IT offshore outsourcing is a cost-effective option for companies looking to access specialized skills and improve operational efficiency. The alternatives are to hire people in-house or outsource work to an onshore company.
Both of these can be expensive, especially for early-stage startups looking to scale. In this blog, we define offshore outsourcing and explain its pros and cons to help you make an informed business decision.
What is offshore outsourcing in IT?
IT offshore outsourcing is when a company or organization contracts out various technology functions, tasks, or services to external service providers located in different countries or regions. These service providers can be individual freelancers, specialized IT firms, or large outsourcing companies.
Offshore outsourcing has clear benefits – such as cost reduction and access to a broader talent pool – but it also comes with its own challenges – like communication barriers due to language and timezone. Here’s our list of offshore outsourcing pros and cons.
The pros of offshore outsourcing
Choosing the right partner for IT offshore outsourcing can help you minimize the risks, and maximize the benefits. Get it right, and you can enjoy the following benefits:
- Reduced labor costs: One of the primary benefits of offshore outsourcing is the potential for significant cost savings. Labor costs are often lower in countries with lower living expenses, allowing companies to achieve similar or better results at a fraction of the cost compared to hiring locally.
- A skilled workforce: Offshore locations often have a large pool of skilled and qualified IT professionals, including software developers, designers, and QA engineers. This provides businesses access to a diverse range of specialized talents that may not be available locally.
- 24/7 operations: Offshore outsourcing can enable round-the-clock operations. With teams working in different time zones, this can lead to faster project completion, reduced time-to-market, and enhanced customer support services.
- Optimized resource allocation: By outsourcing non-core IT functions offshore, companies can redirect their resources, time, and attention to core business activities, strategic planning, and innovation to help gain a competitive advantage over the rest of their market.
- Scalability and flexibility: Outsourcing IT operations offshore allows businesses to scale up or down in response to changing market conditions or project requirements without the need for extensive internal hiring or layoffs.
- Reduced exposure to risk: By dispersing IT operations across different geographic locations, companies can mitigate talent shortages or changes in technology. Diversification helps protect businesses from localized disruptions.
- Technological advancements: Offshore IT companies usually invest in the latest technologies and infrastructure to stay competitive. So partnering with a reputable provider gives you access to cutting-edge tools and expertise without significant upfront costs.
- Accelerated timelines: A larger workforce working in different time zones can expedite project delivery, reduce development cycles, and bring products and services to market faster.
- Global regulatory knowledge: Reputable providers of IT outsourcing are familiar with local and international regulations. This expertise can be invaluable in ensuring compliance with data protection laws and industry-specific regulations.
- More room for innovation: Offloading routine tasks to offshore IT teams means employees can focus on creative and strategic tasks that drive the innovation that is crucial for long-term business growth.
- Improved service levels: Offshore providers are motivated to maintain high service levels to secure long-term partnerships. This can lead to improved service quality and customer satisfaction.
The cons of offshore outsourcing
There are risks associated with every form of outsourcing. With IT offshore outsourcing, those risks are often very manageable compared with the benefits, as you can see from this list:
- Differences in language and culture: When working with an offshore team, communication can sometimes be difficult. Miscommunication, misunderstandings, and even project delays can occur as a result of cultural differences.
- Quality concerns: Maintaining consistent quality levels can be a challenge when overseeing outsourced offshore teams. Variations in standards and a lack of direct control might result in subpar deliverables.
- Coordinating schedules: Operating in different time zones can lead to delays in response times and project management. Synchronizing work schedules and meetings might be tricky, impacting project timelines.
- Data protection risks: Offshoring IT tasks may involve sharing sensitive data and Intellectual Property with third-party providers. It’s important to take extra precautions to safeguard proprietary information.
- Reduced oversight: You may have limited visibility over the day-to-day activities of offshore teams. This lack of transparency can make it challenging to monitor progress and address issues promptly.
- Unforeseen expenses: While IT offshore outsourcing can seem cost-effective, hidden expenses – such as additional project management costs, legal fees, or travel expenses for on-site visits – can arise.
- Overdependence on one vendor: Over-reliance on an IT offshore outsourcing vendor can pose a risk if the vendor encounters financial troubles, changes business strategies, or experiences disruptions.
- Legal and regulatory obligations: Varying legal and regulatory landscapes across countries can create complications and compliance issues, especially in industries or regions with strict regulations.
- Reduced internal knowledge: Outsourcing core IT functions can result in a loss of in-house expertise. Over time, this may limit a company’s ability to innovate and respond to changing business needs.
- Initial transition complexity: The transition phase of outsourcing can be complex, requiring significant time and resources to establish effective working relationships and processes with offshore teams.
Reduce costs and increase tech talent
IT offshore outsourcing is the default choice for companies located in countries with a high cost of living and a lack of local tech talent. Offshoring enables these businesses to reduce their labor costs – a financial benefit that directly boosts profitability.
Offshore outsourcing also gives companies access to a global talent pool, and specialized IT expertise that may be in high demand or simply unavailable in some regions. It also mitigates localized risks and accelerates time-to-market, helping to increase competitiveness and customer satisfaction.
However, it’s important to evaluate and mitigate potential disadvantages to ensure IT offshore outsourcing adds value to your business. Developing a thorough outsourcing strategy, selecting the right offshore partners, and maintaining open communication are crucial steps to achieve successful outsourcing outcomes.
Co-located in the Netherlands and Nepal, Proshore is a trusted provider of IT offshore outsourcing solutions to companies all over the world. See how much you could save – compared with hiring in-house or outsourcing onshore – using our handy cost calculator.