Following our recent white paper on
Outsourcing, this blog series will discuss more about outsourcing of
Information Technology. Previously the conflict was between doing the
job in house or outsourcing. Nowadays, outsourcing has become such a hot
trend that the conflict is between choosing onshore or offshore
outsourcing.
Offshoring is simply the exporting of
business functions to another country. Currently the major players in
offshoring are India followed by Philippines and China etc. Offshoring
has been very popular mainly because of reduced cost and tax. Some of
the advantages of offshoring are-
- Cost: Cutting cost and taxes is the main reason behind
companies embracing offshoring. Companies can save on labour cost,
employee supervision and management cost, office space and equipment
cost and so on.
- Exploiting the Time Zone Advantage: Offshoring gives companies the advantage of exploiting the time zone by receiving round the clock benefits.
- Flexibility: Offshoring provides the companies with certain flexibilities including eliminating hiring and termination costs in the UK.
Lately Offshoring has been criticized due to
jobs moving out of the UK resulting in job losses. Despite the
advantages and cost benefits that offshoring offers, it involves risks
which need to be considered in detail otherwise the disadvantages may
dominate the benefits. Factors to consider-
- Political climate: Political climate in foreign countries
is a big source of uncertainty as these can be unstable at times.
Changes in government policies can increase the expense.
- Differences in work practices and culture- A huge difference always remains in the work practice and culture which are hard to overcome
- Hidden costs: Often the hidden cost like fluctuating
exchange rate and legal costs are difficult to calculate in advance.
Differences in currency rates affect the profits.
- Communication Barrier: It is often difficult to communicate
with companies in other countries that speak a different native
language. Face to face meetings are very expensive to conduct and video
conferencing may not always be convenient due to time difference.
- Finding good offshore partners: It can be hard to
find a good IT provider based on the reviews on their websites and few
teleconferences. It is not easy to make a good judgment without proven
track record of working for other international companies and authentic
references.
Despite of many challenges and drawbacks
offshoring outsourcing will remain an attractive solution to many
companies. We suggest companies develop strategies to overcome the risks
to reap the maximum benefits of offshoring or consider onshoring for
saving money and complimenting work flow.