A Primer on the Business Advantages of IT Offshoring

Categories: Advice for Doing Business in the Philippines, Advice for Start-ups and Entrepreneurs, Infographics
A Primer on the Business Advantages of IT Offshoring

The current situation and challenges posed by the COVID-19 pandemic caused a shift in the global offshoring industry. Even more companies are now considering a multi-location business structure now that they have become used to managing employees remotely. Therefore, making a shift to engage lower cost, offshore employees in overseas locations does not feel like such a large undertaking compared to the pre-pandemic mindset.

The Philippines is considered one of the major hubs for offshoring. Ida Montemayor, IT Recruitment Operations Head and Co-Founding Recruiter of Manila Recruitment, explains why foreign investors look at the Philippines as a leading IT offshoring option:

“Over the last decade we have seen exponential growth in the uptake of Filipino based IT employees from clients located all over the world. With so many Filipino IT and software professionals now exposed to international best practices and being fully immersed into global teams, the talent pool for highly trained, highly skilled and multiculturally aligned Filipino offshore employees is both extensive and diverse”. 

Accordingly, the Filipino IT workforce has a level of talent and skills, plus the depth of knowledge and experience to execute an offshore IT strategy for a diverse range of companies. From multinationals establishing global centres of excellence with hundreds of IT employees, through to startups and SMEs looking to augment or replace their onshore capabilities with a lower labor cost for one or two roles, or a small team. This infographic will provide a complete picture of the business advantages of IT offshoring that coincide with the evolution of technology, communication, and processes.

A Primer on the Business Advantages of IT Offshoring

What is IT Offshoring?

Information technology (IT) offshoring is the strategy of delegating tasks and processes to direct hire or outsourced offshore employees to relocate elements of the business overseas.

The most frequently offshored IT tasks are software architecture, development and testing, cloud computing, fintech, infrastructure, IT support, artificial intelligence, big data,  machine learning, automation, and cybersecurity.

The Philippines offers a pool of professionals with excellent IT and software skills, high English proficiency, and a strong work ethic.

IT Offshoring by the Numbers

  • Global IT offshoring market

The global IT offshoring market was valued at $333.7 billion in 2019 and is expected to grow by $98 billion in 2024. With the increasing options for cloud services, IT offshoring has become more than a simple cost reduction technique. Businesses are motivated by improved profits and better customer experience, which are among the recognized benefits of IT offshore services.

  • Demand for IT offshore services

A recent study showed that business spending on offshoring increased by 13.6% in 2020. About 51% of technology executives said they outsource application and software maintenance, while 40% offshore their data centers. In addition, more than 44% of chief intelligence officers noted they are now more likely to employ overseas services.

These numbers suggest that companies are moving toward IT outsourcing services fast. In particular, software application development is the most offshored technology function, comprising about 64% of the demand.

6 Advantages of IT Offshoring for Your Business

As a business owner, you may be asking, “What does offshoring mean for my company?” Montemayor sums it up perfectly, “Setting offshore IT teams in countries such as the Philippines saves cost to the foreign company who outsources their teams. Moreover, the company has access to special grant exemptions and incentives for some countries that outsource teams. And with the challenge of round-the-clock availability, a company can cover 24/7 work shifts, especially performing global support with offshoring.” 

1. Reduced costs

Companies usually offshore to reduce labor costs while scaling and streamlining their operations. If you employ a third-party service provider, you won’t need to invest in the onboarding process and infrastructure necessary for an in-house team. With an offshore company, you cut these costs since the firm already has the experience and expertise to get the job done. 

Your offshore provider will also be responsible for its operational expenses. With an internal team, you will need to provide training, which requires additional costs. Having an offshore team will give you more financial room while focusing on your business’s core tasks.

2. Access to expert-level knowledge

With offshoring, there is the availability of different skill sets for specific roles and positions. You have access to a pool of talented, highly qualified, and experienced staff and employ workers who possess the expertise your business needs. Since offshore employees possess specialized knowledge, you can expect better work quality and that skilled professionals can handle your projects.

3. Work with a team dedicated to one function

Working with an offshore team means tasks are performed with efficiency. Offshore employees possess niche skills that allow them to work faster and with more accuracy, improving your production and helping boost sales.

