If you could hire 4-5 people in China for the same salary that you give to 1 employee in the US, why wouldn’t you offshore your work to China? Doesn’t it seem like a perfect plan to save some recurring operating costs? Trust me; it might not be as easy as you think. Apart from obvious major risks like language barriers, culture differences, and copyright infringement; there are various other risks that can make your offshore venture a failure. In this blog, I will put some light on some of those hidden issues.
Increase in travel expenses: Most of the armature businesses will measure the success of their offshore project through the reduction in their recurring operating costs in the US. Often that performance metrics doesn’t take the overhead costs, such as traveling, in to the consideration. Successful outsourcing requires significant face time during the launch phase to establish the rules of engagement and regularly thereafter to maintain the relationship. And these costs greatly increase as both the client and the offshore supplier make lengthy and expensive trips.
High turnover: With more and more companies moving their workforce to India, China, and Brazil; the demand for offshore workers increases, so do their wages. Salaries in India, for example, are increasing by double digits almost every year. For some overseas locations in China, employee turnover is extremely high sometimes as much as 50% as employees are regularly recruited away from their current jobs. For a knowledge-based function such as software development, this high amount of turnover can be disastrous in the long run.
Negative ROI: On an average, it takes approximately 3-5 years before one can see the same amount of productivity from their offshore team. Research has shown that although the advertised savings for offshoring were around 60-80%, actual savings of 0-20% were common and in many cases it was negative. Most of the businesses fail to consider the additional costs that are required to increase their management and training efforts, so that they can have the same level of quality in their end product.
Of course, not everything is bad about offshoring. In my next blog post, I will discuss few ideas about……’why you should consider offshoring’. Until then, if you have any other ideas or comments about offshoring, then please feel free to share it here on my blog. Thanks – Bhavin Gandhi