The arrival of new technology companies increases the demand for IT specialists. At the same time, the scarcity of software engineers forces tech companies to look for alternatives. Offshoring IT functions is one method of reducing costs. It has already proven to be a winning solution for many IT companies looking to expand without significantly increasing their costs.
In this article, you will learn everything about offshoring IT functions. Additionally, you will learn about their main advantages and disadvantages. Besides, we will analyze some examples of this practice. Let us observe:
- What is offshoring?
- The financial advantages of offshoring IT functions
- The benefits of offshoring
- The drawbacks of offshoring
- Offshoring varieties
- Proven practices for successfully offshoring IT work
- How can Connect Staff help you?
1. What is offshoring?
Offshoring is the practice of relocating production or delegating business tasks to foreign specialists. It implies that a company hires people from other countries, usually in developing countries where wages are several times lower. This works well for:
- Information technology
- Customer service processes
Offshoring IT functions first appeared when the first companies decided to open factories in other countries. It has evolved and taken on new forms since then. While many people believe they understand the gist, they frequently use this term incorrectly as a synonym for outsourcing. Let us clear up any confusion and get to the heart of the matter.
People who work abroad for a company are considered employees in the case of offshoring. They can function as independent specialists, as members of a small or medium-sized team, or as large offices. In any case, they are acting on behalf of the company.
Offshoring in the IT industry typically takes the form of foreign offices, R&D centers, or dedicated development teams located abroad. These are popular tools for business owners to use to reduce expenses while maintaining stable growth rates.
2. The financial advantages of offshoring IT functions
Offshoring is well-known for its cost-effective solutions. The following is a list of the financial offshoring advantages:
2.1. Reduced labor costs
Earning more money is always the main goal of every business. Companies seek ways to reduce expenses to increase income. Therefore, hiring lower-paid employees may appear to be a solution. In such a situation, the market for IT specialists in developing countries such as Ukraine presents an excellent opportunity.
This is because Ukrainian salaries can be up to 70% lower. On the other hand, Connect Staff can show you the global staffing trends. Hence, if you are looking for the perfect destination for offshoring, we can help you out. Businessmen always look to make more money. Hence, with us, you will save time and money.
2.2. Tariffs have been reduced
If you plan to offshore to a developing country, you can take advantage of several incentive programs. Some states offer tax breaks to encourage foreign investment as part of their framework.
In the UAE, there are great tax benefits for foreign investors. For this reason, thousands of investors from the entire world come here to establish their companies. If you want to get more information, contact us.
2.3. Business expansion
Among the numerous cost-cutting advantages of offshoring IT functions, there is also the possibility of business expansion. Companies can reinvest their revenues to expand services and improve products due to lower labor costs and taxes. Overall, paying less for specific operations allows for strategic reinvestment.
Every businessman’s attention is attracted to the idea of paying less and earning more. Hence, you can expand your business with our help and save money. Additionally, with us, you will learn why hiring and HR systems integration is a great idea. With this tool, you will boost your business.
2.4. Assistance with your current project
Offshoring IT functions allow you to rapidly scale your development team. In an outsourcing model, a team takes on a project and develops it from scratch. Offshore development is different and means that developers can step in at any stage of the project and quickly bring it up to speed.
Offshore development teams, on the other hand, necessitate a significant amount of your involvement. Although it operates independently, your offshore team will follow your lead and interact with you directly.
Hence, you will have a great team by your side. This team will work hard to achieve your business goals. They are going to make you happy with their results.
3. The benefits of offshoring
Businesses benefit from offshoring in a variety of ways. The following are the top reasons why it could be a good idea for your company.
3.1. International expertise
Engaging foreign human resources is frequently beneficial in terms of companies gaining additional insights and international expertise. A new employee’s fresh perspective on business issues can result in a profit. This knowledge will be especially useful if you plan to enter a local market.
Hence, we can provide you with an expert and experienced team. With us, you will only work with the best specialist in the country. In addition, we can assist you in how to manage your staffing agency remotely.
3.2. Personnel who are qualified
By relocating your company to a new country, you gain access to new talent. Companies hire top talent as a result of fierce competition. This means that by relocating your operations to such countries, you will be able to hire employees with proven expertise.
As a result, you will count on a great team to make your company better. We know that businessmen need the best people in their team. And we also understand that they need to save time while they make more money. That is why we offer you the best team to work with.
3.3. Expansion opportunities
Offshoring provides you with greater flexibility in your business. The availability of human resources will make it easier to expand your operations and hire new employees. If you intend to grow, offshoring will provide you with more talent and fewer major obstacles in a relatively short time.
It is a fact that every businessman wants to grow and improve. However, they cannot do it just on their own. They will need the proper assistance such as a great HR support staff and a staffing agency like ours.
3.4. Concentrate on business development
When you involve skilled specialists, you gain the ability to focus on the most important tasks. By delegating some activities to foreign professionals, you will free up time to focus on:
- Business development
- Creative problem-solving
- The development of new features or IT products
- And other issues that require your involvement
Without a doubt, time is one of the things businessmen value the most. They are always busy, so they need someone to help them save as much time as possible. This is one of the reasons why companies hire temporary staff solutions.
Hence, if you work with our company, you will save a lot of time. This time you will be able to spend it relaxing and staying with your family.
