Offshoring Examples: Success and Failures of Companies that Offshore
If you’re curious about the successes and failures of companies that do offshoring, then you’re in the right place. Take a look at offshoring examples and see how you can avoid pitfalls to succeed.
Offshoring is gaining more popularity these days. More businesses are innovating with hiring new talent and to be more cost-efficient.
As companies determine the tasks they want to do offshore, locations like Asia and Latin America are top of mind. In the Philippines, more BPO companies are rising as the country welcomes new offshoring businesses.
But why do companies need offshoring? One of the biggest reasons is the scarcity of talent onshore, that they had to expand their operations elsewhere. As the business grows, the need for workforce increases. In this article, we’ll have an in-depth discussion of the following:
- About Offshoring
- Common Business Challenges Addressed with Offshoring
- Offshoring Examples: Successful Companies
- Offshoring Examples of Companies who Failed
- Reasons why IT and Software Companies use Offshore Development
- Why Offshoring Might be Good for Your Business
- Achieve Offshore Success with Full Scale
Offshoring is an industry practice that relocates part of a company’s business process to a foreign location. The company retains full ownership of the operation and considers the offshore team as its subsidiary. The purpose of working with offshore teams can either be for production or service delivery.
Another model of offshoring business processes is when a client hires a third-party offshore company. The offshoring company provides the facilities, infrastructure, and an offshore team that directly works with the client.
Offshoring is most common in the IT industry because of the shortage of professionals in the market. This business process is a cheaper and convenient method of hiring a workforce without compromising output quality.
Large tech corporations such as Apple, IBM, and Microsoft offshore their departments to other countries. Countries like the Philippines and India are the top offshoring destinations for IT companies because of their infrastructure and staffing. Furthermore, offshoring addresses common challenges in business operations.
Common Business Challenges Addressed with Offshoring
Small to large businesses have mutual challenges in operations. Offshoring became popular because it addresses these common challenges. These are the following factors on why they offshore their business processes:
1. Shortage of skills
According to Offshoring Research Network, many American companies say talent shortage is one of the main reasons they offshore. The offshore countries have a vast pool of workers in terms of work experience and skills. and skills.
It is estimated that companies can save up to 80% in cost savings. Direct savings are possible because of the cost differences in benefits, salaries, and operational expenses compared to the US.
Factories offshore their production overseas to access lower manufacturing costs. They aim to offshore to emerging market countries with lower salary rates, utilities, and manufacturing facilities.
3. Quality and process
Offshoring destinations are efficient in setting up systems that conform to standard rules and procedures. A process that needs large-scale production is effective for the Philippines and other Southeast Asian countries. They are accustomed to doing tasks that require complete accuracy and precision.
4. Project pace and support
Companies can cover time zones outside their daily operations through subsidiaries or offshore service providers that offer 24/7 operations. Depending on the offshore team’s tasks, this setup helps increase productivity and efficiency.
Offshoring destinations like the Philippines have a workforce that’s flexible with different shifts and time zones. For business process offshoring, the local team in the U.S. can do turnovers for unfinished tasks to the offshore team. By doing so, there is a continuous workflow until the project is done.
Offshoring Examples: Successful Companies
When it comes to offshoring, there is a lot of decision-making involved. You have to make sure that you tick off the boxes of your to-do list that includes the following items:
- Do you need to scale your team?
- Do you have access to a talent pool who specializes in specific skill sets you need? How do you attract them to work with you?
- How much money can you cover for operational costs?
- Are you shifting your focus to product quality?
- Where are you offshoring to?
As a founder, you must answer these questions before starting to move operations. Some companies tried to do it but failed in the process. To avoid potential challenges in the future, make sure to cover all points.
Small to medium-scale American companies benefit from offshoring. They can expand their opportunities with a more global presence. Here are some offshoring examples of companies that are successful.
Its subsidiary in India – IBM India Private Limited – employs about 131,000 employees. This makes IBM the largest multinational employer in India. IBM’s Indian employees perform consulting services, software development, research and development, and monitoring of cloud-based computer systems for their clients.
2. General Electric
GE’s research and development center in Bangalore, India, is its second-largest R&D in the world. The center is responsible for communicating with GE’s international branches, customers, partners, suppliers, and other technology centers.
3. Ford Motor Company (FMC)
Ford’s IT enterprise in India performs software development, IT services, and customer support. FMC’s software development center manages its worldwide e-commerce solutions. Its call center operates its complete support services for email support, live chat, and phone support.
