Risks and Criticism
Offshoring and outsourcing have both been subject to a lot of criticism, especially from a political standpoint. Politicians and laid-off workers often blame offshoring for “stealing jobs”. Most economists, however, agree that offshoring lowers costs for companies and passes on benefits to consumers and shareholders.
There are, however, risks associated with offshoring. These include project failure due to poor communication; civil or political unrest impacting production or service delivery; arbitrary changes in economic policy of governments may force unncessary restrictions on MNCs; and poor infrastructure in the developing country may affect quality or timeliness.
While the benefits of outsourcing and offshoring largely overlap, they do not face the same disadvantages. Outsourcing, when done within the country, does not face the same political criticism of loss of jobs. Risks associated with outsourcing can largely be attributed to the vendor’s lack of familiarity with the client’s business. Another risk is a lack of alignment of long-term business objectives of the client and the vendor.
When outsourcing is combined with offshoring, not only is work contracted out to a third party, but it is also agreed that the work will be performed in a different country. The reasons are usually to take advantage of the benefits of outsourcing and offshoring both.
Benefits of offshore outsourcing
Offshore outsourcing combines the benefits of outsourcing, such as easier resource ramp up and ramp down, and more specialized skills; with the benefits of offshoring, such as lower costs and higher productivity.
In the past decade and a half of increasing globalization, offshoring has been the fastest growing segment of the outsourcing market. This is especially true in the case of manufacturing – with China being a leader – and information technology services, with India leading that space. Business process outsourcing is another area of offshoring that has grown tremendously.