When considering successful development cooperation, offshoring is not the first thing that comes to mind. However, when we look beyond our own noses, the chances and connections that present themselves are impressive.
Offshoring can be considered outsourcing’s big brother. Outsourcing describes the spin-off procedure of individual business processes to external service providers. This can occur in the manufacturing industry, for example with automotive suppliers, as well as the service industry, like website programming. Offshoring describes outsourcing to other countries, across state borders. Typically, the term offshoring is used in regard to the outsourcing of entire corporate processes to external providers abroad. The establishment of branch offices overseas can also be understood as offshoring. Both possibilities have a far-reaching geographical relocation in common.
Offshoring is booming
Particularly following the worldwide recession, cost awareness and regressive investments by companies of all sizes increased. Where possible, money is being saved. From a global perspective, countries of the western hemisphere bring to book labour costs well above average. Many positions were cut or outsourced. This is where offshoring takes effect. According to Duke University’s global study regarding offshoring, the economisation of labour costs was the main reason for offshoring decisions in 2008. Naturally, the high quality performance must be maintained at the same time.
Apart from saving costs, there are several other reasons for a potential decision to outsource certain services to external service providers abroad. On the one hand, employers have the possibility to find the best expert in only a short amount of time, even worldwide. On the other hand, there is an increased flexibility due to the fact that co-workers are usually hired for individual projects and not permanently. The result is a greater choice of experts for employers.
According to Duke University, between 58 and 80 percent of businesses are planning on increasing their offshore activities. In contrast, plans to return outsourced services to their own countries are almost nonexistent. Besides entire finance departments of large companies, more and more services are relocated to foreign countries. Particularly in the IT sector this is possible without greater problems due to the Internet.
Not a question of size
Originally, offshoring was reserved for large corporations. However, small and medium-sized businesses increasingly discover the advantages. Here too, all services that can be carried out over the Internet are dominant, be it web and graphic design, programming jobs, data entry, research or translation jobs. Projects are processed detached from time and space. Whether you are a large corporation or a small start-up company, the advantages are the same. On the one hand, it is easier to control costs (projects); on the other hand, the business or start-up can concentrate on its core competencies and can therefore act and react much quicker.
Developing and threshold countries are gaining ground
Particularly threshold countries are increasingly the focal point of global offshoring activities. By now, you can find well-trained IT experts in threshold countries such as India, the Philippines, and even Vietnam. Regarding potential cooperation, geographical distances are becoming less and less of an issue thanks to the Internet.
The advantages of the cooperation with experts from threshold countries are predominantly monetary for western employers. In comparison to the USA, for example, it is possible to save up to 70 percent when hiring a service provider from Vietnam.
Apart from monetary aspects, there are also immaterial ones. The prompt availability of worldwide experts alone is a significant advantage. It allows the quick assembly of qualified teams. Furthermore, it is possible to process highly demanded special requests in only a short amount of time, even if there is a shortage of qualified personnel in Germany. Last-minute additions to the team are no problem.
However, it needs to be considered that the cooperation with service providers from countries with a different cultural background can present you with several challenges. While costs can be saved through outsourcing and offshoring, the communication effort is much higher as compared to in-house solutions. Communication is essential. Should you select a service provider with a different language background, English is usually the language of communication. Furthermore, you should be aware of possible cultural differences, which can complicate the cooperation.
Requirements for success
Naturally, threshold countries can only profit from offshoring if certain requirements are met. It is possible to outsource IT services to threshold and developing countries with very little cost expenditure. One advantage is that the implementation is detached from hard infrastructure. However, it can be difficult to find qualified service providers. Furthermore, the availability of an Internet connection, which is needed to provide services effectively over such a distance, cannot be guaranteed in all developing and threshold countries.
Ready to go
Once the basic requirements are met, nothing stands in the way of an economic upturn any more. It is only a matter of time until threshold countries with sufficient educational background, particularly regarding IT services, and Internet availability will profit from the offshoring activities of developed countries. The increasing numbers of offshoring agencies in developing and threshold countries support this trend.
The spillover effect
Initially, it is the freelancers and other individual persons of the IT sector of the respective countries that will mainly profit from offshoring. However, the spillover effect should not be ignored. When the purchasing power of individual people increases, the entire economy of a country will grow in the long term. Naturally, this is not measurable in the short term. The long term and sustainable economic growth of the developing and threshold countries is the superordinate aim. In future, offshoring will contribute to this goal increasingly.
- Offshoring as a chance for development cooperation – part 2
- The top 10 pitfalls of offshoring
- Service Provider Structure
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