Offshore Outsourcing Explained
“Hello, my name is Rita. Thank you for calling. How may I help you today?” Although you may not be familiar with the term offshore outsourcing, you almost certainly encounter it frequently in your everyday life. Speaking with an employee at a call center to resolve a problem quickly and easily over the phone is just one common example.
Offshore outsourcing is a valuable, well-established method of helping companies reduce their expenses and overcome staffing issues. Let’s explore this concept, examine its many benefits, and go over some potential pitfalls to avoid.
What Is Offshore Outsourcing?
First of all, what is offshore outsourcing? Offshore outsourcing refers to when companies outsource some key responsibilities and roles to staff in another country.
But before we get ahead of ourselves, you should know that there are two kinds of offshore outsourcing:
- One is where you outsource a part of your business you’re no longer doing in-house. For example, you might outsource your IT necessities.
- The other is when an external partner, like Remote Employee, provides a way for your business to have offshore employees. You still manage and train these team members, and you never lose any company values, culture, or quality.
Companies are also known to outsource IT responsibilities, research and development, manufacturing, sales, collections, and much more. Although there are a wide range of benefits, many companies use outsourcing primarily to reduce the costs of expanding their team.
A knowledgeable offshore outsourcing company can save you 40-65% on labor costs. That’s a huge boost to your business budget, but what does this type of outsourcing actually entail?
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Is Outsourcing Uncommon?
Outsourcing is actually in use by companies across almost all industries. In 2022, 37% of small businesses were regularly using some form of outsourcing. Global spending on outsourcing is steadily increasing each year, as more and more companies take advantage of the benefits of working with a remote team (and not needing to handle hiring internally).
Although some companies believe it’s best to do everything locally, many businesses use offshore outsourcing to increase efficiency, reduce cost and provide high-quality service.
One important reason that offshoring has become more accepted is the dramatic trend toward remote work over the past few years. Employees now desire more remote opportunities, and businesses have figured out that remote work can be both simple and cost-effective.
What Types of Business Processes Can be Outsourced?
Virtually all business processes can be outsourced, including:
- Contact centers
- Data entry
- IT support
- Software development
- Back-office tasks
- And much more
Who Benefits From Offshore Outsourcing?
Businesses across industries benefit from offshore outsourcing, from the largest corporation to the smallest family-owned business. One kind of business that often reaps the most measurable benefits, however, is the start-up.
Start-up businesses are notoriously demanding and difficult to grow. Employees are often working long overtime hours for months or years without seeing great results. The combination of a small budget and limited staff resources often causes many start-up businesses to fail before they really get off the ground.
Using offshore employees dramatically helps small businesses create success. By outsourcing certain processes and services, start-ups can gain the time and budget to grow and improve. Time-consuming yet necessary tasks are handled remotely, so the local staff can focus on core business activities.
What’s the Difference Between Offshore, Onshore and Nearshore?
When hiring staff, you’re going to encounter the terms offshore, onshore, and nearshore outsourcing. Although all are forms of outsourcing, there are key differences as well as pros and cons.
Outsourcing simply means using an external company, division or individual to provide goods or services. It’s not always practical or affordable to handle all business operations in-house. If a company does not have the time, expertise or resources to adequately perform certain tasks, they may choose to outsource these tasks to a third party.
The definition of offshore outsourcing is hiring staff from another country, often overseas, in a different time zone. Benefits may include lower costs, increased hours of operation, and a wider talent pool.
Onshore/local outsourcing refers to hiring external staff located within the same country, region or time zone. Benefits may include no language barrier, as well as ease of coordinating meetings and training.
Nearshore outsourcing means hiring staff that are in a neighboring country or region not far from the main company. Benefits may include more affordable labor and the ability to visit the location easily if necessary, but there may be issues with accent and dialect.
What Services Can You Offshore Outsource?
Offshoring can be used for many different purposes, including business processes, like admin work; IT offshore outsourcing; and marketing, just to name a few. Offshore outsourcing companies offer a wide variety of services to help fill skill gaps and perform essential functions.