4. JPMorgan Chase & Co.
Even the leading financial institution in the world use offshoring. JPMorgan has offices located in Metro Manila and a captive site in Cebu City, Philippines. Their Philippine operations process services in mortgage operations, IT, and customer care for their US-based retail and wholesale businesses.
A globally recognized brand like Amazon needs to provide support to its customers. In May 2018, Amazon opened its doors and proceeded to offshore talent in the Philippines. They successfully were able to handle customers round the clock both for North America and the UK.
Offshoring Examples of Companies who Failed
We’ve uncovered some of the companies that succeeded; how about the ones that didn’t make it? The process of failing starts when you fail to plan. But let’s face it, not every plan goes as it should. You can always learn from experience.
Here are some offshore companies that didn’t do as well as they should.
Accenture is world-renowned as an IT company that builds websites and applications. There is one project with Hertz that created problems for this company. Within their partnership, Hertz wanted a platform with high scalability requirements. Now, if you’re going to deliver quality software products, it is best to consider client requirements always.
When Accenture started the project, the software was only applicable to a region. This limits Herts to adopt the software outside North America and, thus, created a hefty lawsuit for Accenture.
Virgin Airlines shut down all operations for 24 hours in September 2010. This was because the software developed by Navitaire crashed two times within three months.
In these two instances, it took nearly 24 hours for them to find a solution and fix the problem. With this, thousands of passengers were left on the ground on top of hundreds of flight cancellations.
IBM is included in the list as one of the companies that outsourced successfully. But there were instances where it was not the case. The Queensland health department worked with IBM in 2007 to develop an app for payroll.
The original projected cost was $6 million, and they never anticipated how challenging this project might be. IBM announced in 2008 that the project would cost more than what was initially planned. It ended up costing around $1.2 billion, but the app didn’t live up to expectations or work properly.
As you can see, these companies failed because they didn’t have a safety net. You and the partnerships you form with the offshoring provider must be professional and communicate clear instructions. Having that initial setup will help the collaboration and the growth of your business.
Reasons Why IT and software companies use offshore development
Though many companies might have failed when offshoring talent, there are reasons why they still do it. In scaling your business, you want to find the right balance between costs and benefits. At the same time, you should not compromise quality. What are the top reasons why IT companies still do offshoring?
1. Address shortage of qualified IT professionals
There is an ongoing shortage of qualified IT professionals in the US. In fact, it’s tough for small to medium-scale IT companies to find and afford talent such as .NET developers.
Companies look for offshore partners like Full Scale because of the available pool of affordable, experienced, and highly-skilled offshore developers.
2. Focus on core business activities
Small to medium-scale IT companies have limited in-house staff and resources for their ancillary functions. Having an offshore service provider as a partner will help shift your focus on the things that matter. You can now concentrate on core business activities such as planning, managing, and implementing the business’ goals and strategies.
The provider takes care of the company’s IT and software development tasks. This situation optimizes the company’s resources, streamlines the business process, and frees the management for additional tasks.
3. Save funds for capital expenses
The savings generated from hiring a service provider give the company more capital for other necessary expenses. With the savings involved in offshoring, companies have more funds to allocate for capital investments.
This can generate more revenue and additional profits for the business. If there is more income, the company will have additional capital to expand the business.
Why Offshoring Might be Good for your Business
There are many different scenarios where the companies that offshore might fail or succeed. It all depends on how much planning it took for you to arrive at a decision. Yes, offshoring might be a good solution, but you also have to do the work.
One piece of advice we can give is to take your time in planning the next strategic move for your business. Learn from mistakes and be mindful of the repercussions that you might encounter along the way. Read our blog about Why offshoring is a top choice for you!
Achieve Offshore Success with Full Scale
Making an informed decision will help you avoid pitfalls and help you grow your business. That’s why partnering with an experienced offshoring company is vital. Full Scale is a leading offshore service provider based in Cebu City, Philippines.
We have formed long-term partnerships with several American clients to provide them with offshore teams in Cebu City. These teams offer software development, mobile and web development, graphic design, digital marketing, and QA testing services.
Every offshore team works directly with clients who lead and direct their day-to-day work activities. Our clients range from small to medium IT companies. We offer a wide range of developer skillsets in .NET, front-end web development, PHP, Ruby on Rails, Python, C++, iOS, Android, and other programming languages.
If you’ve selected the Philippines as your offshore destination, choose Full Scale as your offshore services provider. We set you up to succeed, and work to see that happen. Full Scale has also helped companies like GigaBook and Stackify to establish their offshore operations in Cebu.
Contact us to learn more about how we can help your business to grow and expand.