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Offshoring has been a widely recognized cost-reduction strategy for global businesses throughout the years.

In fact, 83% of the respondents in the 2023 Deloitte research cite cost reduction as their main objective for offshoring.

But what offshoring offers is not limited to cost reduction. In the same study, businesses identify these reasons as their primary motivations to offshore:

• Process standardization
• Developing capabilities
• Driving business value
• Risk mitigation

There are plenty of roles that businesses can offshore. And there are plenty of challenges that come into play as well. This comprehensive guide walks you through the ropes of offshoring and how you can make it work for your business.

Chapter 1: The case for offshore teams

Every business has its own needs and challenges to solve. What makes it more challenging are the external factors that put plans on hold.

The current business landscape encourages organizations to turn to offshoring teams in overcoming challenges. To have a better understanding of this strategic move, let’s dive deep into the most common reasons why companies build offshore teams.

1. Market expansion

The digital age paves the way for businesses to capture international markets. This requires adapting to cultural differences and, at times, localizing operations to meet market demands efficiently.

Expanding business operations entails:

• Hiring additional human resources
• Legal compliance
• Setting up office spaces
• Acquisition of equipment

And a lot more.

2. Access to experienced professionals

Scarcity of talents is one of the roadblocks of businesses. The lack of qualified professionals puts pressure on organizations to deliver outputs on time and meet KPIs.

On the other hand, the demand may be sufficient but the overhead cost of recruiting and retaining staff is expensive.

Diversifying the workforce may be the most efficient way to fill in the gaps related to human resources. This could mean tapping into a global talent pool.

3. Risk mitigation

Having multiple teams in different locations spreads the risk of operating a business in today’s business climate.

For instance, it reduces the possibility of operational downturn due to external factors like economic downturn.

4. Business continuity

Global businesses can maximize the time-zone and regional holidays differences to operate 24/7.

Round-the-clock business operation enables companies to increase client satisfaction and provide better customer service.

For time-sensitive projects, teams can take on tasks continuously by handing over work from one team to another.

5. Government incentives

There are countries, like the Philippines, that offer incentives to both local and foreign investors to promote economic development and create job opportunities.

For instance, Clark is a fast-growing business hub in the Philippines that is among the 101 special economic zones in the Philippines.

The Philippine government grants incentives to businesses in these economic zones. These include tax holidays, streamlined business registrations, and easier access to government services.

Since the pandemic, there is an increase in the number of companies that offshore. The recent global crisis turns out to be a catalyst to speed up the digital transformation of many organizations.

The strategic move to offshore teams brings significant impact to companies such as:

• Capital expenditure reduction
• Faster time-to-market for products and services
• Risk diversification
• Operational efficiency
• Entry to new markets
• Developing new products and services

However, there remains failed offshoring stories for various reasons. These mistakes are thoroughly discussed in the next chapter.

Chapter 2: Planning your offshoring journey

There are plenty of considerations when you are building a team overseas.

Data privacy, pool of talents, and SLAs are just some of the main concerns of companies when offshoring functions.

A 2022 Clutch study reveals that 83% of small businesses will maintain or increase their spending on outsourcing services.

On the flip side of the coin, Dun & Bradstreet’s Barometer of Global Outsourcing reports that about 20% to 25% of outsourcing relationships fail in a span of two years. Meanwhile, 50% will fail in a span of two years.

Some of the common mistakes that hinder offshoring success are:

• Not setting clear budgets
• Lack of thorough assessment on business needs
• Failure to conduct research on potential offshoring partner
• Neglecting data privacy and security protocols
• Failing to set metrics in place

Before offshoring teams, it is essential to do these things and discuss them with your management team.

1. Assess your business situation

Evaluate the current position your business is in. Start with identifying your core and non-core functions (which will be discussed in detail on the third step), analyzing the complexity of processes and functions, and finding existing gaps that affect the operations.

Conduct a cost-benefit analysis to measure the costs of maintaining certain functions versus offshoring them.

Although many businesses start off with offshoring non-core functions, it is always best to look at the unique structure of your organization. Assess if this offshoring strategy works well for your setting.

2. Define offshoring objectives

This is the foundational stage of your planning process. Your objectives for offshoring should be aligned to the result of your assessment.

Objectives depend on your organization’s needs and circumstances. For instance, Amazon decides to offshore to Cebu in 2018 to improve its customer service function. It took advantage of the available workforce in this location to fill in the gaps in their customer service.

Aside from cost reduction, the most common goals of companies when offshoring are:

• Access to specific skills
• Business expansion
• Enhanced productivity
• Establishing 24/7 operations

3. Identify the roles to offshore

Due to the diversity of roles in every industry, creating a clear and concise job description helps you find the right person for your offshore team.

