10 Best Benefits of Offshoring You Should Know in 2024

For many years, offshoring has been a helpful solution for businesses. At first, it focused on production assembly tasks. Like any other business strategy, offshoring has both advantages and disadvantages. However, the benefits often outweigh the drawbacks.

Today, offshoring includes customer service, sales, and IT solutions. Small and medium-sized companies benefit from offshoring by cutting costs, solving hiring issues, and increasing output. In this post, we’ll dive deep into all the benefits of offshoring, and its drawbacks. Let’s find out.

I. The Evolution of Global Offshore Outsourcing

The world has become a global village, enabling companies to conduct business digitally regardless of distance. The global outsourcing services market is projected to grow from $620.38 billion in 2020 to $904.95 billion in 2027, with a compound annual growth rate (CAGR) of 5.54%.

Outsourcing began in the late 19th and early 20th centuries when businesses started leveraging other companies’ human and material resources. The manufacturing sector significantly capitalized on outsourcing in the 1950s. However, the term “outsourcing” only became official in 1981.

By the late 1980s, outsourcing had turned into a viable business solution. This strategy became integral to the global economy in the 1990s, driven by globalization and technological advances, which paved the way for offshore outsourcing.

Offshore Outsourcing

Today, businesses of all sizes prefer outsourcing to companies in foreign countries. Offshore outsourcing destinations such as Vietnam, India, and Ukraine help companies streamline operations and reduce costs.

The offshore outsourcing industry will continue to evolve and adapt to the changing business landscape. As companies become more global, the demand for outsourcing services is expected to increase. However, the rise of automation and artificial intelligence (AI) might also influence the industry, potentially reducing the need for certain outsourcing services.

II. 10 Best Benefits of Offshoring in 2024

Here are the top 10 benefits of offshore outsourcing:

1. Reduces Salary Costs

A US developer earns an average gross salary of $122,478. In contrast, a software developer in Vietnam earns around $10,000. This shows a clear difference in compensation between the US and offshore locations. The cost of living in Vietnam is generally lower than in many developed countries, which affects salary expectations.

Additionally, currency exchange rates between the Vietnamese Dong (VND) and major currencies like the Euro (EUR), US Dollar (USD), or British Pound (GBP) often benefit businesses offshoring to Vietnam. Companies can pay competitive salaries in VND without incurring high costs in their own currency.

2. Reducing Operational Expenses

Maintaining an office in the US involves high real estate costs. Additionally, there are expenses for business taxes, utilities, and labor. Setting up a physical office requires significant investment.

Lower real estate costs in places like Vietnam can help optimize cost savings and operational efficiency when offshoring IT talent. Partnering with offshore providers allows companies to use existing facilities in lower-cost regions. This provides access to well-equipped workspaces at a fraction of the cost. This strategy reduces the need for large infrastructure investments, saving on real estate expenses.

3. Access to High Quality IT Talent

Finding highly qualified employees is a major challenge for businesses. The ongoing IT talent shortage in the US makes this problem even more pressing.

Vietnam is a country where you can hire your IT staff. The IT industry is growing in Vietnam due to active government support and IT programs. The Vietnamese government offers incentives to attract foreign investments, including offshoring companies. These incentives may include tax breaks, special economic zones, or support for training programs.

Additionally, schools in Vietnam are producing more graduates each year. This boosts your chances of finding the right candidates to hire. Vietnam is one of the top offshoring destinations, especially in tech development.

Vietnam has a vast pool of skilled IT professionals. The talent supply exceeds local demand, making it easier for companies to hire highly qualified individuals. By partnering with offshore providers, companies can benefit from pre-screened candidates and access a skilled talent pool without the hassle of recruiting.

Benefits of Offshoring

4. Leveraging Time Zone Differences

Managing both onshore and offshore teams boosts productivity. Offshore teams can work during hours when your onshore team is not available. This continuous workflow allows for faster project delivery and increased client satisfaction.

Establish a proper handover process and ensure overlapping working hours. This overlapping period allows for real-time collaboration, discussions, and task handoffs. It helps speed up project timelines by maximizing productivity during those shared hours. Essentially, your operations can run 24/7. Remember to promote work-life balance practices for your teams.

5. Economic Incentives and Tax Advantages

Countries like Vietnam offer tax holidays and financial incentives for foreign investments. This attracts more foreign companies to invest in the workforce, create opportunities, and stimulate business growth.

Creating more jobs at the offshore location and bringing earnings back to the investing country benefits both economies. You maximize profit when your offshore company generates revenue along with these offshoring benefits. This is one of the most significant advantages of offshoring.

6. Enhanced Control Over Operations

If you want to hire globally, you have two options: outsourcing talent or hiring offshore. With offshoring, you don’t need to give up control over your business operations. In contrast, outsourcing limits your control over business operations. Understanding the difference is crucial if you plan to build a global team.

One of the best advantages of offshoring is the freedom and control it gives you over your team. You can train your staff or provide instructions to your offshoring partner. You can still control the tasks while the offshore partner meets your requirements.

7. Sustainable Scalability

Growing your business requires careful planning and strategic focus, which can be challenging. It’s essential to spend wisely, especially when hiring new employees.