4. The drawbacks of offshoring
Offshoring provides numerous benefits to businesses and, when properly organized, can help your company grow. It does, however, have some drawbacks. Let us see what the disadvantages of offshoring are:
4.1. Inadequate language skills
When shifting services to foreign countries, you may encounter a shortage of people with appropriate language skills in their region. This factor may significantly impede comprehension and reduce communication efficiency.
Nevertheless, you do not need to worry about this drawback. This is because we will provide you with the most qualified that know the language perfectly.
4.2. Inadequate technological advancement
If you choose a country with insufficient technological capabilities, outsourcing a portion of your operations may slow down your business. These include a lack of infrastructure as well as a scarcity of developers with exceptional skills and/or a special technology stack. As a result, you should exercise caution when selecting an offshore location.
4.3. Cultural divides
Cultural differences can sour relationships and impede effective collaboration. When employees with opposing values are involved, it can lead to problems with performance control or subordination. As a result, you may need to consider cultures with similar work ethics.
4.4. Difference in time
Another source of discomfort could be a significant time difference. Unless you have agreed that they must respond immediately, you may have to wait a long time to hear back from your employees. Due to the time difference, some employees may be required to work night shifts.
Without a doubt, working with remote employees may be a challenge. However, it could be rewarding as well. Hence, we can show you a great way to motivate your remote employees.
4.5. Intellectual property
Allowing offshore IT services to handle your operations may expose you to intellectual property risks. Consequently, it is a good idea to apply your own security rules and strategies rather than relying solely on your offshoring partner. Even when you have signed a confidentiality agreement.
5. Offshoring varieties
We have already discussed offshoring IT functions, but businesses may occasionally opt for a modified version. Nearshoring is similar to offshoring in that it involves hiring talent from nearby countries. As a result, it provides the same benefits as offshoring, such as lower wages and reasonable quality. However, nearshoring is even more advantageous due to:
- Shorter time difference
- Similar values
- Geographic proximity
Another type of business delegation activity that involves external specialists within your country is onshoring. Onshoring is the inverse of Offshoring. It refers to the relocation of business processes within national borders to a lower-cost location.
Functions and processes are frequently relocated to a nearby location. This is especially common with large clients, where proximity may be a requirement of the working agreement. Suppliers to the automotive industry are a good example.
Working nearby (often directly next to its customers’ factory facilities) allows the company to offer the fastest possible service. In addition, the service is tailored to the needs of its market.
6. Proven practices for successfully offshoring IT work
6.1. Accelerate the learning curve by implementing an aggressive, integrated program of pilot projects
For offshore outsourcing, there is a typical client learning curve. During Phase I, managers learn about offshore through marketing hype (“You will save 60% on your IT costs”). Or they can learn irrational propaganda (“Software outsourcing will harm the country’s supremacy”).
Managers learn about potential benefits, costs, and risks quickly by speaking with peers and consultants and reading research. Most managers begin offshore outsourcing with pilot projects to cut costs on a few specific projects (Phase II). As managers gain experience, they progress to Phase III, where they exploit offshore for both quality and cost reasons.
For three years, false starts and switching suppliers kept Industrial Equipment (now in Phase IV) in Phase II. An aggressive, integrated program of pilot projects, on the other hand, can hasten the process. A biotechnology company, for example, launched a series of 17 pilot projects with four Indian suppliers to:
- Fully testing supplier capabilities
- Identifying the most appropriate project types
- Trying the best contract mechanisms (fixed-price versus time-and-materials)
In several cases, the client gave two suppliers small pieces of the same project. So, the project could serve as a control group for better supplier comparison. Within 18 months, the biotechnology firm had learned everything it needed to know to move forward.
6.2. Based on your business objectives, choose an offshore outsourcing destination
Client organizations frequently chose offshore locations based solely on relative country advantage in terms of costs and risks. They frequently hired a consulting firm to assist them in determining the best location. However, cost drivers and risk factors can shift quickly, trapping some clients in locations that no longer meet their requirements.
A better way to choose destinations is to consider the company’s strategic objectives as well as its overall commitment to certain destinations. For example, one aerospace company chose Malaysia as its IT offshore destination in the hopes of selling planes there.
Hence, the Malaysian government requires that some manufacturing take place in Malaysia, and the company’s IT presence will undoubtedly assist in meeting that requirement. A hardware company chose China in the hopes of selling computers there. One US client chose Canada because it prefers suppliers who are physically close to its end customers for quick deployment.
Others chose offshore locations where they already have manufacturing or research and development facilities. The existing facilities serve as a jumping-off point, with current employees acting as tour guides to the country, suppliers, and culture.
7. How can Connect Staff help you?
Now you have a better understanding of offshoring IT functions. Companies must keep in mind offshore software development services if they want to improve. Hence, if you need to learn more about IT functions, Connect Staff can help you.
We assist companies to channel their budgets to control costs and contract IT resources remotely. Currently, we have access to business tools and resources that can maximize value creation. This is because of ongoing digitalization, virtual work, and expanded access to outsourcing.
Would you like to Connect Staff to obtain more information about offshoring IT functions? If you have any questions, you can email us at email@example.com. Then, you will talk to one of our representatives who will answer your questions.