Job roles can be classified into two: core and non-core functions.

Core functions are activities with direct contributions to the organization’s core competencies. For example, developers are essential resources to run an e-commerce business.

Non-core functions are supportive activities that are necessary but are not the primary focus of your business. Examples of this include admin assistants and payroll specialists.

Describing the role must include its key metrics to measure the effectiveness of the function you are offshoring.

This is discussed further in chapter 4.

4. Vendor selection

Your choice of an offshoring partner determines the success of your offshoring initiative.

Before scheduling an appointment with a prospective offshoring partner, you need to research on their:

• Proven track record in your industry
• Industry expertise
• Client testimonials and online reviews
• Certifications and partnerships
• Facilities and infrastructure
• Cultural compatibility

This information helps you ask the right questions to the offshoring provider.

Chapter 3 discusses the ins and outs of selecting the right offshoring partner for your business setup.

5. Defining SLAs

Service Level Agreements (SLAs) is a document that specify the expectations, performance standards, and key metrics that you and your offshoring partner should adhere to.

The SLA must not only be aligned with your offshoring goals. It should also secure you from potential risks that come with offshoring.

Take note of these important points that must be covered in your SLA:

• Legal compliance
• Data security
• Roles and responsibilities of both parties
• Communication channels
• Termination clauses
• Deductions and remedies on situations

6. Onboarding and training of offshore team

Most offshoring companies follow an onboarding program for their new hires.

However, it pays to arrange your own onboarding program to introduce your offshore staff to your team.

The first month is crucial to help your offshore staff adapt to your systems and best practices. Prepare and organize training materials in advance so there’s no interruption in their training period.

7. Monitor and review KPIs

KPIs are not limited to your offshore staff. It should extend to your offshoring partner’s effectiveness in meeting standards (as defined in your SLA).

From the outset, you must establish: Regular meetings, reporting structures, and feedback mechanisms. They measure what are working in your offshoring initiative and what issues should be resolved.

Chapter 3: 10 qualities to look for in an offshoring partner

Finding an offshoring partner is like searching for a relationship that’s built on trust and loyalty.

And just like any type of relationship, there are green and red flags to look out for.

Of course, we will give more focus to these 10 positive qualities that your offshoring partner should have.

1. Cost efficiency

Competitive pricing does not necessarily mean cheaper cost. The partner must offer competitive pricing without sacrificing the quality of services they provide.

Ask for the breakdown of cost from the vendor. Some of the important details on the coverage should include:

• Cost of equipment
• Salary range of the job role
• Management fee
• Payment terms and conditions

2. Clear and concise SLA

SLAs should cover all aspects of the partnership. It must define the scope of work of both parties, the legal requirements, industry-specific standards, and data privacy regulations among others.

The contract serves as the roadmap to how the outsourcing relationship is going to be – from entering into the agreement to terminating the partnership. The clauses should eliminate potential disputes and outline a smooth partnership.

3. Technical competency

If your daily operations involve third-party systems, the offshoring partner must have a deep understanding and expertise in managing complex integration challenges. This requires established protocols to ensure that exchange of data is secured.

Discuss the technical requirements you need before entering into an agreement. Check with the offshoring provider if they have experience in setting up the tools and systems used in your business. Ask about their security measures to prevent the risk of data loss or leaks.

Keep reading as we discuss more about data security.

4. Implementation of data security and compliance

Businesses are more prone to data breaches due to the nature of data exchange that goes with offshoring. However, certain global standards and compliance are put in place to protect businesses and individuals from this risk.

An experienced service provider has strict data privacy and protection policies implemented within the organization. For example, there are service providers that put restrictions on employee devices for personal use.

These protocols give you confidence that all transactions between you and the offshore staff are safe and secure.

5. Geopolitical considerations

When selecting an offshoring partner, geopolitical considerations include assessing factors such as:

• Political stability
• Economic conditions
• Legal frameworks
• Government policies
• Location
• Country reputation, and
• Cultural compatibility

These factors all contribute to a positive offshoring environment, whereas geopolitical risks, unrest, or unfavorable conditions can jeopardize the partnership’s reliability. Furthermore, considering cultural compatibility and country reputation is critical for effective communication and the development of a harmonious working relationship.

6. Experience and expertise

A partner with a proven track record has handled clients and their challenges successfully in the past. Their expertise enables them to provide valuable insights as well as a targeted skill set. They are better positioned to align their services with your company’s objectives. An experienced offshoring provider can adapt to industry changes, adhere to regulations, and provide insights that aid in strategic decision-making.

