Why Do Companies Need Offshoring
The primary reasons that companies turn to offshoring are to find skilled employees that they cannot find locally, and to save costs on their business operations.
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 offshored process can either be for production or service delivery. Another model of offshoring of a business process is when a client hires a third-party offshore company to provide them with an offshore team. The offshoring company provides the office facilities and other needed infrastructure and then hires the offshore team who directly works with the client.
Offshoring is most common in Information Technology because of the shortage of professionals to meet the industry demand. In fact, large tech corporations such as Apple, IBM and Microsoft offshore part of their manufacturing and customer service to other countries. Offshoring is a cheaper and convenient method of hiring manpower without compromising output quality. Countries like the Philippines and India are the top offshoring destinations for IT companies because of their infrastructure and manpower. Offshoring maximizes the efficiency of operations and boosts business productivity.
Reasons Why Companies Offshore
These are the specific reasons why companies offshore their manufacturing and business processes:
- Shortage of skills – According to Offshoring Research Network, a study by the Center for International Business Education and Research, many American companies say a shortage of employees with the required skills is one of the main reasons why they offshore some of their manufacturing or business processes. The countries where they offshore have a vast talent pool of workers in terms of employment-ready college and technology graduates, working experience, and skills.
- Cost-savings – It is estimated that companies can save up to 80% in cost savings. Direct savings are made by the cost difference in benefits, salaries and operational expenses of the operations based in the U.S. compared to operations in offshoring destinations like the Philippines and India. Factories offshore their production overseas to access lower manufacturing costs specifically in emerging market countries with lower costs in labor, utilities and in the setting up of manufacturing facilities.
- Efficient quality and process – Offshoring destinations in Asia are efficient in setting up systems that conform to standard rules and procedures. A process that needs the large-scale production of tasks by knowledge workers against a specific standard is effective for the Philippines and other Southeast Asian countries. They are accustomed to doing tasks that require thorough accuracy and precision and adhere to follow the specific procedures that govern those tasks.
- Time zone coverage – Companies can cover time zones not handled by their operations through subsidiaries or offshore service providers in countries offering 24/7 operations. Offshoring destinations like the Philippines have a workforce willing to work outside of regular office hours and in different shifts. For business process offshoring, the local team in the U.S. can turnover unfinished tasks to the offshore team so there is continuous work on the project until it is finished.
ICT and software companies also offshore their business process to:
- Focus on core business activities – Small to medium scale IT companies have limited in-house staff and resources for their ancillary functions. With an offshore service provider as a partner, the company can focus on its core business activities such as more time for planning, managing, and implementing the business’s goals and strategies. The provider takes care of the company’s IT and software development tasks. This situation optimizes the company’s resources, streamline the business process, and frees the management for additional tasks.
- Save funds for capital expenses – The savings generated from hiring a service provider gives the company more capital funds. There’s less money to spend on functions that are not part of its core business activities but more funds to allocate for capital investments. This can generate more revenues and additional profits for the business. If there is more income, the company will have the additional capital to expand the business.
Examples of Companies Offshoring to Other Countries
Offshoring has benefitted companies in the U.S. from small to medium-scale companies who only have local operations up to large multinational corporations that have a global presence. They have gained significant benefits from offshoring some or most of their manufacturing or business processes.
These are some examples of large American companies that have offshored their operations:
- IBM – Its subsidiary in India – IBM India Private Limited – employs about 131,000 employees, making 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 IBM’s international clients.
- 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 as part of the efforts to develop and improve its products and services.
- 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, while its call center manages the company’s entire support services for email support, live chat, and phone support.
- JPMorgan Chase – JPMorgan has offices located in Metro Manila and Cebu City, Philippines. Their Philippine operations are involved in financial processing, mortgage operations, IT services, and call center operations for the company’s U.S. based retail and wholesale businesses.
Listen to Episode 47 of the Startup Hustle Podcast – Offshoring, 10 Tips
A study about offshoring trends by the Center for International Business Education and Research’s Offshoring Research Network says that manufacturing and IT/telecommunications companies are more likely to hire third-party offshore service providers rather than establish their own wholly-owned affiliates or subsidiaries for their offshoring operations. An example of this is our company – Full Scale – a leading offshore service provider based in Cebu City, Philippines.
Full Scale has formed long-term partnerships with several American clients to provide them with offshore teams in Cebu City. These teams provide services in software development, mobile and web development, graphics design, digital marketing, QA testing, SEO optimization, and content writing. Every offshore team works directly with clients who lead and direct their day-to-day work activities. Our clients are small to medium IT companies that trust us to provide them with remote developers skilled 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, then choose us – Full Scale – as your offshore services provider. We are one of the leading offshoring providers in Cebu City, Philippines. We help our clients achieve their business goals by providing them with highly skilled and experienced offshore teams. Full Scale has also helped companies like GigaBook and Stackify to establish their offshore operations in Cebu and we’ve contributed to the growth of their businesses. Contact us to learn more about how we can help your business to grow and expand.