Pros and Cons of IT Offshoring: Benefits, Risks, and Limitations

Productive business development has several conditions. Two significant of them are delegation and the search for favorable cooperation conditions. Offshoring is exactly what allows you to fulfill these two requests at once. In essence, this is delegating a task to employees from another country. Many people confuse this concept with outsourcing, but this is not quite true. Each of these models has some nuances and suits one or another business strategy. To make the right choice, you need to learn about offshoring and outsourcing advantages and disadvantages.

What is offshoring and what can it be?
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Offshoring suggests hired employees who are full-fledged part of the staff and work within the corporate culture of this company. Outsourcing, in turn, involves the cooperation with freelancers or agencies to perform the tasks of a particular project. Many IT companies practice both of these approaches. They hire employees from Asia or Western Europe, and they work on behalf of this company, performing the assigned tasks.

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There are three popular types of offshoring:

  • Offshore outsourcing. These are the tasks delegated to freelancers or agencies. This option is optimal for short-term projects, allows you to significantly reduce the labor cost, obtaining quite acceptable quality. Sometimes this option does not solve your requests, with all offshore outsourcing pros and cons. It’s when you have a long-term project.
  • Onshoring. This means hiring staff from your country. Simply put, you have a company that employs employees from your country but another city, for instance. This does not promise significant savings on labor costs, but it will be the best option if you want to avoid such nuances as time differences with employees, cultural barriers, and differences in technology. 
  • Nearshoring. This offshoring involves hiring employees from a neighboring country. This can provide you with competent employees for a reduced price and at the same time with a small difference in time zones.
  • Offshoring. A case when a company hires an employee from a developing country (Eastern Europe, Asia). Such countries have smart and high-qualified specialists whose services are much cheaper, while they perform high-quality work in compliance with deadlines and the requirements. This option is ideal when it is necessary to avoid too high costs, without losing the work efficiency. 

Offshoring itself can be a very profitable solution and significantly boost your business. The only question is whether it is suitable for you.

IT Offshoring Advantages
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Why do companies often resort to such a model as offshoring? It happens when certain business tasks and processes are delegated to an overseas executor. At the same time, the contractor is part of the company’s staff. Some countries are very popular for IT offshoring. These are India, Ukraine, Poland, Argentina, and other developing countries. The advantages of offshoring can help your business win in many terms, particularly in financial.

Financial benefits

Salaries in developing countries are usually much lower than in prosperous countries, which means that the average fee of a specialist from Asia or, say, Poland will be several times lower than in the USA or Canada. At the same time, everyone will be in the black: 

  • You get a qualified employee who is ready to work on your terms.
  • He or she receives stable cooperation and a salary that is quite decent by local standards.

It is worth saying that developing countries have many excellent specialists: programmers, web designers, developers, and others. And if, say, in the United States, you will be forced to pay such an employee an average of 150 USD per hour, then an offshore employee will work for 40 USD per hour (on average) and will be very satisfied with such conditions.

Incentives from States

Some developing countries encourage such cooperation with their residents because it is an investment in their country. For this, they can offer you reduced taxes and other privileges.

Saved money for labor and reduced rates are the key to business development. You can expand your services and financial opportunities, invest or reinvest the money, etc.

Scale capabilities

Offshoring makes your opportunities more extensive and your business wider. It also means new acquaintances, a big talent pool, and more experience in working with foreign markets. Such background allows you to know all the subtleties and nuances in the overseas market, to know its risks and opportunities. Moreover, you are opening up new horizons, because this can bring world-class pros to your company in every sense of the word.

Offshoring risks and disadvantages
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As with any business model, offshoring has some risks and limitations, with all its economy. So, if you decide to attract specialists in such a way, therefore, take into account that you will have to face some nuances. 

Different time zones

The most frequent stumbling block, especially with full offshoring, is when you cooperate with specialists from distant countries. This issue complicates the communication, because if your office starts at 8 am, then it may already be an evening in the country of the specialist you hired, for example. In some cases, this complicates the possibilities of meetings, conferences, and business calls.

Cultural differences

Whatever one may say, but people with different mentalities will also have different approaches to work, in particular:

  • Setting and understanding tasks.
  • Making and executing decisions.
  • Communication style, etc.

This can lead you to disagreements and in some cases even to conflicts.

Inconsistency of quality standards

The concept of high-quality work in another country may differ significantly from those that are relevant in your one. Especially if you cooperate with a country that has much lower requirements in terms of quality and other technology. As a result, the products that developed offshore won’t meet the quality that your company requires.

Opaque pricing

Sometimes offshore companies require more money for their services, explaining this with additional costs, the need to attract additional human resources, and other nuances. Such molten prices often confuse business owners, because some smart employees set dumping prices, while others, on the contrary, inflate it without justifying why.

Can it be dangerous?

Offshoring carries some risks for your data protection system. This doesn’t always mean aggressive hacking and data theft. The problem may lie again in different legislative norms of information protection and security systems. In this case, the best solution is to take additional measures to protect data, consult with local lawyers.

Shortly about offshoring advantages and disadvantages
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So, offshoring is neither good nor evil, but another option for doing business. Those who decide to take such a step to win in the financial aspect and the corporate one:

  1. Saving money for labor.
  2. Saving on taxes.
  3. Possible incentives from the hiring employee’s country. 
  4. Opportunities for the development of your business.

However, for the sake of these very opportunities, you face several challenges:

  • Time zone difference.
  • Cultural and language barriers.
  • Possible threats to the security system.
  • A mix-up with prices.

Therefore, it’s important to understand how such a decision corresponds to the goals and values of your company…and whether it fits at all. In the end, offshoring is not the only way to delegate tasks and attract worthy IT specialists.

Maybe outsourcing after all?
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Someone will find offshoring benefits and disadvantages too complicated. It’s easier to hire several freelancers, give them a clear task and worry neither about legislative nuances nor about what time it’s now on another continent. And in some cases, outsourcing is a great solution. What aims define offshore outsourcing:

  • You have a short-term project for several months.
  • You need one or more specific specialists for certain tasks. 
  • You want to reduce the financial and physical burden on your company by attracting a subcontractor (an outsourcing company).

At the same time, you can attract a specialist both abroad and within your country, avoiding differences in culture and time zones. But if you want:

  • That your tasks are still by full-fledged employees, that are part of your company. 
  • Move your company’s activities to another country.
  • Reduce labor costs.
  • Expand your staff, business opportunities, or even the range of services. 

Then offshoring is your option. And if you take into account all pros and cons of IT offshoring and think over a strategy, this one will optimize your business and give global opportunities for your development. 

How to avoid risks from offshoring?

To be warned is to be one step ahead. If you understand that offshoring is exactly what you need specifically for your tasks, then it’s a small matter — to adjust all the processes to minimize the impact of disadvantages of offshoring

  • Hire an IT team of real pros. 
  • Consult about local laws regarding your business.
  • Find out the tax system (you may even get some benefits from an offshore country!)
  • Create a clear corporate culture.
  • Take care of strengthening your security system.

Offshoring is nothing more than another model for attracting employees and distributing the workload between them. And like any working model, it has risks and opportunities. 

The primary task, in this case, is to choose the right team. By contacting us, you solve this issue automatically. We know what effective cooperation is with minimal risks.