If a key software team member leaves during an important project, it can disrupt timelines. Quickly finding a replacement is crucial, and your team might need to redistribute the workload temporarily. Your recruitment team has to locate, train, and integrate a new hire, which can be time-consuming and costly.

Managing recruitment in-house can be expensive. Partnering with an offshoring company offers a more efficient solution. These companies maintain a pool of pre-qualified candidates. Employees can quickly provide a suitable replacement when they leave, saving you time and money compared to maintaining an in-house HR team.

You can focus more on strategic business initiatives by collaborating with offshoring partners. This partnership makes scaling your operations easier and more sustainable.

8. No Retraining Required

Uninterrupted work boosts team efficiency and productivity. When hiring offshore, you select a team dedicated to your projects, much like an in-house team, just in a different location. This can be an advantage of offshoring, as it minimizes personality clashes.

When assigning new projects to your offshore team, they already understand how to tackle the tasks. After the initial training, your focus shifts to nurturing and honing their skills. Continuous learning ensures they stay updated with trends and new technologies, enhancing their ability to serve your clients effectively.

Benefits of Offshoring

9. English Language Proficiency

Effective communication is crucial when collaborating with your offshore team. Therefore, selecting a country with high English language proficiency is essential.

Vietnam has been making significant strides in improving English proficiency, making it an attractive offshoring destination. With a growing number of English-speaking professionals, communication between your team and clients can be seamless. This improvement in language skills is one of the reasons why Vietnam is becoming a popular choice for hiring developers.

10. Explore Opportunities in New Locations

One significant advantage of offshoring is the potential to explore new opportunities in the host country. Your offshore team can help you understand the local market or perspective, and cultural insights can enhance your connection with the latest market.

Being familiar with the local population, Offshore teams can provide valuable insights into the buyer persona. With their help, you can identify promising areas for your next business venture.

III. Potential Downsides of Offshoring

While offshoring offers numerous advantages, it also comes with some challenges. Here are a few of them:

Language and Communication Challenges

Although many offshoring destinations use English for business and government transactions, the level of proficiency and understanding can vary among workers. Additionally, accents can create difficulties, particularly when offshore employees have strong regional accents and must communicate with foreigners with different accents.

Cultural and Social Differences

Cultural and social customs in offshore countries can differ notably from those in the originating company’s country. For example, an American manager might communicate directly and candidly, while employees from another culture might be more reserved and not used to such straightforward communication. This can lead to misunderstandings and miscommunication. Among the various pros and cons of offshoring, cultural and social differences are often a significant concern for companies.

Quality Control Issues

In manufacturing offshoring, maintaining product quality to the parent company’s standards can be challenging due to the offshore location’s manufacturing setup. Despite providing quality guidelines, differences in working culture, language, logistics, and supply chains in the offshore country can affect the quality of the finished product.

Time Zone Differences

Time zone differences between the home and host countries can be advantageous and disadvantageous. While some companies benefit from 24/7 operations, managing shift patterns that accommodate both sides without disruption can be difficult. Communication gaps due to time zone differences can also hinder decision-making processes. For instance, if the offshore team needs to consult the home office for a critical decision, the delay in response can impact urgent, time-sensitive tasks.

Drawbacks of Offshoring

IV. Initiating Your Offshore Outsourcing Strategy

You’ve learned about the advantages of offshore outsourcing and its potential risks. Now, it’s time to get started with implementing your strategy.

Offshore outsourcing requires careful planning, research, and execution. Here are some crucial steps to follow:

• Assess Your Business Operations
  Identify problems, inefficiencies, and bottlenecks in your processes. This will help you determine which tasks to outsource and outline your specific requirements.
• Investigate Potential Providers
  Look online for prospective BPO firms that offer the services you need. You can also ask other businesses for referrals and professionals.
• Select the Best Provider
  Screen your prospects based on their reputation, credentials, and outsourcing track record. Consider their workforce, technology, facilities, resources, and pricing models to find the best fit.
• Develop an Outsourcing Agreement
  Draft a Service Level Agreement (SLA) that outlines the terms and conditions of your outsourcing engagement. Include key performance indicators (KPIs) to measure success.
• Implement the Outsourcing Operation
  Assist your provider in setting up their operation. Perform a pilot run before the official launch to ensure everything goes smoothly.
• Monitor Performance and Progress
  Once the operation is up and running, monitor your provider’s performance and track your outsourcing progress to ensure you are on the right path.
• Enhance the Outsourcing Process
  Regular audits can help you identify areas for improvement. Optimize your process by adjusting KPIs, modifying SLAs, offering training programs, and investing in new technologies.

By following these steps, you can effectively implement and manage your offshore outsourcing strategy.

Conclusion

Offshore outsourcing has evolved significantly over the years, becoming a vital strategy for businesses aiming to reduce costs, solve hiring issues, and increase productivity. While there are challenges, the advantages—such as cost savings, access to high-quality talent, and operational efficiency—often outweigh the drawbacks.

By leveraging the benefits of offshoring software development, companies can stay competitive and agile in a rapidly changing market.

Ready to unlock the full potential of offshore outsourcing? Partner with TECHVIFY, Vietnam’s top outsourcing company. Gain access to skilled IT professionals, significant cost savings, and enhanced efficiency.

Contact TECHVIFY today to elevate your business with our exceptional offshore outsourcing services. Let us be your trusted partner in driving innovation and success.