Offshore outsourcing or offshoring, in short, refers to hiring a third party company that operates in another country to take care of some business operations or services for you. It is a business strategy to lower business costs without sacrificing the quality of the company’s output.
Some of the biggest companies in the world resort to offshoring. Examples include Apple, Cisco, Ford, and more. Offshore outsourcing is mainly employed in the customer service and manufacturing industries.
The effectiveness of this strategy has been proven for many years. However, contracting another company in another country to accomplish daily operations for your business has its risks.
Offshoring is all about cost-effectiveness and expanding companies or business operations on a global scale, but to better understand it, you should also be aware of its disadvantages.
Offshoring Risk #1: Poor data/IP security
A company or business’ data or IP might not be well secured, which may result in data loss or leaks. There are even some incidents of data theft, which may result in the business’ collapse.
Offshoring Risk #2: Hidden Costs
There are several cases where offshoring clients are taken by surprise by sudden and extra fees that were never part of the initial agreement. This is why most offshoring companies today present fixed rates.
Offshoring Risk #3: Poor Communication
One of the biggest concerns in offshoring is the communication barrier, given that it involves contracting a company in another country where English may not be the primary language. Although English is the main language used among offshore companies, their level of proficiency may not always allow for excellent communication between them and the offshoring company.
Offshoring Risk #4: Subpar Employee Management
Offshoring clients are worried about the offshore company’s employee management style and their recruitment process, which are critical to ensuring the competency of the employees they hire. Working with a service provider that’s located thousands of miles away makes it hard to monitor work productivity due to lack of supervision.
Offshoring Risk #5: Lack of Proper Work Dissemination
Offshoring is not about employees multitasking; it is about hiring several employees and making sure those employees are efficient in their job responsibilities. However, progress may be impeded by poor work distribution.
Offshoring Risk #6: Culture-Barrier
Just like with the communication barrier, failure to understand and embrace different cultures may lead to inadequate progress. It may also prevent the client company and the offshore service provider from establishing a harmonious relationship.
Offshoring Risk #7: Lack of Technological Advancement and Skills
Many offshoring clients are looking to outsource to a company that’s able to provide extensive and dynamic technological capabilities. However, technological advancements in many countries are not the same. This is an essential matter because most of the advanced countries in the world like the US, UK, and Australia actively outsource their work to offshore service providers. Many of them have high standards when it comes to technology; thus, outsourcing work to a firm that’s unable to meet those standards will only slow down their business operation.
Offshoring Risk #8: Quality Problems
Offshoring appeals to businesses because of the lower labor costs, which enable them to hire two or three employees for the price of one. However, quality work is not always guaranteed when it comes to offshoring. This problem may arise due to inexperienced employees, poor team management, inability to understand the requirements, and more.
Offshoring Risk #9: High Turnover Rate
The high turnover rates in offshore companies can have an adverse effect on the business as this can mean the loss of knowledge and the need for retraining or knowledge transfer, which can take time and slow down a project’s progress.
Offshoring Risk #10: Legal Problems
Offshoring clients are required to abide by the different set of rules or laws in another country. As such, it is important to iron out all the terms and conditions before hiring an offshore service provider.
Offshore Outsourcing Today
Despite these risks or disadvantages, hundreds of companies and businesses still outsource their services to providers all over the world, as they are able to lower the risks with innovative and strategic methods. Offshore service providers are taking the necessary steps and measures to address the challenges that come with this type of work arrangement, as well as to minimize their impact.
Outsourcing your software development needs would offer a lot of benefits to your business, but it will also come with various disadvantages. As such, it is important for you to weigh your options carefully.
Alternatively, you may want to consider employing the services of a nearshore company, and in the process reduce the problems that cultural, language and time zone differences bring about.
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