4. Scale-up and expand

With the savings you made from offshoring, you now have funds to expand your services, improve your infrastructure, or enhance your marketing and promotional efforts. Another advantage is that it helps boost your overall productivity. Offshoring non-essential tasks will free up some of your in-house staff’s time, allowing them to focus on core business functions. 

5. Round-the-clock availability

Time zone differences can make way for greater flexibility, thanks to offshoring. Although, Montemayor notes that this can be an early challenge between a company and its offshoring provider. “There are challenges that come with offshoring. The difference in time zones and work schedule can be solved by sitting on it and creating a system that allows for a continuous flow of operations.” 

She adds, “Cultural and social differences may arise as well. The different points of view and beliefs may hinder meeting the employer’s expectations. Keep in mind that a good transition and training period is critical to sort out these differences and foster a harmonious work environment.”

Most offshore companies are equipped with a workforce ready for 24/7 operation. For example, offshoring to a country like the Philippines can be advantageous, especially if your company is located in the U.S., Europe or Australia or any country of a different time zone since you get the most out of the 24 hours. 

Client concerns that come in at any time of the day can be promptly addressed. This results in an improved customer experience. 

6. Reach new markets

When you offshore your processes to other countries, you get the opportunity to work with a diverse range of people who can help you market your products or services to new customers. This will help facilitate your scaling efforts, enabling you to grow your business while streamlining operations.

5 Things to Prepare Before Partnering with an Offshoring Provider

Before going forward with an offshore provider, there are certain things you need to prepare to help you navigate the offshoring process with certainty and ease. 

1. Budget

International business means costs for travel, infrastructure, communication, and customs. If you plan to offer an overseas office, it’s essential that you factor in these considerations. 

In coming up with a budget, don’t forget to include the hidden costs of shipping overseas, such as insurance and freight forwarder expenses, especially if you intend to transport equipment, furniture, and other office materials. Additionally, overseas buyers might request long periods of credit extension, leaving you with cash flow issues unless you prepare for them. 

There’s also the cost of hiring and retaining offshore employees. Your remote team will help you accomplish your goals overseas, so it’s important that you set aside resources to cover onboarding and training costs. Make sure to list all possible expenditures you may incur and measure them against the potential gains.

There are ways to reduce costs such as hiring offshore employees who work from home, and using a third party payroll provider instead of incorporating your own entity in the offshore jurisdiction. 

2. Market study

Doing a market study will allow you to identify opportunities and potential threats, helping minimize investment risks while facilitating strategic planning. It also enables you to spot emerging trends relevant to your business. When you engage in market research, you will learn how your potential customers will react to your product or service.

Running a test case by offering a sample product or service overseas is also ideal. If it works well, then you can slowly expand.

3. Business registration

When partnering with an offshoring agency, the agency will accomplish most of the business registration paperwork, which foreign firms may find convenient. “This is the due diligence of the country chosen to set up offshore teams, including availability of the talent in that specific market and to elaborate any specific type of management and delivery process,” Montemayor explains.

Although most of the paperwork will be handled by your offshore provider, it helps to be aware of the procedures and government offices involved, so you are ready in case an issue arises. Be sure also to know and understand the different tax exemptions and incentives you’re eligible for.

4. Business model 

In launching your operations overseas, one important question to ask is,What business offshoring model should I use?” Note that various types address different needs. In deciding which one to adopt, don’t forget to coordinate with your offshore provider so you can spell out the processes and functions with the proper perspective.

Some companies offer office setup services and assist their offshore partner for a year until the overseas office can independently operate. This can be a good starting point. While for other businesses they prefer a lean entry into offshoring whilst they test the waters. A lean offshore strategy can include employing work from employees and using a payroll service, rather than incorporating to establish your own presence in the offshore country. Many SMEs prefer this strategy when hiring their first offshore employees. 

Keep in mind that your offshore team is an essential component of your business model. Hence, it’s important that you identify the specific qualifications and skills you’re looking for and align them with your organizational goals and values. Then, once you’ve defined your ideal candidate, communicate it clearly to your offshore provider to ensure they can match and hire the right people to work in your offshore team.

