Should I be offshoring in my small business?

Deciding whether to start hiring offshore is a choice many business owners will face along their journey.

For a long time, offshoring was a strategy mostly limited to outsourcing a company’s production and manufacturing needs. Now it’s used for a whole lot more.

Advancements in global technology have allowed businesses to send large portions of their servicing to overseas teams through the use of online channels.

Today, offshoring impacts every single industry in some way as our operational capabilities have multiplied.

Offshoring can be an extremely beneficial avenue to reducing labor costs and maximising profitability, but only when it is done correctly.

So when should your small business be offshoring and when should you be investing locally?

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What is the difference between offshoring and outsourcing?

Firstly, let's look at what offshoring is exactly and how it differs from outsourcing.

Offshoring is the relocation of a business’ process overseas in order to take advantage of the lower costs in that country.

The practice is typically used by companies from industrialised nations looking to utilise the relatively inexpensive labor pools in nations that are less-developed.

This differs from outsourcing which is merely the moving of internal operations to a third-party source. This can be anything from your lunchtime catering to your sales team.

Outsourcing is used as an efficient way of growing a business, allowing a company to delegate costly or time-consuming processes to an outside team that specialises in it.

Whilst offshoring can be a form of outsourcing, it isn’t always the case. Often, a company will simply choose to build their own overseas team as an internal part of the business.

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What are the advantages and disadvantages of offshoring?‍

Advantages

Lower labor costs

Without doubt, the most significant benefit of offshoring is the potential to dramatically reduce your labor and salary costs.

Research has found that offshore employees often demand around 30 to 50 percent less in labor costs when compared to similarly skilled Australian workers, although this depends on the country. This alone can be hard to ignore for business owners, especially when your business finances are stretched as it is.

Access to skilled workers

If a particular role requires a very specific set of skills, there may only be a small selection of workers in Australia to choose from. Offshoring opens you up to a vast pool of highly skilled and specialised workers that would be expensive if sourced domestically.

By implementing this practice, companies have access to talented and expert workers at lower rates and with less competition. It can be a great way to speed-track your business growth by expanding and deepening the expertise at your disposal.

Domestic focus on strengths

Offshoring is often used to of pass off the ‘grunt work’ in a business’ operations, in turn freeing up the domestic workforce to focus on core tasks.

Plenty of business owners get bogged down by admin, research, accounting and analytics, which can impact their ability to execute their strengths. Sending these processes offshore enables you to concentrate on what matters to your business, like your customer relationships.

Maintain control

If a business needs to source expertise but wants to stay in control of the process, offshoring can be a great alternative to outsourcing.

For example, if you’re needing to boost your IT capabilities, offshoring would you to keep these processes internal to the business, where outsourcing would require you to hand these powers over to a third party.

Disadvantages

Language and communication barriers

Whilst many offshore countries use English as an official language for business, there is still a good chance you will face language or communication barriers somewhere down the road.

Naturally, every offshore worker will have varying levels of proficiency in what is usually their second language, so more time will be needed to ensure effective communication is carried out.

Even for workers with good English skills; differences in accents, phrases and terminology can all present challenges when exchanging information and ideas.

Increased demand on management skills

Business owners tend to underestimate the added demands that offshoring places on your management skills. Whilst you may be able to offload some of your day-to-day workload, you will be taking on the stress of managing a team in another country.  

If you’re unable to adapt your communication and organisation skills to fulfil these needs, then offshoring will quickly create more problems than it will solve.

Quality control

Offshoring does make it much harder to stay in control of the business’ overall output simply because you aren’t there in person to enforce the direction you would like.

Normally, when you hire an employee in your home country you are able to shape their skills and work ethic to fit in to your business. When you hire overseas, you will have to put a lot more trust in your offshore managers and team members to make sure the business is running how you want it to.

Time zone adjustments

Whilst having part of your team in another time zone can be advantageous, it can also present its own challenges.

It can be difficult to organise work patterns that allow for periods where both sides are able to communicate with each other, and often this is only for a small part of the day. The periods which don’t overlap can create gaps in communication which can ultimately affect the decision making process.

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Can offshoring work for small business?

It all comes down to the question; “why?”

So many business owners decide to go down the offshoring path without fully weighing up the reasons behind their decision.

If your reasoning only goes as far as “I need to save money on staff”, then you haven’t thought enough about it.

Hiring offshore staff may be saving you money on salary, but it can lead to bigger headaches in the long run.

The nature of offshoring makes it much harder for your overseas staff to build a loyalty to yourself and your business. As a result, it can be difficult to retain motivated and trained offshore staff in the long-term, which leads to higher rates of turnover.

Investing the extra money into an employee you see at work everyday gives you greater control over their development and well-being. It can be easy to underestimate the value of an asset like this.

Another common mistake business owners make is assuming that hiring offshore will immediately lessen their workload.

In reality, offshoring is never the magic bullet that solves all your problems. The process is a big undertaking that has the potential to reshape how a small business operates.

Whilst you may be able to hand off some of that ‘grunt work’ that has been slowing you down, you will also be giving yourself a whole new set of challenges.

You will quickly find a greater demand on your communication and management skills as you run seperate operations simultaneously. Business owners that fail to adapt to these changes will find their workload gets vastly more complex and stressful to run.

If you are handing work over to your offshore team, you must also be handing over a clear and established process that they can follow. An offshore team is only a valuable and cost-efficient addition to your business they know exactly what is expected of them.

From our experience in the industry, the best time to offshore is when your business is growing sustainably and you want to spread your expertise and workload amongst other skilled professionals. Effective offshoring will give you more time to concentrate on the functions you consider integral to the success of the business.

Offshoring can be great for your small business but before taking that leap of faith, know why you are doing so.