Do offshoring’s benefits outweigh its drawbacks? – Part II

Organizations all over the world are under constant pressure to provide value to their customers and meet the challenges of competition. In globalized free economies, this is truer today than ever. The primary factor that directly or indirectly contributes toward a company’s business success is the cost of production and operation.

Among the many initiatives that have succeeded in reducing the cost of producing goods and services is the outsourcing/offshoring model. This model has taken many forms and its characteristics have been refined over a period of time.

Before enumerating the benefits of offshoring, it must be acknowledged that its success does not come without pain, mainly in the form of job cuts and the phasing out of low-earning products and services. However, organizations that take a well-planned and articulated approach to offshoring succeed in managing this situation better than ones that rush in without due consideration.

Offshoring happens through two means: outsourced offshoring through vendor partners, or in-house offshoring. In the former, the work is performed at the offshore partner’s premises, using the partner’s resources. In the latter, a U.S. company establishes its own global centres in other countries.

Perhaps the greatest benefit of offshoring is the cost advantage it produces, which directly affects the company’s bottom line. In tight fiscal situations, any savings in operating costs will contribute toward the company’s sustenance and growth. Companies in recession segments sustain themselves and grow through innovation. Lower operating costs means they have more money to invest in innovation, resulting in a stabilized domestic workforce.

In the service sectors, the cost saving from offshoring enables companies to create new service lines, many of which had been deferred for want of investment. New services increase customer satisfaction and become new revenue streams, as well as growth paths for companies.

The geographic nature of offshoring brings its own advantages. It helps the company expand its reach, thereby helping the company grow. This growth mitigates any negative effects of offshoring.

Offshoring also helps a company be closer to its global customers, thereby providing appropriate offerings to its regional market and ensuring speedier problem resolution. Developers and support personnel in the relevant geographies have a better understanding of customers’ needs, regulatory compliances and regional preferences, and can better implement the product or provide the service.

In addition, offshoring alleviates problems created by time differences, enabling companies to support remote customers too in a virtual 24×7 operation. For companies with constrained resources, offshoring also offers better utilization of capital investments through remote usage in multiple time zones.

The key to offshoring success is to exploit its advantages through a well-planned and articulated proposition that looks at the business from multiple dimensions, rather than as a simple cost-reduction exercise. As Franklin D. Roosevelt once said, “The only limit to our realization of tomorrow will be our doubts of today.”

Balasubramaniyan is a general manager at Wipro Ltd., a global IT services provider in Bangalore, India. He can be reached at [email protected].

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