Many businesses have grown and have become successful through considering, turning to, and augmenting their manpower with offshore staffing. Today, outsourcing and offshoring are thought of interchangeably. In a previous article, we talked about how SMEs can benefit from outsourcing. In this article, let’s look at both terms in the context of a growing business considering sourcing, outsourcing, and offshoring.
Obtaining goods and services, i.e., focusing on the supplies and leveraging supply chains, is what you do in procurement. Sourcing, on the other hand, focuses on the “who” making the supplies possible. It is about finding and contracting suppliers and also building and managing supply chains with resilience in mind.
Below are relevant definitions from The Handbook of Global Outsourcing and Offshoring by Ilan Oshri, Julia Kotlarsky and Leslie P. Willcocks published 2009, New York: Palgrave MacMillan.
Sourcing is the act through which a company contracts or delegates work to an external or internal entity that could be physically located anywhere. Sourcing encompasses various in-sourcing, i.e., keeping work in-house, and outsourcing arrangements such as offshore outsourcing, captive offshoring, nearshoring, and onshoring.
Outsourcing is when a company contracts a third-party service provider for the management and completion of a certain amount of work, for a specified length of time, cost, and level of service.
With organizational activities, you can source them as an overall set of processes or as smaller parts of it. With the scope of outsourcing as a criterion, meaning the degree to which a process is managed internally or by a third party, Oshri, Kotlarsky and Willcocks distinguish three models of outsourcing. First, there is total outsourcing which refers to transferring more than 80% of a function’s operating budget to external providers. The second is total in-house sourcing which refers to retaining the management and provision of more than 80% of the function’s operating budget within the organization. The third is selective outsourcing which refers to sourcing selected functions to external parties while managing 20%–80% of the function’s operating budget internally.
Offshoring refers to the relocation of organizational activities (e.g. IT, finance and accounting, back office, human resources) to a wholly-owned subsidiary or an independent service provider in another country. This definition illuminates the importance of distinguishing whether the same organization or a third party performs the offshored work.
Oshri, Kotlarsky and Willcocks distinguish three models of offshore service delivery.
- Captive model of service delivery. This is when a company offshores work to a center that they themselves own.
- Offshore outsourcing model. This is when a company offshores work to an independent third party.
- Nearshoring. This is when a company relocates organizational activities to a neighboring country.This is when companies in the US, for example, relocate their work to Canada or Mexico.
Benefits of offshore staffing
The benefits of outsourcing were already discussed in a separate article. Offshore staffing has quite similar benefits with the idea of outsourcing, but expanded with the consideration of resilience, especially to get businesses through towards post-pandemic. There is, for example, a recent Forbes Business Council article that stated such observation. According to the article, many companies had been actively relocating their business processes even before the spread of the pandemic. The reported reasons for this were to replenish talent, reduce considerable costs, and reach new markets in distant locations. These come from a realization that hiring only in-house employees no longer makes any sense, so firms are actively offshoring both back-office and front-office functions.
Also, a Forbes Technology Council article observed that a redrawn landscape came into view. This gave rise to rapid diversification to stay relevant and make the most of new opportunities. A rapidly scalable team in an offshore location is among the recognized opportunities, a strategic asset even. This even allows for a quicker building of teams which previously would have taken at least a year and a half to build.
The following are the top three reasons why offshore staffing is beneficial for your business.
1. Cost savings
Employing manpower is almost always costly. “Almost” because, according to a Forbes article, companies who have turned to offshore staffing found saving “as much as 70% on their all-in staffing costs due to dramatically lower salary norms.”
2. Access to high-quality candidates; talented, dedicated professionals
Companies who considered offshore staffing found “an oasis of top talent” in remote locations. It’s tedious to keep announcing that your company is hiring but you just can’t quite draw in your ideal candidate. Out there beyond the vast blue ocean, however, are high-quality candidates ready to be hand-picked to your specific requirements.
You may be looking into doubling your manpower. But, what if you can also double your manpower with talented and dedicated professionals. Out there in remote locations are a lot of highly-skilled, highly-equipped individuals professionally trained to do even just a very specific task you may just have thought of. There are even businesses focusing on forming teams of those talents ready for 24/7 offshore staffing.
3. Competitive and strategic advantage
For competitive and strategic advantage, you can consider either short-term or long-term plans for scaling, for recovery, or for resilience. Short-term projects can give your company an urgently needed boost. On the other hand, you can gain long-term value when you fully integrated your processes and in-house and offshore teams. Both considerations come into play in coming up with a business continuity plan. With the pandemic, hiring more remote employees became an integral part of business resilience strategies.
For the long term, you can, for example, think about the pandemic disruptions. Work has become hybrid as companies had to limit the number of employees at a time in their work locations. Remote work and work-from-home have become normal. Tools for video conferencing and remote collaborations have been developed and have quickly proliferated. These developments in the new normal way of doing work, of doing business are going to continue into the future. That said, a competitive strategy is to consider now offshore staffing, or be left on your shores while your competitors have gone global.
Challenges of offshore staffing
Now, of course, there are challenges with regard to offshore staffing. A remote location is already a challenge. However, with the technology already available now, it would just seem your remote team is just on a different floor but in the same office building as you.
Communication and cultural barriers can also become challenges if you are going to manage your offshore staff directly and individually. At least initially, those would require some adjustments and familiarity with nuances in management principles. If, however, you tap into offshore staffing providers, then they can manage the talents or the teams for you.
Offshore teams train to be process-oriented. If you’re someone who likes drawing out creativity and innovative solutions from your employees, then this could be a challenge for you. Well, you can still rely on your employees who are with you on-site, though, for creative ideas. And then you can take advantage of remote teams’ training to adhere to company regulations and comply with standard operating procedures. There are, however, companies who prefer outsourcing creative talents, especially when they can’t find anyone nearer.
If you’re interested in offshore staffing and need help in finding the right partner for your specific requirements, we at StratAccess could help you with it.