5 Disadvantages of Offshoring
Offshoring and outsourcing are two popular business models that have grown in recent times as businesses look to reduce costs, streamline processes, reach organizational goals and reap the benefits of specialization. However, many organizations have learned that there are several disadvantages to offshoring.
If you are considering offshoring for your business, it’s best to do your homework.
What’s the Difference between Offshoring and Outsourcing?
Before diving into the disadvantages of offshoring, it’s important to understand the differences between offshoring and outsourcing. In recent years, these two terms have been used interchangeably because some of the aspects of each of these processes are present in the other.
Outsourcing is a practice used by companies to transfer portions of work to outside suppliers rather than completing it internally. Companies may be motivated to outsource work for a variety of reasons. The most significant factors usually relate to cutting costs and reducing internal infrastructure. Outsourcing is an “umbrella” term, and while the process has been used for years in functions like accounting and legal, it has become wildly popular in software development and support.
Offshoring happens when you relocate the work to a different country and is a form of outsourcing. For example, offshoring could be when a company from within the United States may work with a company located in India or China for a specific project.
So, offshoring is always outsourcing – but not all outsourcing is offshore. Get it?
In many cases, these companies look to take advantage of a much cheaper labor market. However, there are several hurdles and risks involved with offshoring.
Disadvantages of Offshoring
Time Zone Differences
One of the biggest disadvantages of offshoring is the time zone differences. Many offshoring companies operate within a 5-12-hour difference from their client. Work schedules may need to be adjusted to accommodate time zone differences when working with offshore companies.
Furthermore, unless your offshore partner commits to staffing late night shifts that work with your company’s time zone, you may have to wait for responses from the offshore staff. These time differences can also lead to lengthy delays in project deadlines as both companies struggle to accommodate one another. Misaligned work schedules cause internal friction as the staff must tolerate unnatural working hours that also do not provide the responsiveness and speed required in the digital economy.
Communication and Language Issues
When working with a company from a different country, it is usually safe to assume that most people on your team speak English as a second language. When working with someone who natively speaks another language, this can make communication and collaboration a unique challenge even if they speak English with relative proficiency. For example, some accents are difficult to understand when speaking another language (such as accents of various Indian dialects). So, even though a team can speak English very well (which is impressive in and of itself), that does not mean that communication will be as smooth as it is when communicating with someone who is a native speaker.
Cultural and Social Differences
Even if the language barrier can be overcome or minimized, an overseas team can have cultural and social practices that you will have to accommodate.
For example, if you contract an agency from India, they can have up to sixteen public holidays a year depending on their regional location. Couple that with the US’s ten public holidays, and that is twenty-six days a year that rarely coincide. While members of the team might tolerate Christmas Day conference calls, it’s more “Bah, Humbug” than “Happy Holidays.” So, you must consider the impact of the fragmented calendar during the project and it will affect your deadline.
Work styles will exhibit social differences. For example, it is considered acceptable and expected for a North American worker to be assertive and straight-forward. However, this is not always the case in other cultures which view the employer-employee relationship very differently. These cultural variations dilute the valuable input and feedback loops expected in Western business.
The discrepancies in culture and social practices can also lead to a lack of understanding of a complex business problems which in turn leads to business and personal misunderstandings and challenges that would not be the case when everyone on a team has a similar understanding of the project and overall business dynamic.
Increase Domestic Unemployment
Critics of offshoring note thatthe level of unemployment of the local economy increases. For example, if you outsource jobs to India, there is less opportunity and open positions for qualified Americans, which can hurt the national economy and livelihood of cities and towns across the country.
By choosing a provider in the US, that creates more open positions for qualified local individuals and keeps more money circulating in the US as opposed to sending it overseas.
Thinking about visiting your offshoring partner? This could be difficult considering the distance, costs, and time spent traveling to an overseas location. If meeting with your partner and having any face time is essential to your company, offshoring may not be the right fit for your business’ needs.
The unstable political climate in prominent outsourcing countries can causeincreasing geopolitical risks for businesses.
The Philippines, one of the world’s most popular outsourcing locations, is frequently a victim of political unrest which seems to flare up without warning. This is true of many developing countries that are generally go-tos when looking to outsource work.
Whether the issue is a government shutdown, military coup, riots over an election, or pressure involving drug cartels – all of these “far away” issues could quickly become much more real when your project or business is directly impacted because of the fallout.
An Offshoring Alternative: Onshoring within the United States
Fortunately, there’s no need to look overseas for quality software services. A simpler and more effective outsourcing alternative is onshoring. Onshoring is a business practice where companies source services from within their own country. Onshoring is highly effective. Onshoring offers improved communication and increased productivity between both parties, while still working to reduce costs. It also eliminates the risks of compromised IP and data, geopolitical uncertainty and contextual misalignment.
For example, a company located in Los Angeles or New York City can reduce costs by contracting services from a company located in smaller cities in New Mexico or the South, where living costs and prices are much lower.
The blend of finding quality talent at an affordable price point is quite advantageous for companies located within the United States. By working with a company located in the same country, both parties will benefit from more convenient time zones, faster and cheaper business travel, and easier collaboration.
Rural Sourcing: The Nation’s Leading Onshoring Partner
If you’re looking for an offshore alternative for your organization’s IT solutions, Rural Sourcing can help. As the leader in domestic sourcing, Rural Sourcing’s innovative domestic model eliminates the obstacles of data security, IP protection, political concern, time zones, distance, language barriers, and more. We help bring jobs back to the United States and provide high-quality work at a fraction of the price of providers in major metro areas.
With development centers strategically located throughout the United States, Rural Sourcing provides world-class solutions for organizations across various industries including pharmaceutical, healthcare, hi-tech, insurance, and consumer & retail goods. Get in touch with us today to learn more about our capabilities and to see how we can help your business outsource responsibly and economically without compromising quality.