Businesses today need to be more competitive than ever to thrive. Not only do the products & services need to be of excellent quality, but cost competitiveness is also an important factor that makes or breaks any company.
Due to this rise in cost competition and the fast-evolving nature of the market, many companies have considered outsourcing as a primary tool for reducing costs and becoming more efficient as compared to industry peers. Outsourcing however has many shapes and forms and it’s crucial that a company understand which model would suit its requirements best. It is one of the crucial decisions you as a company need to make, in the best interest of your business’ health.
Hiring a third party in a country other than the one in which current operations of the company are carried out is termed as offshore outsourcing. Generally in this kind of outsourcing the hiring of the resource is done from a country that is not situated near the home country thus, it helps the organizations to get high quality of services at quite low operating costs.
Let’s look at the significant advantages and disadvantages of offshore outsourcing in order to assist you make better decision for your company’s growth –
– Offshore outsourcing helps to reduce overhead costs such as building a work cabin for employees, operational costs such as transportation additional payroll expenses. Therefore, this helps the organizations in achieving their goal of cost-cutting.
– It is crucial for the organization to focus on key tasks. Offshore outsourcing assists in saving time which allows the company to align the focus on the growth and development of their company.
– The task is handled by a team of technical experts which leads to high quality outputs.
– With offshore outsourcing, a company can begin outsourcing small tasks and processes by setting up a small team. It can increase or decrease the workload more freely and quickly as there is no fixed cost and the BPO partners generally provide a lot of flexibility.
Despite of being a very effective and efficient option, offshore outsourcing does have some concerns which should be taken care of. Some of them being –
– Involving a third party for handling some tasks leads the company to give up the place of sole controller however if you trust the company you have hired to do the tasks, it should not be much of a concern.
– Entering into a contract with a company offshore brings in some risks as well. Some of the risks being the leaking of confidential data and file encryption or stealing of the company’s work by the provider company.
For instance, American Express started offshoring its back-office services to India. All this started with American express partnering with various outsourcing companies situated in India which could work on customer services. In order to receive technical support, it reached out to companies like Infosys Ltd and TCS. AMEX proves to be one of the best examples of successful offshore outsourcing.
Some companies set up their own dedicated facility to do the company’s task, this can be termed as Captive offshoring. It is set up with the aim of assisting the parent company to complete the task more effectively and efficiently. There is no 3rd party involved in such a case until and unless the parent company is involved with any for their specific project.
Let’s peek into some of the advantages and disadvantages of captive offshoring which will help you in setting up of an effective operating cycle and getting maximum returns on investment-
– Organizations have a lot on their plate to deal with. Opting for captive offshoring provides higher scalability of growth to large sized organizations which further helps in rising up their profits owing to the low-cost manpower available in countries like India.
– The company itself sets up this unit which gives the company more control over the project on which the company is working on. This gives the parent company sole control over the new created unit.
Despite of having advantages, there can be some fault lines which a company needs to be aware of –
– The shutting down of the offshore delivery centre will require extra time and efforts of the company as it involves physical assets which have to be taken care of. So shutting down of the captive offshoring unit can be a lengthy process.
– A captive offshore centre is usually more expensive to run and generally makes sense only when the manpower strength is going to be large.
WHAT IS RIGHT FOR YOUR BUSINESS?
It’s important to choose the one which will ideally suit the nature of the business. Apart from this it’s important to consider the high and low points of each and then get to the final decision. Following are some of the points which might help you choose the one which will be right for your business –
– One of the factors which help to decide which one ideally suits the company is the size of the company. Offshoring outsourcing tends to be a better choice for the companies that are small in size whereas captive outsourcing is recommended for the organizations that are large in size as it offers higher scalability of growth.
– Deciding upon the cost of outsourcing as companies look for the option which will help them gain the highest ROI and will also affect the budget of the company. The offshore outsourcing is said to be best suited for the small business enterprises as it tends to be more on the affordable end. On the other hand it is believed that captive offshoring gives out a solution which is more long term in improving the costs.
– In case the company decides to exit it is more easier in case the company opted for offshore outsourcing since in this only termination of the contract is required in order to end the relationship whereas on the other hand shutting down the captive centre requires a lot of effort and time from the company’s end due to the involvement of physical assets in this case.