Offshoring tips

Top 5 Misconceptions About Offshoring

March 23, 2017

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There are companies that have gone to the extent of closing some of their local branches in favour of offshore subsidiaries. The common myth that often drives businesses into offshoring various processes or services is the element of cost.

I call it a myth because not all businesses manage to cut costs as predicted or as initially pictured – at least not right out of the bat. Fortunately though, a lot of these businesses manage to learn and adapt to the business dynamics overseas and are soon able to scale and save costs with desirable margins.

Nonetheless, there are still a lot of misconceptions people hold about offshoring. Time to dispel them.

Offshore outsourcing equals cheap labour

Though many people popularly believe that offshore outsourcing is actually cheap labour, this couldn’t be farther from the truth.

There are two ways to look at it. One, cheap has the connotation of ‘inexperienced’ or ‘poor’ quality of labour, which isn’t always the case. Countries such as India have some of the most qualified engineers and software professionals and a lot of businesses outsource services there at a fraction of what they’d have to pay back at home.

Second, “cheap” to mean low cost isn’t always the correct perception. The amount you pay an offshore worker always depends on the cost of living in that country. So while the minimum wage of an entry level worker overseas may be a mere chump change for a worker at the same level at home, it can often be well above the average rate in the local job market.

Outsourcing delivers poor quality output

Not everyone believes so, but there are those who do nonetheless. And they would rather outsource only the standardised tasks to overseas contractors and leave the more demanding tasks to be handled in-house.

In reality, overseas outsourcing should be an opportunity to select a provider with the best possible skillset, especially that which you rarely find at home. And when you do, it’s often overly expensive.

So when you settle for poor services overseas under the assumption that offshored services should be low quality then you should have only yourself to blame and not the practice itself.

Offshore vendors have poor working conditions

For starters, many countries that are currently experiencing the most growth in the offshore outsourcing industry are in the developing world. That’s why they can still afford to accept significantly less amounts of money for their services.

But this isn’t always equivalent to poor working conditions. These outsourcers are aware of the benefits they realise from having their services outsourced by foreigners. Overseas vendors who are smart enough are aware that they need good infrastructure, quality talent and latest capabilities to stay globally competitive. They are doing their part to improve in terms of technology and infrastructure.

By outsourcing services overseas today, chances are that you’ll access the same qualities of work due to increased standardisation and ever more competitive working conditions overseas.

Overseas outsourcing leads to job losses

The assumption that outsourcing jobs overseas equals shipping valuable job opportunities overseas isn’t only popular, it’s just not essentially correct.

The positive impacts of offshoring cannot be overlooked. Businesses that engage in offshoring are able to generate more profits that they routinely reinvest into new infrastructure at home, expansion of their businesses which essentially often only leads to increased job opportunities.

Admittedly there are a couple of individual exceptions to this narrative, but it’s important to realise that such as isolated cases that cannot be solely taken to represent the situation across the offshore outsourcing landscape.

Offshoring is outsourcing

A lot of business conversations treat offshoring and outsourcing casually as synonyms. They are not. And should not be used interchangeably as most reviews often do.

Outsourcing involves contracting out or buying of parts or whole services from a third party instead of doing then in-house. The location is never a factor here, but the skill required. This only means that you can outsource to a company across the street or across borders.

Offshoring on the other hand involves outsourcing to some part or whole services to a company or individual located in a different country under your own offices set up there – often to cut costs.