Offshoring benefits risks and challenges

Understanding Offshoring Benefits, Risks & Challenges

3-minute read

 

A Series on the Key Issues On Offshoring Part 1 of 6

 

There is an increasing importance in offshoring especially in this changing landscape. But as more and more firms are considering this business model in improving capacity, a number of key issues has risen, which can determine firms’ offshoring success in the future.

While it has become easy these days, offshoring is not a recipe for success. It’s not a magic pill for firms that want to enhance efficiency and improve capacity. Planning is crucial. And that includes identifying these key factors.

Diverse Range Of Benefits

For many firms, the most obvious benefit of offshoring is pure cost savings. Businesses in Australia, New Zealand, the U.S. and U.K can hire up to five employees in the Philippines for the price of one onshore.

Offshoring provides more than this. It can help companies:

  • Operate more efficiently
  • Get access to a diverse skill set
  • Add more value to their onshore work
  • Retain employees
  • Ultimately, grow their business

 

Lower Costs And Competitive Pressures

Firms that have chosen the offshore route have indicated that the main motivation for adapting this business model is lower costs. Competitive pressures brought about by factors like, increased competition and smaller client and customer bases also drive companies to employ offshoring practices.

By moving certain jobs offshore,organisations can save costs that are anywhere between one-half to one-third across a range of tasks—back and front-office tasks that can be easily commoditised.

Now firms can either pass on these savings to their clients so they can offer more competitive prices or keep their current prices and enjoy larger margins.

Access To Diverse Pool Of Skilled Employees

Skill shortage is one of the factors that affect the current accounting landscape. In Australia, companies can definitely hire people but not those who possess the skill sets they require for specific roles.

 

Key Issues for Offshoring_Skill shortage

 

One common scenario: you get 30 resumes for an accountant post and discover that 29 are useless. The one that you find suitable would then be twice what you’re willing to pay for.

This conundrum can be addressed by tapping into the large pool of offshore talents, specifically in the Philippines. Offshoring will give firms access to a more diverse pool of skilled employees so they can enjoy:

  • Specialist knowledge
  • Resources that may not be available domestically
  • Niche skills
  • Better quality of compliance work
  • Free up time for onshore employees so they can focus on client-facing tasks

 

Building offshore teams will allow companies to enjoy workforce flexibility that is difficult to achieve with an in-house team.

Higher Value Work And Employee Retention

When all compliance tasks that consume way too much time are taken off the shoulders of onshore employees, these people are able to focus on more revenue-generating tasks.

Accountants can engage more with clients and work on becoming the trusted advisor. They can better provide financial advice because they now have more time to analyse data.

Offshoring As Part Of A Long-Term Business Strategy

 

 

Offshoring will become easier with the help of technological advancements. Combine this with the right amount of preparation and a clear strategy, firms can enjoy the growth they aim for.

  • Local team members (and executives) need to be supportive and committed to this business model to ensure the success of any offshoring.
  • Strategic planning from the leadership team can help minimise future risks and ensure solutions to possible challenges are mapped out.
  • Onshore team members need to be informed of the purpose and process and what role they’re going to play in the strategy.
  • When preparing to offshore, ensure that your organisation has the right systems and processes in place.
  • Onshore team must clearly map out all processes prior to offshoring to avoid future problems.
  • Implement quality control standards within the onshore team first.

 

Addressing Risks And Challenges

Just like any other business strategies, offshoring naturally comes with risks and challenges especially now that the industry is constantly evolving:

  • People look for diversity in their work so those given small, repetitive administrative tasks may eventually experience burn out and eventually leave.
  • Employees want to progress in their careers in a shorter period of time.
  • Turnover is high in places where there’s a high level of competition
  • Countries with poor regulatory frameworks can discourage clients who want to offshore.
  • Cultural differences (i.e. language barrier) can negatively impact a firm’s offshoring strategy.

 

Here are some ways to deal with these challenges:

  • Build an inclusive culture within the company
  • Ensure high employee engagement
  • Make sure that employees can enjoy career growth
  • Allow your employees to do higher level work that will help them learn and develop new skills
  • Rotate people across tasks and processes
  • Promote mutual understanding between offshore and onshore teams through site visits
  • Offer cultural training programs to the entire team

 

Conclusion

Offshoring has tremendous benefits to firms. When done right, it can improve productivity, enhance efficiency and increase profits. But it is important to know that offshoring is not a magic pill. Firms need to invest time and effort to make it work.

Offshoring can provide the following benefits:

  • Operate more efficiently
  • Get access to a diverse skill set
  • Add more value to their onshore work
  • Retain employees
  • Reduce costs and relieve competitive pressure

 

Firms stand to yield the best results by taking note of some important tips:

  • Strategic planning from the leadership team can help minimise future risks and ensure solutions to possible challenges are mapped out.
  • Onshore team members need to be informed of the purpose and process and what role they’re going to play in the strategy.
  • When preparing to offshore, ensure that your organisation has the right systems and processes in place.
  • Onshore team must clearly map out all processes prior to offshoring to avoid future problems.
  • Implement quality control standards within the onshore team first.

 

This business strategy comes with some risks and challenges:

  • Those who want more diversity in their work can look for another job
  • People are looking forward to advancing in their careers
  • High levels of competition in various places can impact employee turnover
  • Firms may be discouraged by countries with poor regulatory frameworks.
  • Cultural differences (i.e. language barrier) can negatively impact a firm’s offshoring strategy.

 

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