offshore outsourcing

Managing Offshore Outsourcing Risks

Aren’t there times where you wished you wouldn’t have to multitask? To go home earlier than to sit in the office trying to tally an account ledger when you are an interior designer? To just focus on designing creatives than involving in sales and marketing?

In such crucial times, before you could give up on sanity, Offshore Outsourcing is the savior to your rescue. Offshore Outsourcing helps share the burden with a third party than doing it all by yourself, creating chaos and overload of work.

Though the term ‘Offshore Outsourcing’ started years ago, the public still makes a mistake, in understanding these very similar yet totally different concepts.

So even before we start with understanding the expression of offshoring Outsourcing Risks and Mitigations it follows, let’s start from scratch.

‘What is Offshoring? What is Outsourcing?’


Outsourcing at its most basic understanding is about moving internal operations to a third party. This can come in the form of selling the physical plant to a supplier to buy back goods or services or shifting the entire business division to a third party and again by the service back at a cheaper rate.

This is usually done to move the transactional activities into the hands of the specialists to give an organization the capacity to focus on its expertise.

Almost every company outsources its functions and enjoys greater specialization in the areas from the third party, which promotes earning most profit, not just for the company but for the economy as well.


Offshoring is primarily a geographic activity that is opted for due to expenses. Think of it as expensive staff; the company will have to pay in more to the staff as it is costly which if offshored, can be done at a lower cost without any loss to the quality.

This means a greater advantage by relocating factories from costly countries to cheaper economies to keep the profit margin coming in. Alongside with profit, offshoring helps other countries develop on technological grounds, generating employment and lowered the cost of consumer goods such as clothing and electronics. The biggest example of this sector is Indian IT. Numerous individuals are employed for the off-shored work of foreign nations powered with means to make a livelihood.

What happens when you combine Offshoring and Outsourcing?

Now that the terms are clearer than before, let’s gather knowledge on the consequences of Offshoring Outsourcing and its mix. In a nutshell, this is an ultimate means to save a significant amount of money by shifting the production to a third party for expertise in an overseas location. All this without the loss of quality at a lower price.

Advocates and experts argue that this not only brings huge development to the staff of the organization but also the nation, which encourages in being ‘Developed Countries’.

Did you know that India is one of the largest offshore outsourcing providers?

India provides offshore outsourcing services in almost all areas of operation followed by China and Russia, followed by Philippines Egypt Bulgaria etc. Most of these countries offer software support services, call center services, data entry services, programming services and many more support services.

Case Study: Ikea group and Offshore Outsourcing.

In 2013 Ikea announced an offshore outsourcing project collaborating with Wincore Nixdorf, shifting all their IT solutions to all the cash settlement units within all Wincore Nixdorf branches during 2014 to 2019. The latter became not only a single offshore project software provider but also enhanced big time and developed its software to service, helping Ikea focus on what it actually started with.

Case Study: IBM and its offshore outsourcing.

This huge business has collaborated with a Canadian subsidiary company that has signed a $700 million contract with the local bank,
by which IBM has become a global leader in back information structure maintenance, including its websites and call centers.

Advantages to name:

If you think that huge multi-nationals and corporations alone could use offshore outsourcing then, let’s take the example of a photography studio.

You are an owner of a small photography studio and you need supporters to retouch millions of photos that you click which will cost you a fortune to hire people that are around you but you can use the same resources from other countries and pay for it cheaper.

Sounds easier and feasible to do? Isn’t it?

  • Reduction of costs

One of the biggest benefits you will achieve is cost reduction. With offshore outsourcing, you are hiring a workforce to do the job you need without burning a hole in your pocket. This is done at a fraction of the cost. Plus it does not mean any low quality as it is done by highly qualified people.

  • Your network is always growing

Unlike previous years, networking has expanded wide. If there was just one photocopying shop in a locality, today there are a minimum of three. Monopoly has long gone and market survival is important.

In such times charged with the modern era of the Internet, getting specialists from all over the world to get the work done is simple. You can choose from a variety and get the most feasible options for most sectors. This will highly improve the quality and efficiency of work that needs to be done.

  • The work never stops

Hiring people on the other half of the globe can keep your work alive 24/7. This means that when you work, they are resting and while you rest, they are working- similar to the pedals of a cycle, with one going up and the other going down but keeps moving forward.

This removes time barriers and your customers will be pleased with the service 24/7.

