit small businesses from accomplishing their timeline.
Not to mention working night shifts still depend on the regulations of specific regions.
Offshore outsourcing can accelerate time-to-market for products and services. By collaborating with teams in different time zones, businesses can achieve round-the-clock operations and reduce development cycles.
This faster time-to-market provides a competitive edge, especially in industries where speed is critical to success.
Outsourcing certain functions to offshore teams is a strategic approach that empowers companies to optimize their workforce effectively.
According to a study by Deloitte in 2020, approximately 78% of businesses reported that outsourcing certain tasks allowed them to streamline their internal operations and concentrate on core business functions.
This approach enhances productivity and frees up valuable internal resources, enabling companies to allocate their time and efforts more efficiently.
Additionally, workforce optimization through offshore outsourcing has been found to impact employee morale and job satisfaction positively.
By offloading non-core tasks to external specialists, internal teams can focus on projects that align with their expertise. This increases their satisfaction by preventing burnout and improving overall performance.
By entrusting specialized tasks to external experts, businesses can focus on their core competencies. This is essential for driving growth and maintaining a competitive edge in the market.
Better diversity and corporate responsibility
Offshore outsourcing encourages companies to embrace diversity and inclusivity.
Collaborating with teams from different cultural backgrounds fosters innovation and creativity. With their experience working with different clients, offshore teams can contribute fresh ideas from their previous projects.
It also helps to apply their own practices in projects to improve them.
Additionally, businesses can uphold ethical and social values by choosing responsible outsourcing partners. This better aligns them with sustainable and responsible business practices, which can attract customers further.
Other advantages of offshore outsourcing include the following.
- Business continuity. Offshore outsourcing ensures companies can continue their operations despite interruptions within their local areas.
- 24/7 support. Having offshore teams allows businesses to achieve round-the-clock operations. This also leads to faster turnaround times for critical tasks and improved customer support.
- Risk diversification: Offshore outsourcing spreads business operations across different regions, making the company less susceptible to region-specific risks and economic fluctuations.
Before fully deciding to offshore, businesses should also be aware of its possible drawbacks:
One of the primary concerns with offshore outsourcing is compliance with regulations and legal standards.
Different countries have varying laws and regulations governing data privacy, labor practices, and intellectual property rights. Brands must choose outsourcing partners that are aware of and comply with regulations such as:
- Payment protection (US and EU)
- ISO, and
- Other applicable laws
Failure to comply with these regulations can lead to legal complications and reputational damage.
Risks in cybersecurity
Outsourcing operations to other countries can expose businesses to cybersecurity risks.
IBM reported an all-time high record of data breach costs of US$ 4.5 million in 2023. Data breaches and cyber-attacks pose significant threats, especially when working with partners who may have weaker security protocols.
Companies must implement robust security measures and thoroughly vet outsourcing providers to safeguard sensitive information.
It is best to have service providers practicing security risk assessments and related protocols to protect their clients further.
Political instability and conflicts in offshore locations significantly impact business operations.
When companies outsource to politically-unstable destinations, they expose themselves to a higher degree of risk and uncertainty.
These challenges arise due to the unpredictability of political situations. Sudden changes in policies, trade agreements, or economic conditions can disrupt the smooth functioning of outsourced tasks.
For instance, a shift in government leadership may lead to delays in project timelines or even the termination of ongoing partnerships. It can result in financial losses and damage the reputation of the outsourcing company.
Moreover, political instability can exacerbate other risks, including cybersecurity threats.
It is essential for companies to assess geopolitical risks before finalizing outsourcing decisions.
Differences in work culture
Cultural differences can sometimes lead to communication and collaboration challenges. Diverse work cultures may result in misunderstandings, affecting project delivery and overall efficiency.
Companies should promote cultural awareness and facilitate effective communication to mitigate these risks.
Offshore outsourcing may face infrastructure-related challenges in certain locations.
Issues like unreliable internet connectivity, power outages, or inadequate technology can hamper productivity and hinder seamless collaboration.
Fortunately, infrastructure and business climates are changing in developing countries.
UNCTAD conducted an eTrade readiness assessment to measure the readiness and improvements of select countries across the globe. Per its results, around 60% of participating countries have adopted measures to improve their trade facilitation, especially in payments.
Thoroughly evaluating the infrastructure of the outsourcing destination is crucial to ensure smooth operations.
Offshore outsourcing as your staffing strategy
When acquiring offshore outsourcing as a staffing strategy, it is important to consider the decision carefully. Here are a few tips to help businesses successfully implement this strategy:
- Thorough vendor selection. Choose outsourcing partners with a proven track record, strong security measures, and a cultural fit that aligns with your business values.
- Clear communication channels. Establish efficient and open lines of communication to bridge any geographical and cultural gaps that may exist.
- Project management. Implement effective project management methodologies to ensure smooth collaboration and adherence to deadlines.
- Invest in training and support. Provide necessary training and ongoing support to offshore teams to ensure they are equipped to deliver high-quality work.
- Regular evaluation. Continuously evaluate the outsourcing arrangement to identify areas for improvement and make necessary adjustments.
When approached with careful consideration, offshore outsourcing can still offer significant benefits to businesses.
Companies should measure the pros and cons of offshore outsourcing and implement strategies. This way, they can leverage offshore outsourcing as a staffing strategy to achieve cost savings, access specialized talent, and improve operational efficiency.
At the same time, addressing potential risks such as security, quality, hidden costs, cultural differences, and local employment impacts is crucial.
Businesses may make informed judgments and maximize the benefits of offshore outsourcing in the ever-changing business landscape by keeping these points in mind.