When looking at offshoring advantages and disadvantages, it’s pretty easy to see why so many companies choose to offshore parts of their business.
The first advantage of offshoring is that the costs are generally much lower than completing the process at a facility in your location. This is why so many big manufacturing companies locate their factories overseas. The cost of labor is significantly cheaper, as well as the overhead of renting a facility.
This can increase profit margins, thus boosting your company’s competitiveness in the market.
In some areas of the world, your company might even be able to get a tax credit or break if the government is looking to stimulate a local economy. This can save you a substantial amount on taxes, which can be significantly higher in other places in the world.
Another advantage we should consider when reviewing the pros and cons of offshoring is the ability to more easily reach new markets. In my previous example, I talked about offshoring marketing operations to a marketing agency in Latin America. This could be done to better market to a Hispanic market segment. This would be an example of using offshoring to more easily reach new markets.
This example also shows another pro of offshoring: expertise. If your company is located in the United States, you’re probably experts about marketing to your audience there. But you aren’t experts on the people, consumer behaviors, and other factors that come into play when trying to market your product or service to another part of the world.
Finally, another advantage of offshoring is that it can help with human resources issues like motivation and overall job satisfaction. If your employees are stuck doing monotonous tasks in their jobs, it can be really demotivating. Especially if your employees are highly educated.
Offshoring those tasks can help with their overall job satisfaction and the productivity of your company. This will make them happier, and free them up to do more strategic things at your company, which in the long run will result in more value.
Now that you know all about the advantages, we should go over the less glamorous part of offshoring pros and cons: all the disadvantages associated with offshoring.
Before your company decides to partake in offshoring, it is very important that you review the cons associated with your particular situation, since they can have such a huge impact on your business.
The first con of offshoring has to do with ethical concerns. In recent years, ethical concerns have been raised about the process of offshoring due to the low pay and poor conditions associated with the factories that some companies use overseas.
In today’s hyper-connected world, it is very easy for news of unethical worker treatment to spread online and tarnish your brand. Consumers are more picky than ever, and are willing to stop using a brand’s products because of ethical issues like this. So make sure that you take this into account when looking into offshoring.
The second con of offshoring has to do with cultural barriers and communication. Due to the difference in time zones, it could be extremely hard to communicate with the offshoring site. Decisions that would only take a day if all parties were in the same location could now take several weeks due to the difference in working hours.
And this is just the tip of the iceberg when it comes to communication and cultural barriers. If you have someone at your company who isn’t well versed in the culture, customs, and language of a different part of the world, it can be extremely hard to operate your business there.
For example, it is customary in some countries to provide a gift to the head of a company before signing a contract. If your employees don’t know this, they could blow through several different deals, and lose your chances of operating in said location in the first place.
Finally, it can be very hard to create good working relationships when you don’t speak a common language with someone. Words get lost in translation, and mistakes happen. Multiply this by being several thousand miles away from said offshoring site, and the venture can get more and more difficult.
The last con of offshoring that we’ll cover is security. If you have expensive equipment overseas, you will need to make sure that you have security onsite to ensure the safety of the machinery. Certain countries have more volatile climates, and might be more susceptible to violence or political unrest. Because of this, you will want top notch security.
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