Businesses can offshore or outsource some of their operations to help save money or make their procedures more efficient. Both options are being used by businesses to manage the rising costs of production, real estate, wages, and materials. By incorporating one or both methods, many companies are protecting their bottom lines and ensuring their longevity.
It is important that you understand the difference between offshoring vs outsourcing so that you can choose which might be best for your company. Here’s a brief look at some of the pros and cons of each:
Offshoring refers to the practice of moving parts of a company to another country. The company may open a manufacturing plant in Mexico or open up a call center in India. The company can build an entirely new plant or headquarters in another country, creating another arm of the business overseas or moving operations there entirely.
Offshoring can have many financial benefits. For example, taxes in another country might be lower, and the cost of real estate and labor in some countries is much lower. Countries in South America and Asia that are popular for offshoring have become so because of the lower cost of real estate and taxes, among other things.
With the potential savings, companies may even be able to afford to expand their operations or their offerings if they move offshore. Companies can also use those savings to lower their prices and become more competitive in the market, or they can use the savings to fund additional investments.
The potential disadvantage to offshoring is the negative public perception that it has for some. There is heated debate about keeping business in the United States right now, and consumers are more committed to researching the business practices of the brands they buy. You could take a hit if consumers know that you are moving business and jobs to another country – and an even bigger hit if it is discovered that you aren’t providing a good wage or working conditions for your workers there.
Outsourcing is not the same as offshoring. Outsourcing refers to hiring out certain elements of your operations, such as creating the product or providing customer service. A company might outsource its technical support by hiring a company with a call center in the Philippines. When a customer calls, they have no idea that they aren’t calling the company headquarters directly, and they don’t know the location that they are calling.
Companies can save a lot of money by outsourcing certain parts of their operations, assuming that they find a provider that is more efficient than they are. For example, if a company is very efficient already at creating one of its products, it shouldn’t outsource it. If the company is the best at producing something – like a tech company known for its proprietary software – it shouldn’t outsource the manufacturing of it.
It’s also important that companies find the right providers for outsourcing. The quality of the product created or the service provided will reflect on the company – it can’t tell customers that they aren’t to blame for what they are selling.
Ultimately, companies have to think carefully about what methods they use for making their operations more efficient and how they can save money. Outsourcing or offshoring are potential solutions, but there are many other options, as well. Companies must do their research and find the solutions that work best for their goals.