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Companies like Amazon, Google, and Meta are leveraging offshore outsourcing for their goals — and this isn’t surprising. With the rapid changes in many industries today, offshore outsourcing has become a 21st-century ticket for businesses to achieve growth without all the financial hurdles that come with hiring locally.
If you’re looking to level up your business, this guide is a complete crash course on offshore outsourcing.
What Is Offshore Outsourcing?
Offshore outsourcing is an outsourcing model that involves the delegation and relocation of entire processes and operations to a service provider in a distant country.
For example, a US-based company may offshore its information technology (IT) or finance operations to a Philippine business process outsourcing (BPO) firm and build a dedicated offshore team to slash overhead while gaining access to skilled labor.
Offshore Outsourcing vs. Outsourcing: Are They Different?
You’re probably scratching your head wondering if offshoring vs. outsourcing share the same meaning.
For starters, outsourcing is a process of delegating non-core functions to a local or overseas vendor, so your company can allocate more time and resources to core functions. While there’s room for collaboration, outsourcing firms are in charge of managing your outsourced functions and teams.
On the other hand, offshoring is a type of outsourcing in which companies relocate functions to a faraway country. With this model, your offshore outsourcing team is an extension of your internal team. Rather than a third-party provider handling recruitment, training, onboarding, and team management, your company will take care of all these processes.
Offshoring vs Nearshoring vs Onshoring vs Hybrid Outsourcing: Understanding Their Differences
Nearshoring, onshoring, and hybrid outsourcing are also popular outsourcing models. However, not all models are created equal. Take a look at their differences below:
- Offshore Outsourcing: This is a model in which a company contracts with a third-party vendor in a distant geographical location. The keyword here is “distant,” so there’s a huge time zone difference between the contracting party and the vendor.
One example is Art Brand Studios. This California-based brand offshored design work to KDCI Outsourcing — a Philippine-based BPO company — to cut costs, improve scalability, and minimize production times. While the Philippines is 15 hours ahead of California, US, both parties worked together in real time.
- Nearshore Outsourcing: As the name implies, nearshoring is the practice of hiring a vendor in a neighboring country or region with little time zone difference. In 1987, Whirlpool — an American home appliances company — nearshored manufacturing to a production facility in Mexico to improve efficiency and product quality and cut costs.
Both countries have only a two-hour time difference, which hastened the exporting of manufactured appliances to Canadian and US markets.
- Onshore Outsourcing: Also known as domestic outsourcing, onshore outsourcing involves contracting with a service provider in the same country as the business. Unlike offshoring and nearshoring, there is an overlap in working hours — making collaboration between internal and outsourced teams more seamless.
Both parties also share the same culture, so misunderstandings arising from cultural differences are zero to none. Since outsourced teams are based locally, companies invest more in overhead and labor.
American tech firm BambooHR onshored functions, such as customer support and software development, to promote faster response times and higher service quality. By onshoring, BambooHR has not only kept up with evolving HR industry needs, but also improved its company culture.
- Hybrid Outsourcing: Hybrid outsourcing is a modern approach to outsourcing, fusing onshore and offshore outsourcing models to maximize flexibility, efficiency, and cost-effectiveness. Companies may even utilize all three models as they deem fit! With hybrid outsourcing, a business has a local team and an outsourced team in another country, each with its own scope of responsibilities.
For instance, tech giant Microsoft has an in-house team dedicated solely to complex tasks, such as innovation and software architecture. This leaves customer service and other non-core functions to offshore outsourced teams. Essentially, hybrid outsourcing focuses on the strengths of all outsourcing models, creating a harmonious balance that fosters stronger team camaraderie.
Offshore Outsourcing Benefits: 3 Game-Changing Impacts to Businesses
Offshore outsourcing delivers a profound impact on businesses. Here are three benefits of this model:
1. Your Company Saves On Expenses
Between nearshoring and onshoring, offshore outsourcing is the most cost-effective model of the two. The average cost of hiring a US employee is $4,683 USD, with training and onboarding costing $1,207 USD to $1,512 USD per staff member. If we factor in salaries for specific roles and seniority levels, hiring costs may go higher (or lower) than the average.
