One question that always stays in mind is if we should offshore business processes or hire in-house assets. There is no easy answer to this question as many factors affect the decision. Keep all the factors and measures in mind before you start your offshoring process.
The offshoring business has increased in these past few years as a result of growing technology. Offshoring processes have various benefits that a company can enjoy like cost reduction, flexibility, and global talent reach.
Before discussing the offshoring framework and strategies, let’s first briefly understand offshoring and its benefits in detail.
What is offshoring?
Offshoring is expanding business operations from less developed/developing countries due to its cheap labor and inexpensive goods and services.
Companies offshore their operations by relocating their company branches to different countries to make their services at a cheap cost and sell in their country at double rates.
Let’s take an example of the Indian IT industry. Many countries hire Indian labor at a lower cost to do their operations. According to a Statista survey, India was considered to be the most attractive destination for offshore business services, with a score of 2.83 and 2.18 in 2021.
This process does not only give developed countries goods and services at a cheaper rate but also a vast pool of talent and professionalism.
Benefits of offshoring
A recent Mckinsey report states that there is a very huge difference in wages between developed countries and developing countries. It explains that in the US, a software developer costs $60 per hour while only $2 in India.
Hence, higher economic countries enjoy a vast pool of skilled workers at very low prices.
Accountability and control:
A team that focuses on a single company gives the manager the authority to initiate tasks and train employees in a way that suits the company. This creates a sense of accountability between the offshore team and the company.
One of the benefits of having companies in different countries with different skilled teams is that it helps you reduce any kind of sudden risks as data and products are available in different parts to save your business from losses.
Better financial planning:
Sometimes companies do not have the required expertise in many fields and in-house employees cost more as they need training, bonus, and more. When you offshore this expertise from contractors then your company can save a lot of money and financial planning can be done smoothly.
7 Effective offshoring strategy steps
1. Identify operations for offshore:
The first and foremost thing is to assess which process you need to offshore. This can be identified based on the process’ importance and value. Rank your business operation in terms of its costs and importance and identify which function should be done by in-house employees or which function needs to be offshored.
Decision-makers mostly use the “Transaction theory method” to analyze the benefit and risks of any decision.
2. Identify risk involved:
Before giving tasks to your offshoring teams, identify the possible risk that can occur during the project.
Two kinds of risks can occur during the process:
In the initial stages, the offshore team goes through training and learning stages about the company and the process. During these months they can make tons of mistakes and the delivery of the project or task might be delayed.
It is a normal day-to-day risk that your offshore team and company can face.
Steps to overcome operational risk:
- Document the operations
- Define deadlines
- Measure the performance of your offshore team
- Set metrics to measure the success of the offshored team
Structural risks arise due to the offshoring team’s behavior. Here are a few possible reasons why this risk arises:
- When the offshore team does not follow the required practices
- They have a laid-back attitude
- They put less effort
- No prior training is provided to the offshore team
- Less incentive is given to the team
- The team is not very qualified
To manage such problems, start using employee productivity management tools like KonarkPro. It helps you monitor employee performance and productivity levels in real time. Use project management tools to keep track of the progress while communicating with your offshore remote team.
The most important thing is to train your offshore team during the initial state and give them time to learn and adapt.
3. Diversify your offshoring:
Outsourcing services and processes around the world are possible, but you can also provide services that you offshore. Rather than offshoring processes like payroll and human resources, you can offshore more operations that add value to your company. Many developing countries are now known for their research and development operations.
This will also allow your in-house employees to work on new and diversified projects.
4. Know the team:
As offshoring involves working with teams of different nationalities, it is very important to know about their culture and mindsets for ensuring a good working environment and relations with the offshore team.
Many companies prefer to use the CAGE distance framework when crafting their offshoring process. The framework helps to know about the differences between the countries and also identifies how the market would be able to work in different countries.
5. Develop a detailed contract:
Now, it is time to develop a well-defined business process offshoring/outsourcing agreement that will cover every small detail of the project. The contract saves you from any kind of extra payment or misunderstandings.
These are the important areas that should be covered in the agreement:
- Clearly address the roles and responsibilities of the offshored team
- Define the objective of the business and the offshored process
- Define the tools and communication channels
- Mention KPIs for cost savings that would be achieved from offshoring the process
- Clearly define the guidelines for mishappenings and conflicts
6. Manage transfer services:
In this step, all the services are transferred to the offshored team. All the services provided by the parent company last till the team meets the end of the company. The company should ensure the smooth transfer of tools, processes, and everything that is required for the project.
Below are some services which the parent company provides to the offshored teams:
- Ensure all the technical connectivity to the offshore team at their location
- Prepare a management plan for smooth operations
- Set up performance monitoring tools
7. Analyze results and optimize:
Once everything is fully implemented and the transfer of services is done successfully, it is now time to put the offshore process into action. Now your company will be at the stage of collecting and evaluating employee performance. This data will help you understand the impact of offshoring process in your organization.
Lastly, keep optimizing employee performance and productivity from time to time for better results.
Offshoring the business process is a tough decision that needs to be evaluated based on your company’s needs. Keep profitability and cost-saving in your mind before going ahead with any plan.
This article will help you go through a detailed framework of how the offshore process is integrated into the business and how it benefits the market and the organization at the world level.