Offshoring: outsourcing abroad to reduce costs
What is offshoring?
Offshoring consists of relocating part of one’s IT activities to achieve productivity gains by using service providers located in countries where the cost of living, and therefore salaries, are lower.
The providers are generally located in Africa, Asia, or Latin America. The top country for offshoring is India. The IT and BPM (Business Process Management) sector employs more than 5 million people. According to statistics from the Invest India agency, it accounts for around $227 billion in revenues, including almost $178 billion in export earnings.
In addition, companies are increasingly resorting to “nearshoring,” which consists of relocating activities to a border or nearby countries to avoid time zone problems. For European companies, this often involves North African or Eastern European countries.
However, offshore services generally concern low-value-added tasks or relatively industrialized IT processes that are relatively easy to outsource, such as software or application development and technical support.
The advantages of offshoring
- Low costs: this is the main advantage of offshoring. Companies can significantly reduce their expenses by outsourcing services to countries where the workforce is competent but cheap. In addition, the countries where the service centers are located sometimes allow the company to benefit from tax advantages.
- High flexibility: whether it is a question of costs, deadlines, or quality requirements, offshoring companies can benefit from a service that is defined according to their needs.
- A good work organization: by resorting to offshoring, companies benefit from less strict labor laws, with a workforce that can sometimes work more than 40 hours a week and that can be mobilized on weekends or holidays.
The disadvantages of offshoring
- Low quality of service: offshoring is often seen as a low-cost solution. The risks of poor production quality or failure to meet delivery deadlines can be high. It is, therefore, necessary to know the service provider’s capabilities before delegating the planned tasks.
- A risk of loss of control: with offshoring, the company can lose some control over its processes or data, which can have significant consequences, especially regarding security.
- Difficulties related to cultural and language barriers: the risk of culture shock is not to be underestimated, as well as possible communication problems if the local language of the service center is different from the company’s.
Finally, offshoring is appropriate in the case of outsourcing, primarily aimed at reducing costs and concerning services that could be more critical. On the other hand, it is not recommended if the level of process industrialization is low or if the services require strong interaction with the business.
Outsourcing or out staffing abroad: expanding your IT talent pool internationally
What is offshore talent outsourcing?
Outsourcing talent abroad is a solution that follows an entirely different logic. It consists of turning to foreign countries to find highly qualified profiles that are not readily available to companies in their local market. It allows companies to significantly broaden their horizons by sourcing external talent.
This solution is booming for several reasons:
- Companies are facing a growing IT talent shortage.
- Companies’ increasing use of cloud computing and the generalization of remote and asynchronous work make remote collaboration more accessible. IT teams, even internal ones, are often already spread over several countries or continents.
- New tech hubs are emerging worldwide and are valuable sources of international talent.
Outsourcing talent abroad can therefore be done in many countries, especially in those with a highly skilled IT workforce. This is the case, for example, in Vietnam, which is described as the next Asian start-up hub, or in Colombia, where the city of Medellin, for example, is an important innovation center.
India is also a hotbed for IT talent outsourcing and the number one destination for offshoring. Indeed, it benefits from a highly skilled English-speaking workforce in some regions of cutting-edge expertise. For example, it was ranked 1st in the “Artificial Intelligence Talent Concentration” according to the Network Readiness Index 2022.
The benefits of outsourcing talent overseas
- A solution to the talent shortage: companies can access large talent pools to collaborate with experts they cannot find or attract in their home markets
- The possibility of outsourcing strategic activities: by calling on specialized skills or mobilizing talents in particular areas of expertise, companies can accelerate particularly decisive or innovative projects and benefit from very high value-added services.
- Potential cost savings: Although not the primary objective, mobilizing highly skilled talent in countries with lower living costs can save the company money.
The disadvantages of outsourcing talent overseas
- Contracting and invoicing processes can be complex: each country has its own legislation and administrative procedures. Contracting with a foreign supplier can be a real headache without the correct information and processes.
- Hard-to-reach talent: the world is a vast playground! With a dedicated team or a tool adapted to international sourcing, companies may find it easier to orient their research to find the profiles and suppliers that meet their needs and evaluate their service level.
For these reasons, it is recommended to be accompanied by a partner specialized in sourcing talents abroad. With its Global Connect service, LittleBig Connection helps you define your needs and find the best providers worldwide, whether they are specialized IT companies or highly qualified freelancers. We put at your service our vast network of international providers and our proven methodologies in supplier evaluation.
In conclusion, offshore talent outsourcing is the best solution for companies looking for specialized skills in a talent-shortage environment where money is not the main driver.
Offshoring and offshore talent outsourcing are two very different solutions that can be highly complementary.