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The Impact of Offshore Outsourcing on the Global Economy: How Offshore Outsourcing is Changing the Way Businesses Operate

ByVirtual Employee

Nov 23, 2023
How Offshore Outsourcing is Changing the Way Businesses Operate

Offshore outsourcing has exploded in popularity post-globalization. Many businesses partner with offshore companies operating in India, the Philippines, Malaysia, Ukraine, etc. The traditional image we associate with “outsourcing” is big firms moving half their operations to India or other Asian or even Latin American nations to save money.  

While the primary motivation for companies embracing offshore outsourcing remains saving, there are other distinct advantages that we will touch upon later. However, it is essential to emphasize that hiring offshore employees is not limited to Fortune 500 businesses. 

You can gain significantly by offshoring your most tedious tasks at a fraction of the costs. But before going deep into the benefits it offers to businesses or the economy at large, let’s define the term offshore outsourcing first. 

Defining Offshore Outsourcing

Outsourcing is when a company assigns a third-party vendor some in-house tasks. And when this third-party vendor is in a different nation, it is called offshore outsourcing. A perfect example is a company hiring virtual employees in India to handle customer support and data entry operations. 

This type of outsourcing is hugely popular for its cost benefits. Due to purchasing power parity, the cost of living in India or the Philippines is much lower compared to the United States or UK. This explains the lower wage rate for an Indian employee compared to their US counterpart. By hiring virtual workers, companies arbitrage the labor costs globally.  

Since companies in developed nations spend on services and create jobs in low-income nations through the offshore outsourcing model, is it a zero-sum game for their economy? No. On the contrary, studies have found that offshore outsourcing creates more benefits for the economies of developed nations. Let’s explore how. 

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Impact of Offshore Outsourcing on Developed Economies

Offshoring is a story of win-win. Unlike more capital-intensive offshore manufacturing, service outsourcing is more labor-focused. Therefore, service outsourcing translates to huge returns. By hiring offshore employees, U.S. businesses make tremendous cost savings. 

Firms often pass on the cost savings to customers through lower prices on goods and to the investors as higher profits. Besides, outsourcing menial jobs to low-income nations frees resources and the workforce in developed countries for more value-added jobs. Therefore, $1.46 in new economic value is created for every dollar spent on outsourcing by US firms.  

So, this brings us to the question of what are the benefits of offshore outsourcing other than cost savings? We will explore the answer to this in the following paragraphs. 

Benefits of Hiring Offshore Employees

Offshore outsourcing is dramatically transforming traditional business models. Businesses understand they can save substantial costs by hiring virtual employees and shifting some non-core activities outside the organization. The other benefits include operational efficiencies, time savings, etc. Let’s talk about these benefits one by one in the following sections.   

  1. Beat Competition

Offshore outsourcing creates a level playing field where even small businesses can compete with the giants. Small and medium enterprises would find it cheaper to opt for virtual hiring at a fraction of the cost of having an in-house team. Additionally, by working with a diverse workforce from varied geographies, SMEs can gain insights into the culture and preferences of that nation. 

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This insight can help them expand their presence in that nation in the future. For example, virtual employees from India can offer insights into the preferences and psyche of customers in India. A worldwide workforce can also help the SME establish itself as a global brand without setting offices on foreign shores.

  1. Cost savings

One of the most published benefits of offshore outsourcing is cost savings. Outsourcing helps you save on salary as the cost of living in low-income nations is less compared to a developed economy. Further, you don’t have to bear insurance expenses or invest in the retirement corpus of your hired offshore employees.

Further, you don’t have to bear office space expenses, team member travel, equipment, etc. The third-party vendor offering you virtual employees takes care of these expenses. Therefore, working with remote resources under an offshore outsourcing model translates into colossal business cost savings.

  1. Access to Specialized Resources and Skills

There are some tasks that experts best do. For example, you might be trying to build a new software or app in-house but lack the necessary talent in the in-house team. Hiring domain experts with the required expertise can cost time and money. This is where offshore outsourcing can come to your rescue.

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Vendors offering virtual employees have a ready inventory of such talents at different cost points. You can readily hire such employees to handle the task while focusing on core business activities. Opting for this route allows you to complete your projects in a reduced timeframe, costs, and workload.

  1. Improve Efficiency and Quality

Outsourcing non-core/ menial/ non-strategic business activities frees internal resources for other essential core functions. Your in-house staff now do not have to spend hours on invoicing, answering emails, or performing routine administrative jobs. Instead, the resources now have more time to interact with customers, focus on product development, etc. 

This can lead to massive efficiency and productivity gains. By increasing customer focus, you can serve them better- leading to improved profitability and more repeat orders.

  1. Scale Up or Down as Business Demands

Businesses go through different economic cycles. However, you must pay salaries even during the lean period when working with an in-house team. However, this is not the case when you hire offshore employees. 

You can quickly scale up or down your offshore team by giving a seven-day notice period. This option offers you great flexibility and significant savings as well.

Final Words

Hiring offshore employees from India can offer several benefits to organizations. Besides cost savings, organizations can benefit from operational efficiency, improved quality and efficiency, etc. by opting for offshore outsourcing. 

By Virtual Employee

Virtual Employee, is a remote staffing & tech MNC, providing experts from domains like IT, Content Creation, Digital Marketing, Designing. It offers affordable and scalable virtual employment solutions for businesses around the world in over 150 domains. Founded in 2007 with the single-minded objective of helping SMEs (Small and medium enterprises).

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