Offshoring is considered one of the methods for businesses to achieve globalization without spending a lot of money. After all, the cost of production and operation can spell the difference between a company’s success and failure, and offshoring presents a more cost-effective way. It not only saves money, but also enhances profitability. So it is no surprise that factories are moving their operations overseas, or that banks are outsourcing customer service and technical support abroad.
But there are problems associated with offshoring, including cultural and political concerns. While it is touted as cost-effective, it also has hidden costs.
List of Pros of Offshoring
1. Offers cost differentials
One of the reasons the companies are moving their operations overseas is the lower labor costs. Compared to paying employees in the United States, it is more affordable to pay foreign workers. Employers can also save from health insurance, Medicare taxes, workers compensation, Social Security and other expenses associated with local employees.
Cost of certain materials is also cheaper, especially if they are produced in the country where a company is offshoring jobs. More savings can be enjoyed in countries with fewer regulations as well.
2. Provides jobs in developed nations
Most companies in highly developed countries move some of their operations to developed countries with excessive unemployment rates. By offering more jobs to the locals, the situation and economy of the developed nation are sure to improve. This will not only provide more job opportunities, but also improve diplomatic operations. It can also reduce immigration problems, since locals would not need to work abroad or move to more developed countries just to earn more than what is being offered domestically.
3. Improve business operations
Offshoring to countries with different time zones will enable companies to provide customer support 24/7 and cater to consumers in other parts of the word. This will surely enhance a company’s reputation in terms of taking care of their clients.
List of Cons of Offshoring
1. Incurs costs in certain aspects
A company may be able to save money from lower wage, but they might spend more in training and supervising overseas employees. In the end, the cost differential might not be as pronounced or one that can be clearly felt by the pocket. Products may be cheaper to produce abroad, but the cost of shipping them may not be as cheap.
2. Problems with quality control
In the case of a manufacturing firm, for example, ensuring that the product is built according to company standards may not be as easy as when the item is produced locally. It would be hard to keep an eye on the overall operation. Even if there are guidelines provided, barriers pertaining to language, culture and overseas supply chains might still affect quality control.
3. Affects domestic employment rates
Because majority of jobs are sent offshore, very few would be made available to the locals, increasing unemployment rates. This can cripple the US economy. This can also hurt the public image of a company, especially when use of labor abuse, environmental damage, and child labor will be associated with the firm.
Is offshoring good for your business? Make sure to analyze the pros and cons before you make a decision.
Natalie Regoli, Esq. is the author of this post and the editor-in-chief of our blog. She received her B.A. in Economics from the University of Washington and her Masters in Law from The University of Texas School of Law. In addition to being a seasoned writer, Natalie has almost two decades of experience as a lawyer and banker. She is a child of God, devoted wife, and mother of two boys. If you would like to reach out to contact Natalie, then go here to send her a message.