The Pros and Cons of Offshore Outsourcing

The Pros and Cons of Offshore Outsourcing

Outsourcing, in the context of Business Process Outsourcing, can be defined as the performance of certain processes essential to the creation of the intended product or service being done by a unit or company or business other than the owner of the final product or service. A legal firm may outsource transcription of dictated submissions and a startup might outsource its payroll processing.

Starting out as an almost contiguous establishment, meant to reduce pressure on high-cost real estate and resources, advancements in communications and software technologies have made it possible for work to be done from anywhere in the world. This has given rise to the phenomena that is offshore outsourcing which is a term used to describe the geographical proximity of the supplier, or lack of it, from the clients’ geographical position. It is normally used to indicate the vendor’s location in another, distant country.

If the vendor is located in a country that is contiguous or close, the term used is ‘nearshore.’

Some people also use ‘farshore’ to indicate the vendor’s location as being distant, but is not a popular usage. Neither is ‘sameshore’ which indicates presence in the same country. 

Enumerated here is an evaluation of some of the prominent benefits and challenges the strategy offers.

Advantages

Lower cost

Cost being a number, is transparent, clear and quantifiable and does not leave room for interpretation or doubt. This has been, and continues to be, one of the primary reasons for the existence of outsourcing as a business model.

Business has always been sensitive to opportunities of making and saving money. Offshore outsourcing has created one such opportunity. Each geography in the world has its own unique history and pattern of development bringing them to where they are today. The range is wide and the gap enormous between rich and poor. According to a World Bank report for 2019, the per capita Gross Domestic Product (GDP) in USD terms was 507 for Afghanistan while it was 55,060 for Australia, almost a hundred times greater. And these are not the most extreme figures in the table.

Just like a natural resource like water will flow from high to low ground, in a free market system, which is what much of the world today follows, work will move from a high cost to a low cost center, across the seven seas. While on the one hand the business that is transitioning work offshore will gain a competitive advantage, it will also result in raising the income levels and work opportunities in the delivery location.

oWorkers operates from some of the most highly rated locations for outsourcing in the world. Our clients report savings of upto 80% when they outsource to us. Our operational efficiencies enable us to save costs which we are able to share with our clients.

Access to a bigger expertise pool

“Clients come for the cost savings but stay for the quality” is how many BPO companies engaged in the business like to believe as the reason for their success. And they may not be wrong.

With the benefit of a high volume of similar transactions across multiple clients, offshore data entry outsourcing companies are able to develop proficiency in some of their areas of work, aided by adding a few industry experts at leadership levels to guide the business. This also enables providers to out their best foot forward as a knowledgeable organisation when they pitch for new business in that vertical.

From the clients’ perspective, the expertise built by a provider will only be beneficial in delivering them greater efficiency and quality. There could be the issue of being dependent on an external party which could be overcome by splitting across vendors it reached that point of risk.

oWorkers operates in its chosen areas of data entry, annotation and content moderation and has delivered successful results to over a hundred clients over eight years of operations. In many cases, on account of the expertise we have built, clients initiate the process directly with us, without first implementing inhouse and then transitioning.

Benefits of scale

By itself scale may not be an advantage form offshore outsourcing but it has the ability to trigger the release of several benefits. As a result of developing expertise in certain areas, providers create a brand value for themselves that results in attracting more similar business. This results in creating a large volume of similar activity or work through aggregation of the work of several clients. What this does is:

Reduces the unit cost of processing – Indirect costs, which do not increase with the volume of transactions, get shared over a larger number of transactions and resources, lowering the unit cost. This enables the vendor to earn profits as well as share some part of the savings with the client.

Enables technology investments – With aggregated volumes, investing in superior technologies often becomes possible and viable. This investment releases further efficiencies in the form of lowering manpower expenses and speeding up processing. Individual clients, with their limited volumes, may not have been able to justify the investment that the vendor is able to make. Working like aggregators, suppliers have even been able to create platform solutions for processes handled manually.

oWorkers partners with technology solution providers to leverage advancements in technology for delivering on client contracts.

Time Zone related benefits

Offshore outsourcing creates an additional variable in the form of time zone difference between the client and supplier.

Some benefits accrue when there is a large difference in the two time zones, both being ranged on roughly the opposite ends of the 24-hour scale, say client being in New York and processing organisation in Manila, roughly 12 hours ahead. What that does is create an overnight processing window. By the time business shuts down in New York it is time for Manila to start working. Work allocated by the client before the end of their business day is processed in Manila when they start their day, and possibly complete it during the day while New York is asleep. By the time they start work the next day, the allocated work would have been turned around, processed, almost like a fairy who waved a magic wand while they were asleep and completed the work.

This happens when there is a significant East-West displacement across the globe.

If the displacement is North-South and not East-West between the client and vendor, it means the two are likely to be in a similar time zone, which could facilitate handling processes that require greater coordination and interaction between the two sides. The key is choosing processes that can benefit from these displacements.

