Offshoring

What is offshoring?

Offshoring involves the relocation of business activities from the home country to a different international location

What are the key features of offshoring?

• A change in the international location of operations

• Traditionally associated with the relocation of manufacturing activities from a domestic economy overseas (e.g. from the US to China, or the UK to Poland)

• Offshoring is also increasingly common with business services (e.g. UK financial services using call centres based in Emerging markets)

What is the difference between offshoring and outsourcing?

• Offshoring:

  • The work is done overseas

• Outsourcing:

  • Someone else does the work

What are the reasons for offshoring?

• Cost Differences

• A lack of investment in manufacturing

• Low paid, unskilled plus pools of specialist well-educated staff

• Multinationals already present in overseas territories

• Manufacturing capacity abroad may offer flexibility

• Simplification of Business Roles

• Key Resources are more available or more cost-effective abroad

• Free Trade Areas such as the EU are attractive to foreign investment

Why do businesses use offshoring?

• Manufacturing costs lower

• Potentially better skilled & higher quality

• To be closer to customers & demand

• To overcome protectionism

What are potential drawbacks with offshoring?

• Longer lead times for supply

• Implications for CSR (supply chain management)

• Additional management costs

• More exposed to changes in exchange rates

• Communication: language & time zones

What are advantages of offshoring?

• Lower costs: Offshoring can significantly reduce labour costs, especially for labour-intensive processes. It can also reduce overhead costs, such as the cost of renting a facility. 

• Access to talent: Offshoring can provide access to qualified talent, such as IT professionals. 

• Tax benefits: Offshoring can provide tax benefits and financial incentives. 

• Improved cash flow: Cost savings can improve cash flow and increase profitability. 

• Growth opportunities: Companies can reinvest cost savings into research, development, and growth.