Offspring means is moving the production to other countries. Currently this is happening in most of the countries where they find other countries are cheaper to produce their products. Weighing advantages and disadvantages of off shoring is always debate. I want to summarize the advantages and disadvantages off shoring in point of view and then I will put my strategy on this.
Off shoring helps in reduce the total costs of a product by getting cheaper labor and core stuff for the product. This way company can focus on its administration operations like sales and marketing. It definitely reduces overhead costs like resource management. Many companies hire to do non technical recourses to do their work. This is the main reason that India has set up so many call centers to help their customers for USA companies.
Off shoring helps companies when their operations come operationally uncontrollable. IT can increase the company efficiency and productivity so that it can be successful and better for marketing of its products in highly competitive market. Off shoring also makes an organization free from investments in technology, infrastructure to reduce the capital expenditure. It gives the business flexibility to increase the new skills that can be used as competitive advantage.
Off shoring does not suit for all companies and if company does estimate its necessity, the company would unsuccessful. One of the risks it has is losing sensitive data and the loss of confidentiality. Off shoring may lose management control of business and it may no longer be able to control operations and deliverables. In Off shoring, if that foreign country does not have proper product processes, the quality may be bad and it might affect the company business in market. Source Company will lose jobs as it does not require many numbers of resources as they hire in other countries. It will lead to local unemployment and political pressure. We recently have seen lots of places these kinds of issues where local people fight for their jobs and demand for cutting offshore processes.
In some firms, there are so many legal issues in off shoring process and there are so many hidden costs that may lead to company loss in long run. There is another issue about communication when off shoring relationship is with completely different culture nations.
Support of off shoring
Off shoring can be acknowledged that its success comes with some pain, though it may have job cuts but, organizations that take a planned approach to off shoring succeed in managing this situation. The greatest advantage of off shoring is the cost advantage, which affects the company’s success. Any savings in operating costs will help toward the company’s financial status and growth. Companies in recession may sustain themselves and grow through innovation. By lowering its operating costs they will have more money to invest in innovation and technology which results in a domestic workforce. Success Story of off shoring
The best example of a company that has cost savings by off shoring to India is General Electric (GE). After off shoring its business process operations to India, it found a reduction of 25% percent on its labor cost. This decision made them to gain 150% in the earnings. There is a big difference in the labor costs in US/Europe and India in the IT industry as well. A software professional with 1-2 years of experience in the US and Europe charges USD 60,000 to 80,000 per year. On the other hand, a professional with same experience level costs about USD 10,000 per year in India, about 11 to 16 percent of that in the US and Europe.