Offshoring: The advantages Vs. Disadvantages Offshoring is one of the most cost-effective ways of achieving a global presence while reducing the cost of doing business in today’s global economy. It can make the difference between a company’s success and failure. Offshoring not only saves money, but it also increases profitability. It is not surprising that […]
Offshoring: The advantages Vs. Disadvantages
Offshoring is one of the most cost-effective ways of achieving a global presence while reducing the cost of doing business in today’s global economy. It can make the difference between a company’s success and failure. Offshoring not only saves money, but it also increases profitability.
It is not surprising that companies are moving their operations overseas, Either through the manufacturing sector or by outsourcing customer services and technical support. However, there can be problems associated with this including both politically and culturally.
Advantages of offshoring.
The main reason why companies move their operations overseas is to lower labour costs and associated expenses. Wage comparisons between paying employees in places like Australia, Europe, and the US and paying foreign workers in developing nations is quite substantial. Employers can also save from insurance, taxes, workers compensation, medicare, social security and other expenses associated with employing local employees. Basically, savings can be made in countries where there are fewer regulations.
Effectively the tasks can be completed faster and with better quality and companies can capitalize on the technological and organizational expertise that may be cost prohibitive in their own countries. This, as well as advances in IT and communication technologies, can improve business operations where companies can afford to pay more qualified or technically skilled staff especially in places like Vietnam there is plenty of highly skilled workers available.
It can also work well in countries with different time zones. This can enable companies to provide customer support 24/7 and provide services to consumers in other parts of the word. This can improve company reputations with regard of taking care of their clients.
It can be said the offshoring can help unemployment in developing countries and put more capital into a developing economy to help improve living standards and infrastructure. It can also reduce immigration problems because locals would no longer need to work abroad or move to more developed countries to earn enough to support their families. This helps the host nation to improve social cohesion and prosperity.
Disadvantages of offshoring
Companies can save money from lower wage costs they must take into consideration the cost of training and supervising overseas employees. Products can be cheaper to manufacture in developing countries but the shipping costs may be higher than expected. In a service industry situation this of course would be different as careful recruitment and effective in-house training by the offshore staffing company should resolve any issues.
Quality control can be an issue and ensuring that the product is manufactured according to company standards may not be as easy and the barriers pertaining to language, culture and overseas supply chains can also affect quality control.
The affect that offshoring has on domestic employment rates when jobs are sent offshore can have a negative effect on the local staff and community and can damage the public image of a company. Steps should be taken to reassure people that the use of offshoring can lead to expansion and increased employment in the long run.
You need to assess whether offshoring good for your business and make sure to analyse the pros and cons before you make a decision. But in general making the decision to offshore generally means the benefits outweigh the disasvantages.