Pros and Cons of Offshore Outsourcing

By Sean Hopwood,
business.com writer
|
Apr 16, 2020
Image Credit: fizkes / Getty Images

Outsourcing your business processes or manufacturing offshore doesn't have to mean a decrease in quality. These pros and cons can help you make an informed decision.

Offshore outsourcing is often thought of as lowering operational costs by sacrificing quality. This doesn't have to be the case at all. Approximately 68% of U.S.-based companies outsource, and their products are still competitive – in fact, outsourcing can ensure products remain competitive. Especially, when there’s an inflow of high-quality, low-cost alternatives coming from abroad.

Lower costs might be the first benefit that comes to mind, but outsourcing can bring far more into a company than increased profit margins. Outsourcing is a great way to penetrate into new markets, seize the experience and resources of specialized companies and professionals and deliver a high-quality product, all while keeping a company’s finances healthy. Regardless, we’d be mistaken to think that outsourcing isn’t without downsides. The reality of offshoring is very nuanced, and whether your international partner will be a force for growth or drag you down will depend on very specific factors.

In this article, we'll take a look at the most common benefits and challenges of outsourcing, and offer some tips on how to outsource successfully.

Benefits of offshore outsourcing

As you might already know, the main benefit of outsourcing is cost optimization. Companies that outsource can get rid of the costs of operating a factory, saving in real estate as well as in labor.

Offshoring often gets a bad reputation because lower-cost labor is related to poorly trained workers. This doesn’t have to be the case. Many developing economies have an educated workforce and very high production standards. You just have to research potential partners to make sure you’re getting top talent.

Aside from offshoring manufacturing processes, a company can offshore business processes. By delegating business processes to a BPO services provider, you can focus on your service or product while reducing the costs associated with operating an HR or customer service team in-house. If your company already has an international clientele, offshoring your customer service or sales department might translate into greater availability. By offshoring these departments, you can ensure you’re available to your clients whenever they need you. No longer will you be limited by your timezone.

Knowledge is at the core of any company. By offshoring, we can benefit from the expertise of a third party who specializes in a particular stage of the manufacturing process or in a particular area of business operations.

Offshore outsourcing can also lay the groundwork for global expansion. Through offshoring, you get to have a presence in your target locale and you make sure your product will get to the hands of your target demographic.

Put in simple terms, outsourcing nourishes your organization with external expertise and technology, while keeping you financially healthy. Outsourcing can also transform your organization, preparing it to take over new markets while facilitating more focused and refined work processes. But it's not as easy as hiring the first company that offers you a low price.

Main cons of outsourcing

Offshoring can go wrong. For instance, it can translate into a certain loss of control over the production process. If you’re offshoring different parts of the product to various specialized international partners, you have to ensure there’s uniformity standard and material-wise.

Language barriers could also be a problem. Good communication is essential to make sure you get what you need out of your international partnerships, and to guarantee good standards and practices across the board.

In some cases, companies that offshore communicate with their partners through a lingua franca. For instance, let’s say you outsource IT services to India. You’ll probably communicate with your business partner in English. But, in some cases, the best ally you can find is in a country with very low English penetration. And it’s always ideal to conduct in-depth conversations in a language that both you and your partner understand fully. In these cases, language services providers will be vital to make sure you and your partner are on the same page. For instance, meetings should be facilitated by an accredited, experienced and highly-reliable business interpreter. You should also count on a world-class localization company to translate agreements and product guides.

Be aware of cultural barriers. Especially, during negotiations. Learn about your target locale’s business culture and conduct meetings accordingly. Acknowledge cultural differences and work with them, not around them. This is especially important if you’re going to seize outsourcing as an early step of an ambitious expansion plan.

Cultural differences are also important if you’re looking for a BPO company to outsource front-office tasks. In that case, countries with high English proficiency and culturally similar to your home market should be at the top of your list. 

The likeliness of cultural common ground increases the closer we get to our headquarters. If you’re particularly worried about how your projects, ideas, and products might translate into another culture, you could consider nearshoring, instead of offshoring. Nearshoring is defined as outsourcing to a company that’s located within your region.

There might also be moral downsides to outsourcing. While lower labor costs and more flexible employment regulation can make you gravitate towards certain partners, you need to make sure that the working conditions they offer employees are congruent with what you stand for. Factories that don’t meet employment regulations tend to be all-around dangerous, failing to meet hygienic and safety standards as well. A sketchy partner can make your product dangerous to consumers while causing a PR disaster.

It’s also worth mentioning that offshoring has often caused information breaches. Make sure your potential partners have the right tools and processes in place to make sure your information is safe.

How to pick the right outsourcing company

The right international partner is specialized, resourceful and experienced. It should also be very strict when it comes to health, safety and employment conditions. Linguistic proficiency and cultural similarity are a plus in the manufacturing sector, and an absolute must when it comes to Business Process Outsourcing. Having a lingua franca and similar cultural codes often prevents what is at the heart of most outsourcing failures: Poor communication.

Successful outsourcing doesn’t just rely on your potential partner, but also on your practices. You can always make matters easier by providing flawlessly translated (and legally compliant) agreements and guides. To make it possible, reach out to a reputable business translation company.

One of the main challenges of outsourcing is lowering costs without sacrificing quality. When assessing potential partners, rely on a diverse set of references and look for sustainable evidence of their product quality and business practices. You can find the information you need both offline and online. For instance, there are several platforms where companies review past outsourcing partners.

If the information you gathered on your own doesn’t seem sufficient, feel free to ask your potential partner for a list of satisfied clients. Confidentiality agreements might keep them from producing many names, but they should be able to share a few references – or even a case study.

You should also make sure that your potential partner is in good financial shape. Having to change providers within very short notice might threaten your business and end up costing you more than expected.

On the other hand, one might think of success, trustworthiness, and expertise as something that's reflected in company size. Depending on your specific business needs, a highly specialized, small company that will take the time to get to know you, and will pay particular attention to your business's needs might be a far better ally than a huge corporation.

I am a polyglot, the President of Day Translations, Inc. and its sister companies, World Interpreting, Inc. and Your Spanish Translation. As a child I was already fascinated with languages and different cultures, which later developed into a much stronger passion, something I nurtured and worked hard for. Eventually, I found success when I established Day Translations, Inc.
Like the article? Sign up for more great content.Join our communityAlready a member? Sign in.