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What is offshoring and how it benefits businesses?

13 June 2019


The arrival of new technology companies boosts the demand for IT specialists. Already now, the Western IT market feels a shortage of human resources. At the same time, the high rates of software engineers prompt tech businesses to look for alternatives.


One possibility for saving money is offshoring. It has already become a winning solution for many IT companies that want to expand without largely increasing their expenses.



What is Offshoring?



Offshoring appeared long ago when the first companies decided to open factories abroad. Since that time, it has transformed and taken other forms, but there is no uniform definition so far. While many people believe they understand the essence, they often mistakenly use this term as a synonym of outsourcing. Let’s remove any uncertainties and clarify what it’s all about.


Offshoring can be defined as shifting production or delegating tasks to foreign specialists. It implies that a company employs people abroad, usually in a developing country where wages are times lower. This works well for manufacturing and IT as well as marketing, sales, and customer care processes.


In the case of offshoring, people who work abroad are the company’s employees. They can act as separate specialists, be a part of a small or a middle-sized team or constitute large offices. In any case, they act under the company’s brand.


In the IT sphere, offshoring usually takes a form of foreign offices, R&D centers, or dedicated development teams located abroad. Those are popular tools for business owners to cut off expenses while preserving stable growth rates. But you should know more.



Advantages of Offshoring




Offshoring benefits businesses in a variety of ways. Below are the top five reasons why it may turn out a great idea for your company.


Lower Labor Cost

Business is always about earning more money. To increase income, companies seek ways to optimize expenses, and hiring lower-paid human resources may seem a solution. In such a situation, the market for IT specialists in developing countries such as Ukraine with up to 70% lower salaries, offers an excellent opportunity.


International Expertise

Engaging human resources from foreign countries often turns out beneficial as far as companies gain additional insights and international expertise. A fresh outlook on business issues by new employees can turn into a profit. This knowledge will be especially valuable if you are entering a local market.


Qualified Staff

Moving your business to a new country, you get access to new talents. This is especially the case with countries in Eastern Europe that are recognized offshoring leaders. Strong competition makes companies engage top talents. This means that transferring your activities to such countries, you get employees with proven expertise.


Opportunities for Scaling

Higher flexibility of your business is an extra advantage you get with offshoring. The availability of human resources will make it easier for you to extend your activities and find new employees. In case you plan to expand, you must ensure that you’ll be able to engage more talents without major obstacles in a relatively short time.


Focus on Business Development

When involving skilled specialists, you gain a chance to focus on the most essential tasks. Delegating a part of activities to foreign professionals, you’ll free up some time and spend it on business development, creative problem solving, or other questions that require your personal participation.


Offshoring global expertise



Disadvantages of Offshoring



Offshoring offers companies numerous benefits and – once organized correctly – can prompt the growth of your business. Yet, it also has downsides.


Insufficient Language Skills

When shifting services to foreign countries, you may experience the lack of people with proper language skills in their region. This factor may significantly hinder understanding and decrease communication efficiency.


Cultural Barriers

Cultural differences may weaken rapport and hinder effective cooperation. Involving employees with opposite values may result in difficulties with performance control or subordination. Thus, you may need strict rules everyone will follow.


Risk of Data Leakage

When extending your activities to new countries, remember that laws or tech security may differ across locations. Therefore, you must take extra measures to secure all your information and prevent possible data leaks.


Time Difference

Another pain point may be a significant time difference. You might wait long to receive a response from your employees unless you’ve agreed that they must respond immediately. Because of the time difference, some employees might also need to work night shifts.


Offshore Software Development



Types of Offshoring



We’ve already explained offshoring, but companies may sometimes choose a modified form. Those are offshore outsourcing and nearshoring.


Combining features of two models, offshore outsourcing stands for delegating your activities to third-party companies located abroad. In this case, it is about involving foreign freelancers or agencies.


Nearshoring is also quite like offshoring but involves hiring talent from nearby countries. As a result, it offers the same benefits, e.g. lower wages and reasonable quality. Yet, nearshoring is even more advantageous given the reduced time difference, similar values, and geographical proximity.



Ukraine as an Offshoring Destination



Ukraine is widely recognized as a perfect spot for IT offshoring and often takes leading positions in related rankings. Below are the three reasons why the Ukrainian IT market might help your company profit.

Skilled Software Developers

Ukraine hosts over 200 educational institutions preparing IT specialists. Annually, more than 16,000 graduates enter the market, thus tightening competition and prompting constant development of skills. Those who have already worked with Ukrainian software developers praise their expertise.

Working Knowledge of English

We’ve identified insufficient language skills as a barrier to effective communication. Still, this shouldn’t be a headache with Ukrainian developers. 80% of local IT specialists know English at the Intermediate or upper level. This means that you shouldn’t experience misunderstandings if you offshore to Ukraine.

Quality to Price Ratio

Ukrainian rates and wages are times lower than those in the US or Europe. Yet, the quality of service doesn’t fall behind. Ukrainian specialists can also share useful advice if they see a better solution to save effort and money. Moreover, with intense competition, providing quality service is an essential condition for success.

In general, offshoring is a great idea for boosting your business without spending too much money on it. But you should consider all its benefits and disadvantages before you decide. Identify what your company needs, and you’ll find the best solution.

Hopefully, this article has explained what offshoring is and how it can benefit your business. If you’re interested in hiring IT specialists in Ukraine or opening own development office, Alcor may be of help. Just describe your needs, and we’ll be happy to assist.

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