How to Outsource Jobs Offshore: Everything You Need to Know
Offshore outsourcing refers to hiring an outside company in a foreign country as a third party to help in business activities. Seeking outside helps not only helps to reduce costs and expand operations but also to get a greater return on investment.
Offshoring occurs across a wide range of industries, sectors and job descriptions from both single-member companies and large multinationals.
Offshore outsourcing is usually conducted by a firm or third party to perform specific tasks and has both advantages and drawbacks. Let's take a look at some of the benefits of outsourcing.
Table of Contents:
- Advantages Of Outsourcing
- Disadvantages Of Outsourcing
- How To Outsource Successfully?
- Offshoring Tips
Advantages of Outsourcing
Here are just a few of the advantages companies receive from outsourcing.
1. Saves Capital
One of the primary benefits of outsourcing is that it can help businesses reduce their capital costs.
By outsourcing specific tasks, companies can focus on their core competencies and help save money in the long run, while at the same time allowing businesses to take advantage of lower labor costs.
2. Access to Specialized Skills and Knowledge
When a business outsources a task whether that's to a third-party company, freelancer or foreign worker, it gains access to that company's specialized skills and knowledge. This can be highly beneficial if the job is complex, such as information technology and software development or one that requires a lot of manpower such as data entry and administration.
Most often jobs that are outsourced are ones that would be expensive to hire locally.
3. Makes Business More Manageable
By outsourcing certain tasks, businesses can free up their employees to focus on more important activities. This can lead to increased efficiency and a more streamlined operation.
In addition, companies that outsource often find that they are able to manage their operations more effectively, as they have greater visibility into the entire process.
4. Turns Fixed Costs into Variable Costs
When a business outsources a task, it can turn fixed costs into variable costs. For example, if a company pays an employee $50,000 per year to do a certain job, but decides to outsource that job to a third-party company for $10,000 per year, the company's fixed costs have been reduced by 40k.
This can be extremely beneficial in times when businesses are looking for ways to cut costs.
5. More Revenue
Outsourcing can also lead to increased revenue for businesses as it saves capital on labor costs that can later be reinvested back into the business.
Specialization of labour, or focusing your labor on what it does well, allows you to double down on what it is you do right, without needing to specialize in every part of the business process, which in turn leads to higher output and increased revenue.
6. Do What you Do Best
One of the primary reasons businesses outsource is to focus on what they do best. By contracting out specific tasks that are not within their core competencies, businesses can leave those tasks to experts while they focus on what they do best.
This can lead to increased efficiency and a more streamlined operation in the long run.
7. More Competitive
Outsourcing allows businesses to become more competitive in the global marketplace.
Outsourcing allows a company to be more competitive as it can help businesses to better scale and focus on aspects of the business they do well at.
8. Risk Mitigation
Outsourcing can also help businesses mitigate risk.
By outsourcing certain tasks, businesses can spread their risk across multiple vendors and reduce the chances that a single event will have a negative impact on their business.
Disadvantages of Outsourcing
- Loss of Control – One of the biggest disadvantages of outsourcing is the loss of control that a business experiences. When work is outsourced to a third-party company, the business no longer has direct control over the process or the final product. This can lead to quality control issues and a lack of transparency into what is happening with the project.
- Reduced Efficiency – Although outsourcing can lead to increased efficiency in some cases, it can also lead to a decrease in efficiency. This is often the result of poor communication between the business and the third-party company. In addition, businesses may find that they are not able to manage their outsourced operations as effectively as they had hoped.
- Security Risks – Another one of the biggest disadvantages of outsourcing is the security risks. By contracting with a third-party company, businesses are putting their confidential information and data at risk. In addition, businesses can experience disruptions in their operations if the third-party company experiences a service outage, goes out of business, or does not complete the work as assigned.
- Loss of Jobs – Another potential disadvantage of outsourcing is the loss of jobs. When work is outsourced to a third-party offshore, fewer jobs are available within the company and country where they are located. This can be particularly harmful to employees who are laid off as a result of outsourcing.
- Less Control over Quality – One of the main disadvantages of outsourcing is the fact that businesses have less control over the quality of the final product. By contracting with a third-party company, businesses trust that company to produce a high-quality product that can be a gamble, especially if it is a new relationship or does not have a proven track record.
How To Outsource Successfully?
Businesses can do a few things to ensure that their outsourcing efforts are successful. These include:
1. Do Your Research – The first step in outsourcing is to do your research. This includes finding a reputable third-party company and assessing what type of work can be outsourced.
2. Establish Clear Expectations – One of the most important things that businesses can do when outsourcing is to establish clear expectations with the third-party company. This includes specifying what tasks will be outsourced, the expected turnaround time, and the budget.
3. Communicate Frequently – Another key to successful outsourcing is communication. Businesses should communicate with third-party companies frequently to ensure that everyone is on the same page and that there are no misunderstandings.
3. Manage the Process – Anyone who decides to go offshore should closely manage the outsourcing process. This includes tracking the progress of the project and ensuring that all deadlines are met.
Here are some offshoring tips to get you started.
- Be specific as possible with clear language
- Analyze the skills, experience, and resources you'll need the contractor you choose to have
- Know what you want and communicate that with the person or company
- Choose third party providers with care
- Ensure the company or individual comes from a reputable company, is certified, has the right background or and licenses that might be needed
- Don't be cheap. Often times you pay for what you get.
- Create a clear contract, statement or agreement
- Ensure they're documenting their work
So, should your business outsource work offshore? The answer largely depends on your specific situation and what you hope to achieve by outsourcing. However, the benefits of outsourcing are clear and can be extremely beneficial for businesses of all sizes.
If you're looking to reduce costs, expand your business and bring in a greater return on investment, then outsourcing is certainly worth considering.