What is offshoring?

Offshoring is a typical outsourcing model where business functions of an organization are performed in another country. The most important driving force behind offshoring is the cost reduction that organizations are able to achieve. Other reasons why companies go for offshoring are strategic in nature which includes entry into newer market, to utilize talents that are not available in the domestic market, and to get over regulations that are in place in the domestic markets which prevents specific activities.

For most of the organizations in the west, India has become a favorite destination for outsourcing their business functions, particularly in Information Technology. The large skilled and talented professionals proved to be an advantage for India to become the world’s favorite IT offshoring destination.

Moreover the large English speaking population made it easy for India. The development of internet and telecommunications network is another noteworthy development, which enabled western organizations to get their computer based work done in India. The labor cost in India is much less when compared to developed countries, which along with large pool of English speaking professionals has shaped India into a perfect destination to offshore business functions. The major offshoring service providers in India include Tata Consultancy Services, Infosys, and Wipro.

Philippines with a large pool of educated and English speaking population has now become popular location for offshoring call center services and customer support services.

In the case of offshoring manufacturing activities, China is the prime location for the US companies and many other European countries. The Chinese government has taken services as a priority and has included it in the national development plans for the coming decades. To meet the demand for English speaking professionals, China has included English as a subject of study from the 3rd grade onwards and has established number of technical schools and colleges which produces tens of thousands of graduates every year.

Nearshoring is the outsourcing of business functions to a near by country. It is often adopted by companies which do not want to deal with cultural differences, language barriers and time zone differences. In the case of the United States, one of their favorite nearshoring locations is Canada and LA countries are also turning on the heat.

In some cases organizations set up offshore companies to serve their own internal services, and such centers are called captive centers. This tendency is mostly found among organizations in the United States and Europe. Captive centers are also used by organizations to serve their own clients.

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