  • Focus on core activity

Let’s suppose you are a travel agent who is aware of destinations that clients can die for. Do you want to be distracted by salaries not coming in or accounting or even marketing?

All you want is to show the world and the clients these destinations and gift them a memory of a lifetime. The rest of the burden can be handled by simply choosing to offshore outsourcing. This allows the workload off your shoulders than multitasking, giving in time to follow your core activity.

  • Cut down the labor costs

Though this is a part of the cost reduction, having a huge cut down in labour costs can be really beneficial to the company. The payment of hiring a team to checking of how qualified they are and their payments can be a tedious task and by offshore outsourcing, cheap skilled labour can be bought without having to consider the cost of their training and continual development, who will train them and what if the employee decides to resign and move on to some other company and more.

Offshore outsourcing companies eliminate this task and eases it out.

  • Expansion and Acquiring

Some companies also choose to offshore outsourcing to seek expansion and acquiring. By this, they gain access to market areas and cheaper production costs, if it’s close to their end-users.

Even with numerous advantages, Offshore Outsourcing has its share of disadvantages, with some even questioning the authenticity and privacy of the internal documents.

The disadvantages are:

  • Risk of losing sensitive data

Offshore Outsourcing’s biggest demerit is the question of sensitive information that can be internal and external. Extending internal processing to external sources can be deadly on confidentiality, loss of data and even leaks that can damage the patent, ownership and privacy.

  • Quality check can be doubtful

Even though hiring experts is the best option, they can at times go low

when it comes to quality. They can different methods to do the work which may compromise on your quality standards, giving you and your clients a rough time.

Outsourcing also can pass the ownership and decision making power to the outsourcing company which means, ‘you lose control’.

  • Hidden costs

Even with well-read and well-comprehended contracts, there can be issues of hidden costs, legal problems and misunderstood statements. This can be more of a headache than the real work.

  • Multiple clients

Each outsourcing company may not give in 1:1 dedication as they may have multiple clients to cater to. In such situations, there can be a delay, inaccuracies, low-quality outputs and more.

  • Barriers of all sorts

As it is offshore, the company that the work is being outsourced to may have a different communication culture, a different body language and even a different accent to the common language of English. This may be a cause of confusion among employees and derail the work.

  • No accountability

Outsourced organizations can take the work and build around it but not stand accountable for any work. This thus can lead to legal problems, bankruptcy, a financial loss which the host company may not have an idea about or how to control the crisis.

With advantages and disadvantages that go hand-in-hand, offshore outsourcing can have potential risks that can prove to be dangerous to the company. Having an idea on them can prove to be of help to tackle the crisis and take pro-active measures.

  • Political and Country risk

Even before collaborating with any other country in terms of offshore outsourcing, it’s better to have quick research about the company, the land it is located in, political matters and matters of the Government when it comes to outsourcing.

  • Contractual risks

The market is never stable. In such cases, the host company may close or even deactivate itself from consumer use. With this, there is an impact on the outsourcing company. Contractual risks thus can be high if the contracts are not specific or flexible enough to accommodate changes in the business environment which need to be easy to implement.

Though these risks can’t be predicted or measured in the market, taking precautions can do miracles. Listed below are four steps that need to be planned and put to function right from the very first day of collaboration. This helps to see the future and manage the companies in case of an emergency.

Managing the risks of offshore outsourcing:

  • Preparation

While you plan to outsource, make sure you prepare well in advance and think this process through. It’s like building a strategy- evaluating and determining how to raise profits for the management and expand business through.

  • Implementation

Once the plans are done in perfection, it’s to be implemented. These implementations need to strictly adhere to the plans and only deviate when there is an unprecedented situation. The implementation also checks on each individual’s work done and dependencies in progressing further.

  • Operation

Operation relates to supervising the task. Once the implementation starts its important to work according to the plan and having regular checks can keep it in the right direction.

The operation also checks on the external issues that can rise and manages them before they impact the organization.

  • Review

Once the task is done, an organization can choose to renew the
contract. In such a way, the company should carefully understand and skim through the contract. If the need to negotiate arises, it should be done and statements should be specified clearly.

This helps in smoothening the transition and managing the necessary process, defined in the contract.

With the management of risks, the host company can now collaborate with the offshore outsourcing company. With assured quality standards and the time to focus on core activities, with fewer expenses and low costs, every company is now chartered for growth and development.

“If you don’t invest in risk management, it doesn’t matter what business you’re in, it’s a risky business.”

-Gary Cohn

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