7. Flexibility and adaptability

A dynamic offshoring partner recognizes that one size does not fit all. They should be able to tailor their solutions, processes, and communication methods to integrate seamlessly with your business operations. Similarly, they must keep up with technological advances and incorporate new tools and methodologies that contribute to your organization’s competitiveness and readiness.

When you engage in offshoring teams, these two factors work hand in hand to ensure the long-term stability and growth of your business.

8. Client relations and employee engagement

Testimonials can help you gauge the client’s and employees’ relationship with the offshoring provider.

Client references provide firsthand, real-world information about how the offshoring partner operates, handles challenges, and meets client expectations. This data is frequently more honest and informative than official marketing materials.

High retention rates, on the other hand, indicate a stable and committed workforce. A low turnover partner is likely to have experienced and knowledgeable employees who contribute to consistent and dependable service delivery.

9. Talent pool and skillsets

A well-matched talent pool ensures that your offshoring partner has the necessary skills and knowledge to align with your company’s specific requirements and objectives. A talent pool with a diverse skill set improves overall efficiency and productivity. Each team member can apply their specialized skills to various aspects of the project, improving overall performance.

10. Company culture

Employees have a sense of direction and meaning in their work when the culture of the company communicates a clear purpose and mission to the workforce. Employees who feel a connection to the organization’s core values, mission, and vision contribute to the development of an environment that is encouraging and welcoming, which in turn boosts morale.

Chapter 4: How to identify the roles to offshore

In Chapter 2, we briefly discussed the two types of job roles you can offshore: the core and the non-core functions.

The classification varies depending on the business setup and the industry. For instance, an accountant may be a non-core function to a real estate business but a core function to an accounting firm.

Identifying job roles doesn’t simply end with writing job descriptions. It involves careful analysis of different factors that ensures a successful and seamless transition to offshoring.

We narrow down the ways to identify the right job roles to offshore into 5 steps:

Step 1: Assess business needs and task analysis

This step goes hand in hand with the assessment of your business situation (as discussed in Chapter 2).

Once business areas for improvement are identified, you need additional resources to work on processes. To have a more effective strategy, break down your business operations according to their functions. This lets you easily identify tasks that don’t need physical presence on-site.

Other factors that you need to consider are:

• Technology requirements of these functions
• Communication channels for collaboration
• Supervision of functions

Although many businesses start off with offshoring non-core functions, it is always best to look at the unique structure of your organization. Assess if this offshoring strategy works well for your setting.

Conduct a thorough task analysis to identify tasks that are suitable for offshoring. You may start with concentrating on repetitive, rule-based activities with well-defined processes that do not require on-site presence.

For businesses that aim to build an offshore team, say software developers, it’s best to start off with senior staff members. They are the cornerstone of managing and training your team overseas.

Step 2: Definition of skill requirements

Outline the skills and qualifications needed for the roles you want to offshore. The job description must define the:

• Fundamental tasks and responsibilities
• Non-negotiable skills to carry out the function
• Language requirements for roles that involve direct client contact
• Software and tools to be utilized
• Educational qualifications and/or experience level
• Relevant certifications along with validity period if necessary

By clearly outlining the skills and qualifications for each role, you create a solid foundation for recruiting the right talent, ensuring that the offshore team has the necessary language proficiency, technical skills, and qualifications to integrate seamlessly with your business operations.

Step 3: Documentation and SOP

Prioritize tasks with clear documentation and well-established Standard Operating Procedures (SOPs) for effective offshoring. This ensures that offshore teams have clear guidelines, easing knowledge transfer and reducing ambiguity.

Tasks that are well-documented promote consistency, increase efficiency and productivity, and allow for scalability. SOPs contribute to quality assurance by fostering a culture of continuous improvement and enabling adaptability to change requirements, ensuring offshoring initiatives’ long-term success.

Step 4: Research offshore markets

Look into various offshore locations and evaluate their suitability for your business based on a variety of factors. Popular offshoring destinations such as India, the Philippines, Eastern Europe, and South America provide a variety of benefits.

Although time zone differences should be a consideration, more countries like the Philippines become more flexible in their office hours.

It’s also important to assess the quality of the educational system. Does it align with your industry needs? Are there available talents that match your requirements? Take note of these critical considerations.

Step 5: Cost-benefit analysis

It’s necessary to take a systematic approach to analyze the costs and benefits involved in offshoring roles.

Just remember these key components when weighing the financial implications against the benefits:

• Salary and employee benefits when you hire locally versus offshoring staff
• Recruitment costs in terms of monetary and time
• Investment in technologies such as equipment, tools to carry out tasks, and licenses
• Rent and/or maintenance of office spaces

Conducting a cost-benefit analysis ensures a well-informed decision-making and optimizing the value gained from the offshore strategy.