Business Process Outsourcing (BPO)
This type of outsourcing refers to services and tasks performed externally for a business. A business process may include internal back-end tasks like HR. On the other hand, the offshore outsourcing company may deal directly with front-end customers on behalf of the business, like they would in a customer service role.
Business process outsourcing (BPO) is one of the biggest sub-industries of outsourcing, alongside IT outsourcing.
Some of the examples of roles outsourced in BPO include:
- Customer support
- Marketing and sales
- Revenue cycle management
Information Technology Outsourcing (ITO)
IT accounts for $66.5 billion in global outsourcing contract values, and dominates offshore outsourcing services.
Many companies choose to outsource their IT, but not only because it reduces a major yearly expense. Another main reason is offshore IT outsourcing companies have a larger number of qualified employees, and it’s easier to find expert staff than it is to recruit locally.
When companies outsource their IT, they might be looking for :
- Application and software development
- Web hosting
- Tech support
- Website maintenance
Knowledge Process Outsourcing (KPO)
This is when a company hires a third party to handle integral, advanced or highly technical aspects of their business, like research and development and handling finances. KPO requires subject matter experts who are highly trained in their field. These employees focus on managing data and delivering insights.
Examples of KPO roles include::
- Financial consulting
- Technical analysis
- Research and development
- Business operations management
- Data interpretation
- Legal services
Recruitment Process Outsourcing (RPO)
RPO involves all aspects of a company’s hiring process. A third party may handle all or part of a business’s recruiting activities.
RPO enables businesses to avoid the expense of in-house recruiters. It also helps them find qualified candidates more easily, without having to conduct lengthy searches and interviews. The third party takes care of human resources and administrative duties, complies with all employment laws, and contributes to decreased turnover rates.
Examples of RPO roles include:
- Putting up job postings
- Market analysis
The Benefits of Offshore Outsourcing
It’s clear offshore outsourcing services can be a valuable resource. But what are the main offshore outsourcing benefits for your business?
The main reason companies seek offshore outsourcing services is to decrease expenditures. Companies may spend up to 70% of their budgets on labor costs. Outsourcing reduces the cost of labor by up to two-thirds. It also decreases a business’s overhead and operational costs.
One of the most pronounced benefits of offshore outsourcing for small businesses is the ability to provide higher quality services at a much lower cost than onshore outsourcing. Local businesses are able to make the most of their limited budgets by using offshore outsourcing companies. If you’re looking for a cost-saving initiative, offshoring is an excellent option.
Increased Availability of Services
If a company’s call center or customer service department is located in a separate region, they can greatly expand their hours of operation. When employees in the company’s home country sign off for the day, their offshore employees can seamlessly take over and provide continued service.
Longer hours of service provide round-the-clock convenience for customers and help reduce overall wait times, leading to higher satisfaction and customer retention.
Knowledge of New Markets
Offshoring may provide a company with a deeper understanding of another country’s business trends, markets, potential risks and culture. Hiring employees in other regions can help companies expand into new markets with the local expertise necessary to succeed.
If your business is looking to expand, employees who live and work in your target market region can provide valuable insights. These culturally embedded employees also help your business navigate new customs, risks, opportunities, and cultural norms.
Access to More Qualified Employees
Offshore outsourcing offers a much greater number of professionals than the available local pool. With ongoing recent labor shortages, businesses are having a hard time finding and keeping employees. Offshoring can fill these gaps, especially since many of these team members have been working offshore positions for years.
As most offshore employees are already trained to perform their role, you also save time and staff resources trying to set up each new employee and provide training.
Compared to hiring onshore for entry-level positions, hiring offshore for the same positions guarantees a high quality of work, dedication, and experience for the reasons listed above.
Offshore IT outsourcing is one sector where the wealth of talent is especially apparent. IT professionals are in high demand, and companies struggle to find and retain IT experts. Offshoring provides access to a much wider pool of talent in the IT industry.
Reduced Employee Turnover Rates
Due to ongoing employee shortages, many employees have their choice of several different positions. High demand for qualified professionals leads to high turnover rates in many jobs.
