What is Offshoring?

What is Offshoring?

Today’s world of ever increasing demands to professionals, individuals and companies alike, has led to certain dramatic changes in the overall economic environment. Professions become more and more specified, at the same time increasing the sphere of knowledge within the given specialty. This poses further requirements for higher and better performance on all professional groups.
In this respect, higher demands are made on the companies to provide higher quality working environment and better remuneration packages. This means companies tend to have high domestic expenses on workforce alone. Naturally, as a result companies strive to economize in any possible way. This has led to a strong centrifugal force of taking the businesses out of their country of origin and outsourcing or offshoring to more economically advantageous provinces.

While outsourcing is a preferred method of reducing costs and transferring certain obligations to other companies altogether in a different destination, offshoring is a method which keeps it all inside the company only relocating part of the business elsewhere. It means relocating a business process from one country to another—for instance, operational processes, such as production or auxiliary processes, such as programming or web design. Of late, offshoring has been linked mainly with outsourcing technical and administrative services supporting domestic and global operations from outside the country of origin. It may sometimes include substitution of a service from a foreign source for a service formerly produced internally to the firm. Or otherwise, only imported services from subsidiaries or other closely related suppliers are included.

laptop in office
Outsourcing is now easier than ever with the advancement of communication technologies

Offshoring services, especially in the sphere of IT, software development and global information services is on the rise everywhere. After technical progress in telecommunications improved the possibilities of trade in services, many countries with much more economically favorable environment have turned into primary offshoring destinations, with others yet emerging. The global pervasiveness of Internet and huge telecommunication capacity has enabled companies to get computer-based work done seemingly anywhere.

Offshoring has some aspects that make it really dynamic and versatile. Nearshoring means taking the service or production work to a nearby country where the cultural model and the language are similar or the same. Captive Centers are offshore companies set up by organizations to provide internal services and in some cases sell them to customers. Multinational corporations (MNC) are service providers with offices in many countries, which enable them to serve clients anywhere in the world and tap the labor resource available by offshoring certain types of work.
Offshoring destinations are generally chosen in preference of locations where there is a large and well-trained population of IT, software and information communication specialists: engineers, designers, programmers, etc. They should also be fluent in English and the major European languages. This means that such destinations are sought which provide both professional knowledge and language fluency.

While it is a preferred practice to offshore to such regions where costs are the lowest, it should be taken into consideration that low cost /or rather the lowest cost possible/ may backfire badly profession wise. The best choice for a company which wishes to offshore or outsource its activities is to search for the best balance between cost, productivity, quality and efficiency.