5. Policies and systems

Business policies and systems establish the rules of conduct for your company. They define the limits of decision-making and outline the alternatives. They not only identify the involved parties’ responsibilities but also serve as a guide in handling issues that may arise. 

Well-written policies will also give your company protection from potential legal problems. When the rules can be easily understood, your firm is on better ground in case of any disputes.

4 Questions to Ask Before Offshoring

For your journey into offshoring to run as smoothly as possible, here are some important questions to answer.

1. What are your objectives in this partnership?

As one who manages a business, it’s essential to be clear about the specific objectives you want to achieve through the venture. An ideal offshore partnership is based on the principle that your offshore employees reduce your operational costs while expanding your operational footprint.

It helps to list the goals you want the offshore partnership to achieve for your company. The more specific the objectives, the more measurable they will be, allowing you to evaluate if the venture is working for you. 

The important thing is to be clear about what “success” looks like to you. Write down your objectives and share them with your colleagues, so everyone is involved and aligned in the decision.

2. How do you plan on achieving your goals with the help of an offshoring provider?

Offshoring business functions without an implementation plan is like trying to cook a three-course meal with a single frying pan. Prepare and be clear about how you will carry out your desired outcomes. Along with the corresponding time frame, make a list of the specific tasks and functions you will be executing to accomplish your partnership goals. This way, you can track your progress over time.

3. How will you train and communicate with your offshore team?

Even if your offshore partner has refined business processes for the kinds of work you want them to do, you will still probably want things done a certain way. This will require communication and training. Montemayor shares, “Keep an eye out for communication barriers. These range from English proficiency or cultural differences, and a different understanding of things in general.” 

Identify the strategies you will use to train and communicate with your offshore team. Use technology to forge a successful partnership. For training, there are more options than ever before, including video conferencing, software collaboration tools and, when necessary, an on-site visit. But with today’s technology, it’s possible to form a successful partnership without traveling to see your offshore employees very often. Nevertheless, in-person collaboration and occasional visits forge stronger relationships and drive inclusion for your offshore employees, which has measurable benefits for retention, loyalty and long-term outcomes. 

4. How will you measure success?

Let’s assume that one of your goals is to scale by getting work done faster. You plan to implement step two, and you want the offshore partner to handle step one. To make this specific and measurable, you can set a target from 10 projects a year to 20 while maintaining your current revenue per project.

Montemayor shares what type of challenges may hinder success: “Recognize the productivity issues. Managing teams from afar is a challenge, especially when training people and making them see the ultimate goal for success. However, trust in hiring the right people is paramount to achieving great work. So too is a continuous investment in training, inclusion and the setting of long-term development and staff retention strategies”. Your offshore provider can advise on all of these matters. 

Say you estimate it will take 24 months to hit this mark. During that period, you will work with an offshore partner to scale your operations. After that specified duration, review how you are doing so far. If you didn’t reach the target, make course corrections based on the assessment.

Here, it’s crucial to establish specific and measurable benchmarks. If you don’t set some criteria, you can get caught up in implementing without making corrections. The idea is to set milestones and then measure to see how you’re faring along the way.

Maximize the Potential of IT Offshoring

Turning to an offshore IT strategy can help lower labor costs and scale business operations. It allows you to focus on core processes, facilitating increased efficiency and productivity. 

Montemayor concludes, “A continuous improvement in the collaboration of outsourcing companies and talent must be maintained and developed to create an organic, harmonious business relationship between both parties. We have seen that Filipino offshore talent is delivering a very high-quality output of work, and accordingly, the international teams who employ them are becoming more reliant on these offshore setups. Often what starts out as one or two roles being offshored, can turn into a whole team or department encompassing the full range of IT functions. This is now becoming the norm, and the Philippines can provide all the talent that is required by the most discerning of global clientele”.  

“The key to more successful and sustainable collaboration is for both onshore and offshore parties to formulate a workplace culture that works for everyone, which stems from culture alignment, stability, credibility, integrity, fairness, flexibility, positive working environment, work-life balance, and transparency.”

For your offshore IT staffing and recruitment needs, get in touch with us. Manila Recruitment offers top-notch services and employs a tailor-fit approach for the IT offshoring needs for an organization of any size.