In 2021, in the US alone, over 47 million employees left their jobs. 66% of American employees who quit their jobs or became unemployed during the pandemic consider themselves to be somewhat active or not at all active in searching for employment currently. Many consider returning to work a low priority, have retired, or only want to work part time.
Due to this continued upheaval, pressure for higher wages and better opportunities has grown, and it has become more difficult to retain talented workers. Using offshore talent increases job retention and overall stability for your business.
While certain types of work may be less desirable to North American or European employees, offshore employees consider these jobs more prestigious. (In the U.S., employee turnover jumped a staggering 20% in 2022.) These cultural differences mean that offshore workers are more likely to remain employed at the same company long-term.
Outsourcing certain business operations to offshore workers enables a company to focus on its core business activities. Offshoring saves time, increases productivity and broadens the services a company is able to provide its customers.
Faster Turn-Around Time
Due to increased hours of business and a wider number of qualified workers, offshoring can lead to significantly quicker completion times for projects and goals. While companies using only local workers often struggle to meet deadlines, offshore outsourcing helps these companies achieve their targets on time.
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What Is the Best Country for Offshore Outsourcing?
Although many countries provide some type of offshore outsourcing service, certain countries offer distinct benefits over others. When searching for the right company to partner with, you may have a choice of several different locations.
The Philippines is a great example of a country with top-quality outsourcing companies, a skilled labor force, and affordable rates. Although still developing, it is a rapidly emerging market, with one of the fastest growth rates in the world right now.
Here are just a few of the benefits of outsourcing to the Philippines.
Offshore Outsourcing Advantages in the Philippines
The Philippines consistently ranks as one of the best countries for outsourcing, but why? Cost of labor, skill level and culture all play important roles.
Companies often have the misconception that outsourcing will result in an incomprehensible language barrier. This potential issue is easily overcome by working with the right company in the right location. The Philippines is an ideal country for offshore outsourcing because of the language and accent.
The Philippines has two official languages, Filipino and English. Most residents grow up speaking and writing fluently in both languages. BBC and IBM surveys have ranked Filipinos as speaking the most accent-neutral English of any country.
This simple accent makes Filipino employees easy to understand for customers all around the world. Being able to easily communicate with staff is a huge bonus for both employers and customers.
The Philippines has a comparatively low cost of living. Companies that choose Filipino offshore outsourcing can save over 50% on labor costs.
A Filipino software developer’s salary, for example, may be one-tenth that of a comparable American worker. These offshore employees will still have a livable wage, yet the company will save money at the same time.
Philippines’ infrastructure development has helped the country’s economy grow significantly. The government in the Philippines is consistently very supportive of offshore outsourcing opportunities.
Outsourcing makes up a tenth of the country’s economy, and provides valuable jobs for almost a million workers. The country’s growing infrastructure also makes it especially suitable for offshore IT outsourcing services.
Educated, Motivated Workforce
The Philippines has a workforce that is young and also growing. 97% of Filipinos are literate, and many have higher education. Filipinos have the lowest overall household debt in Asia, and workers are employed in a wide range of industries. Offshore work provides these workers with important advancement opportunities, and they are highly motivated and hard-working.
Common Myths and Misconceptions About Offshore Outsourcing
Many people have preconceived notions about offshore work, so let’s dispel some of these misconceptions. Since offshoring is a rapidly growing and developing industry, many facts which used to be true are no longer accurate.
Myth: Offshore Services Are Not High-Quality
Many businesses worry that offshore workers lack the skills and expertise to perform tasks as well as local workers. Despite this stigma, overseas countries often have higher numbers of qualified workers who will ensure a high level of service.
If you work with a trusted outsourcing company, finding skilled employees is not an issue. Companies with well-established reputations recruit top-quality workers who provide years of knowledge and experience.
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Myth: Offshore Employees Lack the Language Skills to Communicate Effectively
Many businesses fear that offshore hiring will lead to the dreaded problem of miscommunication. A language barrier is a legitimate concern. If you can’t successfully explain the issue you’re having or the task you want completed, the employee will not be able to work effectively.
