Offshore outsourcing is the practice of hiring an external company to perform some non-core business functions in a country other than the one where the products or services are actually developed or manufactured. Offshore outsourcing has changed the way business is conducted today. More and more companies are utilizing various resources of outsourcing to gain business advantage.
Offshore outsourcing is a business approach through which business firms attempt to reduce or eliminate its non-core areas of functioning. Outsourcing is based on the principal that no organization can manage all the business functions optimally and with same efficiency as others. Business functions that consume more resources will reduce the overall profitability. So the better option would be to hire another entity that is better at performing that particular activity and would carry forward the same on behalf of the business organization. Offshore outsourcing is a concept in which the buyer of the service is located in some other country than the provider of the service. Offshore outsourcing is gaining huge popularity because when compared to their own countries, certain nations have easily accessible qualified resources that can be exploited to gain competitive advantage.
The four basic types of offshore outsourcing are Information Technology Outsourcing, Business Process Outsourcing, offshore software development and Knowledge Process Outsourcing and Marketing Outsourcing. Organizations are outsourcing non-core functions to vendors specialized in that particular function so that they are able to focus on core activities. Some of the tactical and strategic reasons for outsourcing are:
- Focus on core functions: Companies that outsource non-core functions to offshore experts are capable of focusing on their core competency.
- Internal resources can focus on core activities: Outsourcing processes to external third party ensures that a company's internal resources are freed up for focusing on mission-critical activities.
- Speed up migration to new technology: Adopting newer technologies allow companies to make better use of their investments and enjoy improved productivity and enhanced quality. Companies with outsourced IT processes are in a better position to migrate to new technologies with minimum downtime and productivity disruption.
- Risk management: In any outsourcing model the offshore partner supplements the processes of the outsourcing company with back-up mechanisms. In case of market fluctuations or technical crises the rigorous disaster recovery mechanisms and detailed back up plans at the offshore vendor's end can help companies to rapidly respond to the situation to get back operations on track within a remarkable turnaround time.
- Infrastructure investments can be reduced: Cutting edge IT systems, state-of-the-art customer service call centers and technical helpdesks entail heavy investments to companies. By outsourcing these functions to external vendors, expensive infrastructure investments can be cut down.
- Access to world-class capabilities: Organizations outsource work to have processes delivered by teams that have operational expertise. Outsourcing gives companies access to world-class capabilities and infrastructure in the outsourced function.
- Operating costs can be reduced: Organizations can save on operational costs such as payroll, administrative costs, HR, power, rentals and utilities as processes move to other locations. This leads to major cost savings for companies.
- Operational performance can be improved: Companies outsource to vendors who have domain expertise in the outsourced process. This would improve operational efficiencies for the outsourcing company.
Offshore outsourcing can be beneficial for the parent companies in terms of costs, quality and on-time output.