Let’s say you want to increase your local graphic design headcount. Take a look at the costs of an American graphic designer:
- American Graphic Designer: $36,234 USD to $107,282 USD a year
- American Junior Graphic Designer: $36,659 USD to $72,979 USD a year
- American Senior Graphic Designer: $53,781 USD to $112,933 a year
From the above data, hiring local graphic designers is a less financially viable option. By offshore outsourcing graphic design, you can build an offshore team of graphic designers at cost-effective rates.
Here’s a quick breakdown of the costs of hiring a Filipino graphic designer:
- Filipino Graphic Designer: $2,732.76 USD to $9,039.13 USD a year
- Filipino Junior Graphic Designer: $4,594.30 USD to $10,079.96 USD a year
- Filipino Senior Graphic Designer: $10,139.84 USD to $16,120.30 USD a year
While some cities in the Philippines pay more, hiring Filipino graphic designers — regardless of seniority level — still costs a fraction of the salaries of local designers. Training is also cheaper, amounting to only $61.51 per Filipino staff member.
With offshore outsourcing granting significant cost savings, you can maximize the ROI of outsourcing.
2. You Can Hire Talented Professionals From Other Countries
Thanks to globalization, companies are no longer restricted to a single geographical location when hiring the ideal candidate. Offshore outsourcing provides an alternative (and more diverse) hiring pool where you can access talented, highly specialized professionals from other countries at a lower cost than local hires.
Most of the time, an offshore team of professionals is equipped with all the skills and knowledge you won’t find in-house — thus minimizing resources for employee training and upskilling.
Interestingly, outsourcing countries have their field of expertise. For example, the Philippines is a great offshore partner for companies outsourcing customer service. This is because the country is a hotbed of college-educated, English-speaking agents who have early exposure to Western culture.
Likewise, India is ideal for offshore software development. Aside from its large workforce of highly educated STEM professionals, India is brimming with cities, such as Bangalore, Hyderabad, that function as tech and IT hubs. This makes India an attractive offshore outsourcing partner not just for cost savings, but also for technological innovation.
By working with an offshore team, your business can stay ahead of industry trends and innovate as needed without worrying about costs.
3. Offshore Outsourcing Enhances Efficiency
Operational efficiency is key to growth and employee satisfaction. Since non-core functions are relocated to an offshore outsourcing partner, your internal teams can focus on their core competencies and high-value tasks — enhancing employee productivity and satisfaction while driving business growth.
With the flexibility of being able to scale your business, you can ramp up headcount and operations according to demand with minimal financial repercussions. Not only does this drive operational efficiency during high and low seasons, but it also helps your business keep up or outperform competitors in your industry.
Offshore Outsourcing Challenges: Risks to Keep In Mind
On the other hand, offshore outsourcing comes with risks and drawbacks. Before outsourcing, here are three things to keep in mind:
Data Privacy Concerns
Data is everywhere. With 600 million cyberattacks occurring daily, data privacy is a non-negotiable for businesses operating in finance, healthcare, and other data-rich industries. When you offshore outsource operations, you entrust your offshore outsourcing partner to process and manage customer data as well as comply with the General Data Protection Regulation (GDPR) and other compliance standards.
While the risk of a cyberattack is always imminent, partnering with a reputable outsourcing company with a robust data encryption infrastructure, a deep understanding of data compliance laws, and round-the-clock IT staff can minimize this risk. Reviewing your outsourcing country’s local data privacy laws is helpful, too.
Communication Barriers
Offshore outsourcing is like a mini cultural exchange program; both the client and offshore provider learn each other’s cultures and work ethics to smooth out differences and ensure tighter collaboration. However, there may be instances of miscommunication and misunderstandings due to limited English proficiency and thicker accents.