Although some developing nations do not have an abundance of fluent English speakers, some of these countries have English as one of their official languages—such as the Philippines. It is now very common for businesses in developed countries to work with English-speaking employees in other countries.
Myth: My Company Won’t Have Control Over its Employees, Projects or Services
Many companies believe offshore outsourcing will lead to a loss of control over essential business activities. If you’re working with a reputable company, they will ensure that you have ultimate control over your workers and projects.
The pandemic greatly improved remote communication and collaboration. Using the cloud, video conferencing technology, and data sharing, you can work with overseas employees as easily as you can locally. You can plan and oversee projects, monitor progress, and work closely with your offshore team.
Offshore Outsourcing is Taking Jobs Away From Local Workers
As we touched on earlier, many of the jobs that get outsourced to overseas countries are jobs that are simply not able to be filled locally. This gap may be due to local workers viewing these types of jobs as less desirable, or it may be due to a shortage of qualified workers.
Another factor to consider is that offshore jobs are often the direct result of a boom in innovation or technology in Western countries. As Western economies grow, the need for skilled workers and services increases.
The cost savings created by using offshore labor also helps businesses grow and become more profitable, leading to stronger companies at home.
Myth: Offshoring is Not Used by Reputable Companies
This common business practice has now been in use since the 1980s, and is still growing. Thanks to recent advancements in technology, the offshore outsourcing definition has greatly expanded, and many services are now handled overseas.
Here are just a few of the huge and very successful companies that use offshore labor:
- American Express
- Hewlett-Packard (HP)
- Wells Fargo
- General Electric
- And many more
Potential Pros and Cons of Offshore Outsourcing
We’ve covered many of the offshore outsourcing benefits. What are the possible downsides of offshoring and how can these risks be mitigated?
As with any other business models, using offshore outsourcing can present pitfalls. Let’s go over some risks to be aware of when searching for the best offshore outsourcing company, and how you can avoid these problems.
Risk to Company Security and Intellectual Property
If you don’t properly research your offshore outsourcing company, you may end up finding one with an untrustworthy reputation. Unfortunately some countries do not have strict laws surrounding intellectual property, so it’s essential to work with a reputable company.
IT offshore outsourcing can be especially problematic. Software can be easy to hack and steal, so you must do your due diligence when choosing an offshore IT outsourcing company. Highly regulated data security in particular is essential for remaining compliant with your country’s laws and regulations.
How to Avoid This Pitfall
Do your research. Read reviews and customer stories. Look for accreditations and awards. Find out customer retention rate and also staff retention rate.
Search for news stories with the company’s name to see if they have positive or negative press. It’s important to avoid scams and companies with poor reputations.
Myth: Underqualified Employees and Poor Quality Work
Just as there are excellent outsourcing companies, there are also mediocre ones. A good rule to help you avoid these types of companies is “if it seems too good to be true, it probably is.” The company with the absolute rock-bottom lowest price is probably not going to provide high-quality employees and services.
How to Avoid This Pitfall
You can learn about a company’s available employees on their website or by calling in. Seek out companies whose staff communicate clearly in your language of choice and are knowledgeable about your industry.
Look for employees who have specialized training and relevant industry certifications. A few examples from IT offshore outsourcing are Certified Information Systems Security Professional (CISSP), Computing Technology Industry Association (CompTIA) certification, and Certified Information Security Manager (CISM).
Although accreditation isn’t everything, these industry standards usually indicate that an employee is more highly trained and has more relevant experience than uncertified workers.
Myth: Compliance Issues or Legal Trouble
Laws and best practices vary from country to country. Western regulations tend to be very strict about how you store, manage and share customer data. If you, or a third party company acting on your behalf, violates these rules, you face serious fines and damage to your reputation.
How to Avoid This Pitfall
It is essential to select an offshoring company that has expertise dealing with clients from your country and industry. A company should provide information up front about its certifications and client base. Any company that does not have relevant accreditations probably lacks the knowledge to keep your business compliant.
