Business offshoring and outsourcing
Offshoring is the way which many businessmen choose for their business. It means relocating their production or service abroad; usually, to a place with lower costs – cheaper land, labor, and production.
Both countries – the origin and the destination ones may benefit from this scheme. But there are also certain disadvantages to consider.
Let’s look at pros first.
The number one advantage is lower costs of labor and certain materials, especially, if the products are manufactured in the same country with the offshoring jobs. The saved money may be spent in the origin country for wages for other employees, investment in R&D, taxes and so on.
The second plus is new jobs in the developing countries. It is particularly good for those countries with excessive unemployment rates. More jobs mean better economic situation.
The third advantage is the possibility to improve your business operations. Usually, offshoring countries live in a different time zone. So, it is easier to provide customer support 24/7.
But what about disadvantages?
First one is costs. Although the company may save on wages, a more expensive training might be required for the employees. At the end it might appear that savings on wages were not worth it. Also, production in a developing country may be cheaper but shipping costs may rise dramatically.
The second disadvantage is connected with quality control. It may be hard to make products according to the company’s high standards. Also, it is much harder to keep an eye on the overall operation. Plus, barriers in language and culture may interfere with the process of quality control.
The third disadvantage is the risk to lose control of your intellectual property. The level of respect to corporate secrets is low in many developing countries. So don’t be surprised to see your products on the shelves and realize you have nothing to do with those.
The fourth disadvantage is the effect on the domestic country’s economy. Since majority of jobs are relocated to another country, this becomes your so-called input into the local unemployment. Not only it influences the economic situation of the domestic country, but it also hurts the company’s image, especially, if your business uses child labor or does harm to environment.
So, prior to making a decision on whether to offshore your business, think of your goals and priorities. Also, consider whether you are ready to deal with many issues which will arise when you do business this way.