The three centers of oWorkers lie almost at the center of the world. They are located in time zones similar to Western Europe, and are far away from North America, the two main client locations. This allows us flexibility in providing overnight turnaround to US clients as well as being available during working hours for consultations and interactions for Western Europe. In any case, our 24×7 centers ensure that we are able to meet all client requirements.

Access to resources globally

In a competitive world, running a business successfully is hard enough. The need to manage many moving parts makes it all the more challenging. 

Offshoring often takes away some of the pain attached to managing these moving parts, like managing human resources that are required for the work. Getting the right quality at the right price is already difficult. The business also experiences peaks and troughs requiring adjustments in staffing numbers. If the business grows, it does not want to struggle for resources to support its growth. These are some of the human factors that offshoring can assist your business with.

oWorkers operates as a local registered company in all its locations. It is a contributing member of local communities. As a preferred employer, it receives a steady stream of applications that reduces its hiring costs as well as attrition numbers. It also gives oWorkers the flexibility to hire short-term resources to manage peaks, to the tune of almost a 100 resources in 48 hours.

Challenges

Disenchantment of processors

The objective of offshore outsourcing often being to create processing efficiency results in the breaking down of processes to small, repetitive tasks. Over time, this has the potential to create boredom and burnout amongst processors that can allow carelessness to creep in, leading to errors. Not only can this impact the processors, but even other roles that are supposed to monitor errors.

The employing organisation needs to ensure it has systems in place to capture processing errors before they become noticeable by the client.

oWorkers monitors the performance of each individual and provides opportunities for job rotation designed to keep employees fresh and engaged. In addition, fair and transparent employment practices, mandated by our presence in the Eurozone, also create confidence and engagement.

Intellectual Property risk

There are many reasons for some parts of the world being cheaper than others, one of then being a relative lack of governance and enforcement of laws. Such an environment can create a threat for the intellectual property owned by the client that is shared with the vendor engaged for offshore outsourcing, necessary for handling the outsourced processes. It is not unheard of to find that the IP has been violated or there are versions of processes and products available soon after.

In addition to GDPR compliance, oWorkers operates from super secure facilities & protocols for the security of client data and is also ISO (27001:2013 & 9001:2015) certified. Each staff member signs a non-disclosure agreement (NDA) before they are permitted to process client data.

Labor malpractices

While one can debate if there is greater respect for people in what are considered to be ‘developed’ societies or in ones considered to be lower on the same scale, in offshore outsourcing, the issue of labor malpractices has to be viewed through the prism of the client’s regulatory environment as that is what they are answerable to. If the client is from a society where labor malpractices are reasonably clearly articulated as well as enforced

If the supplier operates in an environment where there is greater acceptance of practices such as child labor on account of the prevalent poverty, while the client environment clearly prohibits the same, it could create issues for the client in their markets as well as with regulators, if their use of a vendor indulging in such malpractices becomes established.

Having adopted the model of working with employed resources as opposed to freelancers, oWorkers is committed to the career progression of its staff and offers a fair and transparent work environment drawn from best practices around the world. Our staff are also free to choose to work from home as long as the shadow of the Covid-19 pandemic looms.

Cultural differences

It is sometimes said that though the main language might be the same, the dialect and version change every hundred kilometres or so. Two villages in Germany a hundred kilometres apart will be speaking German but have their own unique variant. As will be the case with the Hindi spoken in two villages in Central India a hundred kilometres apart. Culture and customs also change from one place to another.

Offshore outsourcing, where the distance between the two parties could be thousands of kilometers, such differences are likely to get magnified and could result in some amount of misunderstanding and errors creeping in. Sensitivities pertaining to cultural differences could get further magnified if the process involves customer interaction, like Contact Center support and could even result in customer dissatisfaction.

oWorkers, with a center in Europe, which is within three hours of flying time away from any major city in Europe, is culturally aligned to support customer business for Western European clients. In addition, our chosen areas of specialization that focus on data related work, mostly involved interaction with client staffers and not customers.

Hidden costs

While the business case looks promising, there are hidden costs in offshore outsourcing that could tilt the balance. Grid-supplied power supply may be erratic requiring investment in private generating capacity. Travel costs could increase as there will be a likelihood of outsourcer staff needing to travel to the delivery destination to ensure processes are followed and issues resolved. Local events like political unrest and demonstrations could jeopardize business continuity resulting in down time.

oWorkers provides transparent pricing to clients including a choice between rate per unit of output and rate per unit of capacity. Once a price is agreed, all additional costs are borne by oWorkers. We make arrangements to augment resources like power supply in centers where grid supply could be erratic. All costs are factored in when we quote a price so that there are no surprises for clients.

In Conclusion

While there are clear benefits offshore outsourcing delivers to a business, it comes with its own set of limitations which need to be managed. Successfully managing the downsides while taking advantage of the benefits results in creating value for the business.

There are political sensitivities associated with it as well, as it seems to reduce local employment while generating employment in faraway lands, even though many such views have been debunked in the past. In a free market, the flexibility of businesses to operate in a manner they deem suitable, while abiding by rules and regulations of the geographies they operate in, is seen as a fundamental right.

Recommended Posts