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Questions You Should Consider When Looking at Offshore Outsourcing
We’ve covered a lot of ground, and you may still have more detailed questions about offshoring.
Is Offshore Outsourcing Really the Best Option?
It may not be the right fit for every company. Case studies, however, have consistently shown that offshoring leads to higher profits, improved customer satisfaction, and increased development of core competencies.
Even if you’re not sure how offshoring fits into your business model, it’s worth checking out. You may identify services or processes that you didn’t even realize could be outsourced.
Is it Expensive to Migrate Data and Business Processes Over to an Offshore Company?
Initial migration costs and complexity will naturally vary from business to business. This process has become infinitely easier in recent years, however, thanks to the cloud and other data-sharing technology. It has never been faster or easier to communicate, share information, and get set up.
The more closely you work with your offshore company, the simpler this process will be. Thanks to the digital transformation over the past decade, initial migration doesn’t take nearly as long as it used to, leading to reduced overall cost.
How Do I Maintain Control Over Activities Conducted by Offshore Employees?
Every offshore outsourcing agreement begins with a comprehensive contract. This contract will lay out exact responsibilities, expectations, and payment details, so you won’t have any surprises down the road.
A contract should include clear deliverables and a detailed scope for all activities. Make sure you understand the timelines and communicate expectations with your team.
Once you are working with offshore employees, you can easily check in with them to ensure they are meeting your targets. Thanks to our interconnected world, it’s easy to get in touch with employees around the clock, even from a remote country.
How long you employ an offshore company, and the budget you spend, are both negotiable. You’re only locked in for as long as you agree to in the initial contract. If you don’t like the company or the services provided, you can always cancel.
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Can My In-House Team Work With the Offshore Team?
Collaboration between offshore and local employees is not only possible—it’s the ideal solution. Although your offshore team can work independently, you will achieve the best results from both teams working together.
Collaboration helps you maintain a consistent brand and company voice across all interactions. Your team presents a united front to your customers, and your work appears cohesive no matter which employee is completing it.
Due to some employees being in completely different time zones, you may face some challenges coordinating meeting times. Technology and secure data sharing, however, make it simple for employees to work together on projects. As long as they have an internet connection, they can serve your company from anywhere in the world.
You shouldn’t view your offshore team as a separate entity. Instead, think of them as an extension of your local team. All your employees should be focused on providing high-quality services and a consistent company brand. Look for offshore companies that make it easy for you to manage your remote team.
What are Some Common Security Protocols to Look for in an Offshore Outsourcing Company?
Ideal offshore outsourcing companies have strict security regulations in place to protect their clients. Look for companies that:
- Conduct extensive background checks on their employees
- Have stringent physical and technological protections in place
- Have excellent network security
- Meet or exceed all compliance regulations for your country/region
What are Some Red Flags to Watch Out For?
It may not be easy to find the best offshore services provider. There are some, however, that you can rule out immediately.
Does the company ask questions about your brand, your needs, and your expectations?
If a company is not interested in learning about your business and gaining a deep understanding of your core brand, it’s a bad sign. The company most likely has a cheap, one-size-fits-all business model and will not provide quality work. In order to provide a high level of service, the company needs to understand your brand voice and core values.
Do they have anything else to offer besides low rates?
If an offshore company’s only claim to fame is extremely low prices, beware. These are the types of companies that provide low-quality work and employees who do not have knowledge or experience in your industry.
Such companies may also be scams, or may engage in illegal work practices. They may even sell your customer data, leading to serious legal troubles. Don’t risk it, just to save a small amount of money.
How Do I Know if Offshore Outsourcing is Right for My Company?
The best way to learn more about this type of outsourcing is to speak with one of our friendly experts. They can further explain what offshore outsourcing has to offer, and how your business can benefit.
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We treat our employees very well, which helps us attract top talent. Our highly skilled offshore team is fluent in English and has years of experience dealing with Western clients.
To learn more about offshore outsourcing services, contact our team today.
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