In this case, it’s recommended to outsource to the Philippines or any country with excellent written English and neutral accents.
Natural Calamities and Political Instabilities
Crises can strike at any time, and these can potentially disrupt operations in either your home country or your offshore team’s. While most offshore outsourcing service providers have business continuity plans, creating your own contingency plan can help you anticipate and prepare for any disruptions.
Most importantly, don’t limit offshore outsourcing initiatives to just one country. If you’re currently offshoring to the Philippines, consider outsourcing to Malaysia or India for uninterrupted operations.
4 Signs Your Business Is Ready for Offshore Outsourcing
After weighing the pros and cons, the next step is to determine whether your business is ready for offshore outsourcing. Here are four signs to look out for:
1. There Is A Lack of Specialized Expertise
Training employees for specialized roles may be a good idea — at least, on paper. However, training costs money, and newly trained employees need ample time to prepare for their role. By offshore outsourcing, you can work with a foreign employee who’s already trained and specialized in that role.
2. Overhead and Labor Costs Are Skyrocketing
Managing an internal team is costly. If equipment, subscription, and labor costs are adding up quickly, offshore outsourcing can mitigate these expenses while maintaining high-quality service delivery.
3. Your Team Is Overwhelmed With Non-Core Tasks
Excessive workload creates a domino effect of burnout, lackluster performance, poor service delivery, and increased turnover. If your team members are spending most of their working hours on non-core tasks, it’s a sign to outsource to an offshore outsourcing company.
By offshore outsourcing, your internal team has more time for high-impact or revenue-generating tasks that further your business goals while also reigniting your employees’ sense of purpose — driving growth and retention.
4. You Want to Improve Your Market Share
Offshore outsourcing is a strategy. You’re not just reaping the financial and operational benefits of outsourcing, but you’re also venturing into a new market to expand your customer base, explore business opportunities, and scale your market share.
How to Start Offshore Outsourcing In 4 Steps
If most of the signs apply to your business, you can now begin offshore outsourcing. Here’s how to do it:
Step 1: Know Which Operations to Offshore
Do an inventory of your daily business operations and identify which ones cause the most inefficiencies and consume the most of your team’s time. This helps your potential offshore outsourcing service provider develop a tailored solution unique to your business.
Step 2: Look and Vet An Offshore Outsourcing Company
Although googling for the best BPO companies is a good start, these platforms can aid in your search, too:
- ChatGPT: A lead once found us on ChatGPT while searching for the best AI companies in the Philippines. Try asking ChatGPT for some recommendations, and you might find a couple of potential service providers.
- LinkedIn: You can find offshore outsourcing companies here. Use this platform to reach out to the provider’s clients, so you have an idea of their offshore team’s performance, professionalism, and work ethics.
When evaluating an outsourcing partner, check out its:
- Portfolio and case studies
- Client reviews and success stories
- Core values
- Services offered
- Expertise and niche
Step 3: Meet With the Company’s Outsourcing Expert
Lay out your expectations and service-level agreements (SLA), and always read the fine print of the provider’s contract. Some service providers have a lock-in contract. By entering into a lock-in contract, you can’t prematurely terminate your partnership with the provider.
If the offshore outsourcing company no longer meets expectations and aligns with your goals, offshore outsourcing may become a liability to you. Hence, you’re stuck in an unfruitful partnership until the contract ends.
Step 4: Request A Trial Period (If Possible)
A trial period lets you vet your offshore team’s performance in real time. It is also great for identifying quality issues in service delivery before entering into a long-term partnership with the provider.
Start Offshore Outsourcing Services to KDCI Outsourcing
At KDCI Outsourcing, we offer next-generation offshore outsourcing services and help forward-thinking companies build their offshore team from scratch. We have skilled professionals who excel not just in marketing, web design, or any offshore outsourcing service, but also in the ethical use of AI technologies in their deliverables.
Growth and success don’t come knocking at your door. Schedule a meeting with KDCI ASAP, and let’s kick off your offshore outsourcing journey.
