INTechHouse BLOG 20.04.2023 10 min.
All Need You Know About Offshoring
INTechHouse BLOG 20.04.2023 10 min.

All Need You Know About Offshoring

Iwona Gugałka Customer Success Expert

Offshore outsourcing has become a popular business model for companies to receive reduced labor costs, increase efficiency, and tap into new markets. It involves moving some of a company’s operations, such as manufacturing or customer service, to another country where labour costs are lower or the company can access new markets. This article will discuss everything you need to know about offshoring, including its benefits, challenges, and best practices.

What is Offshoring?

Offshoring is a business strategy where a company moves some of its operations, such as manufacturing or customer service, to another country where labour costs are lower or the company can access new markets. Offshoring is different from outsourcing, which involves contracting a third-party service provider to perform certain tasks. On the other hand, offshoring involves a company setting up its operations in a foreign country.

A Long Story Short…

Source: FullScale.io

By moving operations to a new country, offshore development companies can gain access to new customers, suppliers, and partners. This can help them diversify their revenue streams and reduce their dependence on a single market.

IT Offshoring Popularity

IT offshoring refers to the practice of moving some or all of a company’s IT functions to another country where costs are lower or where there is access to specialized skills or resources. IT offshoring is a common practice in the tech industry, as companies look to reduce costs and access a global talent pool.

Offshore Means Working with Far-Away Countries

American companies try to find offshore vendors in Poland.

Offshore refers to outsourcing specific processes to far-away countries with considerable time zone differences. An offshore location for the United States would be Poland or India.

In 2023, the biggest offshore outsourcing providers for IT services include India, the Philippines, and Eastern European countries like Poland and Ukraine.

Popular Offshore Countries in 2023

The reasons companies offshore are different. But the crucial idea for outsourcing companies is saving money and time.

India has long been a preferred destination for the transfer processes offshore due to its large pool of highly skilled and cost-effective talent, established infrastructure, and favourable government policies. According to NASSCOM, Indian offshore software development is projected to grow at a rate of 7.7% in 2023, with exports expected to reach $167 billion.

The Philippines is also a popular offshoring development partner due to its highly educated and English-speaking workforce, low labour costs, and favourable business climate. The country’s IT-BPM industry is projected to grow at a rate of 8.6% in 2023, with revenues expected to reach $38.9 billion.

In Eastern Europe, Poland and Ukraine have emerged as popular offshoring destinations due to their highly skilled IT workforce, favourable business environment, and competitive costs.

According to the Emerging Europe IT Market Report 2023, Poland’s IT market is projected to grow at a rate of 6.3%, while Ukraine’s IT industry is projected to grow at a rate of 18% in 2023.

Overall, these offshore outsourcing locations offer a combination of talent, infrastructure, and cost-effectiveness that make them attractive destinations for IT offshoring in 2023.

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Offshore Outsourcing Advantages

In the IT sector, offshoring processes have become increasingly common as companies seek to reduce costs and gain access to a global talent pool. Offshore services can involve outsourcing software development, testing, maintenance, and support to a third-party provider in another country. An offshore outsourcing company can provide significant cost savings and access to highly skilled and specialized talent.

Main Offshoring Benefits

Cost Reduction

The first offshore outsourcing base is cost reduction. Companies can save a significant amount of money by moving their operations to countries where labour costs are lower. This can result in lower operating costs, higher profit margins, and increased competitiveness.

Access to Skilled Labour

The second offshore outsourcing base can also provide companies with access to skilled labour that may not be available locally. This can enable companies to expand their operations, develop new products or services, and increase their competitiveness.

Market Expansion

The third offshore outsourcing base can also help companies expand into new markets. By moving operations to a new country, companies can gain access to new customers, suppliers, and partners. This can help them diversify their revenue streams and reduce their dependence on a single market.

Challenges of Outsourcing Business Processes

Offshoring IT services can provide significant cost savings and access to highly skilled and specialized talent. However, it can also present challenges such as language and cultural barriers, time zone differences, and intellectual property protection. Let’s find out which

Cultural Differences

Offshoring can pose cultural challenges, particularly when it comes to communication and management styles. Companies may need to adapt their communication methods and management styles to align with the culture of the offshoring location.

Legal and Regulatory Issues

Offshoring can also pose legal and regulatory challenges, particularly regarding labour laws and intellectual property rights. Companies need to ensure that they comply with local laws and regulations to avoid legal and reputational risks.

Language Barriers

Language barriers can also be a challenge when offshoring. Companies may need to invest in language training for their employees to ensure effective communication and collaboration.

Best Practices for Offshoring

Conduct Thorough Due Diligence

Companies need to conduct thorough due diligence when selecting an offshoring location. This includes assessing the political, economic, and social risks of the location, as well as the availability of skilled labour, infrastructure, and regulatory environment.

Invest in Communication and Collaboration

Effective communication and collaboration are critical to the success of offshoring. Companies should invest in technology and tools that enable real-time communication and collaboration, as well as provide language and cultural training for their employees.

Align Management Practices

Companies need to ensure that their management practices align with the culture of the offshoring location. This includes adapting communication styles, leadership styles, and decision-making processes to the local culture.

Ensure Compliance with Local Laws and Regulations

Companies need to ensure that they comply with local laws and regulations, particularly when it comes to labour laws and intellectual property rights. This can help avoid legal and reputational risks and ensure the sustainability of the offshoring operation.

Conclusion

Offshoring can provide significant benefits for companies, including cost reduction, access to skilled labour, market expansion, and better outsourcing customer service. However, it poses challenges, including cultural differences, legal and regulatory issues, and language barriers. By following best practices and knowing the structural risk, companies can mitigate these challenges and ensure the success of their offshore business operations. It is essential to conduct thorough due diligence, invest in communication and collaboration, align management practices, and ensure compliance with local laws and regulations.


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