Offshore outsourcing has become a popular business strategy for companies looking to cut costs and increase efficiency. It involves hiring a third-party company located in a different country to handle certain business processes or tasks.
This can include anything from customer service and IT support to manufacturing and back-office operations. While offshore outsourcing can offer many benefits, it also comes with its fair share of risks and challenges.
In this article, we will discuss the pros and cons of offshoring. We will explore the benefits of offshore outsourcing and help you decide whether it's truly worth it. Also, we will also look closely into the specifics of various types of outsourcing, such as front-office outsourcing, back-office outsourcing, and their combinations.
Offshore outsourcing, or offshoring, is when a company hires another company in a different country to handle some of its business tasks. This can include both front-end and back-end operations. Examples of tasks or job roles that can be outsourced are customer service, IT support, accounting, and manufacturing.
The main reason for offshore outsourcing is to take advantage of lower labor costs in other countries, which can result in significant cost savings for businesses. Additionally, offshore outsourcing can also provide businesses with access to a larger talent pool and allow them to focus on their core competencies by delegating non-core tasks to third-party companies.
One of the main advantages of offshore outsourcing is cost savings. By hiring a third-party company in a country with lower labor costs, businesses can save a significant amount on operational and labor costs.
Countries like Kenya offer a skilled workforce at a fraction of the cost compared to Western countries.
This is beneficial for companies of all sizes that may use their cost savings by reinvesting back into core capabilities of their business, allowing for further growth and expansion.
Offshore outsourcing allow companies to get access to much larger talend pool with specialized skills which might be hard to come by in Western countries. Businesses can leverage expertise in specific areas such as IT, customer service, or accounting without the need to invest in in-house training or hiring processes.
Moreover, this global talent pool can bring diverse perspectives and innovative ideas, potentially leading to improved products and services.
In Bogner & Partners, we can testify to this statement. Kenya’s labor force is educated, hard-working and extremely adaptable. Professionals can be hired in practically all occupations and levels of expertise.
To paraphrase Peter Drucker: "Do what you do best and outsource the rest."
Defining core competences and delegating or outsourcing everything else can prove to be the most direct strategy to unprecedented growth.
By outsourcing non-core activities, companies can focus more on their primary business processes. This leads to improvements in productivity and can help drive innovation within the core functions of the company.
Offshore outsourcing provides businesses with the flexibility to quickly adjust their team sizes based on current business requirements, which is particularly useful for companies with fluctuating workloads.
Hiring new workers or laying-off those who are simply not needed right now due to lack of work, is not an easy thing to do in a traditional business operation.
With business process outsourcing, changing the total number of FTEs (Full Time Employees or Full Time Equivalents) on the month-to-month basis is often as simple as sending an email to your outsourcing provider.
This can be particularly beneficial for fast-growing businesses that need to adapt and scale their operations quickly to meet increasing customer demands.
Due to different time zones, outsourcing work to offshore companies can enable continuous business operations. This is especially beneficial for customer service and IT support roles.
Moreover, countries like Kenya share practically the same time zone as most of Europe (only 1 hour time difference) allowing for efficient real-time communication during standard European business hours.
While offshore outsourcing can offer many benefits, it also comes with its fair share of risks and challenges.
Many companies trying to outsource experienced that differences in language and culture can lead to misunderstandings and communication issues, impacting the quality of work and the efficiency of the service provided.
This is where Kenya shines and why it's quickly emerging as the leader for business process outsourcing:
Maintaining the desired level of quality can be challenging when outsourcing offshore. Differences in standards and a lack of direct oversight can result in inconsistencies in performance and output.
That's why we at Bogner & Partners always assign 1 Quality Analyst to each 5 Agents on-site in Kenya and furthermore, all work goes through detailed quality check here in Germany, Europe.
Applying modern management and quality assurance principles to the world of business process outsourcing has proved to mitigate any risks that might come to your mind when thinking about offshoring.
Sharing sensitive information with an offshore partner can lead to potential security risks. Data breaches or inadequate data protection measures in other countries can expose businesses to significant vulnerabilities.
Companies should also assess the legal and regulatory environment of the offshore location to ensure compliance and protect intellectual property rights.
However, this risk exists just as well for companies who do not outsource and only work with their in-house employees. Security protocols needs to be in-place regardless of the location of the fulfillment centre.
Over-reliance on an outsourcing partner can become a risk if the partnership is not managed effectively. Issues such as disruption in services or conflicts in business operations can arise.
Offshore outsourcing can have a negative impact on local employment as jobs are moved overseas. This can theoretically lead to negative perceptions of the company within the local community.
What is offshore outsourcing?
Offshore outsourcing involves hiring an external organization in a different country to perform certain business tasks or services. It is a strategy used by companies to reduce costs, access skilled labor, and improve business efficiency.
How does offshore outsourcing help reduce costs?
By outsourcing to countries with lower labor costs, companies can save on salaries and operational expenses. Additionally, it reduces the need for capital expenditure in office space, equipment, and technology.
What should companies consider before opting for offshore outsourcing?
Companies should assess their core competencies, the reliability and capability of the outsourcing provider, potential savings, risks related to quality and security, and the potential impact on their brand and local employment.
Can offshore outsourcing affect customer satisfaction?
Yes, offshore outsourcing can affect customer satisfaction positively or negatively. Positive impacts include faster response times and 24/7 customer service capabilities. Depending on the provider and the location of the fulfilment centre, negative impacts might arise from cultural misalignments and communication issues leading to poor service experiences.
Is offshore outsourcing suitable for all types of businesses?
Offshore outsourcing is not a one-size-fits-all solution. Businesses need to evaluate their specific needs, the nature of the tasks to be outsourced, and their strategic objectives before deciding if outsourcing is the right approach.
In all honesty, offshore outsourcing is a double-edged sword that offers substantial benefits while also presenting significant challenges.
Although cost savings are undeniably a highly desirable advantage of outsourcing, it should not be the sole focus.
Engaging a third-party company for operations allows businesses to focus on their core competences, have more time and resources for market research and product development, leading to enhanced efficiency and productivity.
Companies looking to outsource offshore must carefully weigh these pros and cons and consider their long-term business goals and the potential impacts on their operations and reputation. With careful planning and management, offshore outsourcing can be a strategic advantage in the global market.
Before deciding to offshore outsource, businesses should carefully consider their specific needs and the potential risks involved.
One way to mitigate the risks of offshore outsourcing is to thoroughly research and vet potential third-party companies. This includes checking their track record, references, and security measures to protect sensitive information.
It is also essential to establish clear communication channels and expectations to avoid any misunderstandings or delays.
Another way to minimize the risks of offshore outsourcing is to start with smaller projects and gradually increase the scope as trust and confidence in the third-party company grows. This can help businesses build a strong working relationship and ensure that the quality of work meets their standards. It can also provide businesses with the opportunity to test the waters and gain a better understanding of the benefits and challenges of offshore outsourcing before fully committing to it.
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Would you like to find out more? Read this article by Harvard Business Review on How to Think Strategically About Outsourcing
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