Offshoring has changed the way of doing business that makes sense in today’s global economy
All businesses need to take on various non-core activities to manage their business effectively. These day-to-day activities can consume resources that reduce the overall profitability of the organisation. Offshoring some of these activities to another entity that is better at performing that particular activity, due to their expertise or highly-skilled speciality, can not only improve profitability but can improve efficiency. The processes of offshoring can lead to reducing the consumption of resources and increase the competitiveness of the business.
If outsourcing has changed the global business environment, then offshore outsourcing or (offshoring) has changed the way of doing business. Many companies are using resources of outsourcing to gain an advantage over their competitors.
The basic criteria for a job to be able to be performed as offshoring is that there is a significant labour cost difference between the parent and offshore countries. The work contains a high information content and work can be transmitted over the Internet and is repeatable, also when companies use offshoring, the key aim is to save money so that they are able to keep the prices of their products lower than the competitors.
The main factor of this arrangement is to reduce or to remove non-core areas of doing business. Many organisations find it difficult to focus entirely on every aspect of their business effectively. A way to avoid this is by hiring an external organisation to perform some part of the business process in a different country away from the one where the product or service is actually sourced or manufactured. Basically, companies in countries with higher labour costs outsource their work overseas. This enables them to reduce their own local employment wages and therefore the cost of doing business domestically.
All businesses need to take on various non-core activities to manage their business effectively. These day-to-day activities can consume resources that reduce the overall profitability of the organisation. Offshoring some of these activities to another entity that is better at performing that particular activity, due to their expertise or highly-skilled speciality, can not only improve profitability but can improve efficiency. The processes of offshoring can lead to reducing the consumption of resources and increase the competitiveness of the business. By applying the offshoring model, whereby organisations retain complete control of their offshore division can pay a big dividend on a small investment. The firms that provide offshore outsourcing services for business are known as Offshore Staffing Providers, Offshore Staff Leasing, Offshoring Facilitation services, Remote Staffing, offshore operational office services.
Offshore outsourcing has revolutionised the way many industry sectors operate. Information technology is the prime industry sector that has taken advantage of offshoring, followed by many types of manufacturing industry.
There are four basic types of offshore outsourcing:
1. Information Technology Outsourcing (ITO)
The managing of a broad range of specialist functions encompassing IT such as service delivery, technical support, managing and upkeep of critical infrastructure and applications and company data. To put it basically, it’s like having your IT department based overseas.
2. Business process outsourcing (BPO)
BPO is non-primary business activities and functions such as administration, payroll, human resources (HR), accounting and customer/call centre relations. BPO is also known as Information Technology Enabled Services (ITES).
3.Software R & D offshore
Software R & D offshore is software research and development including web design, graphic design, mobile application development, game development etc.
4. Knowledge Process Outsourcing (KPO)
KPO involves the outsourcing of core processes. These functions may or may not be a cost benefit to the parent company but they help in value addition. The processes which are outsourced to KPOs are usually more specialised and knowledge based in comparison to BPOs. The services included in KPO are related to R&D, Capital and insurance market services, legal services, biotechnology, animation and design, etc. Also, Legal Process Outsourcing (LPO) is a special type of KPO dealing with legal services.
In conclusion, offshoring non-core business activities to developing countries that are providing quality services at economically cost-effective price makes strong financial and business sense.