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Definition of Offshoring:

Offshoring is about relocating business operations to a different country, mainly because of the low labour prices, cheap resources, or governmental regulations, and so on. It is aimed at reducing the cost of manufacturing and other auxiliary services. For instance, a company specialising in making beds has manufacturing as their core business and customer service as a supporting function. In such a case, it makes sense to offshore it to a developing country. 

They are mainly of two types:

  • Product Offshoring: When the main product is manufactured elsewhere and is imported for sale in the domestic market. 
  • Service Offshoring: When the product is manufactured in the domestic market, whereas services like customer service, IT, marketing, human resources are outsourced. 
     

Advantages of Offshoring

While cost-cutting is the major objective, there are other benefits to offshoring such as:

  • Cheap, skilled labour force.
  • Better control and management of the core function
  • Efficient and streamlined process. 
  • Tax benefits
  • Lower risk of bankruptcy.

Disadvantages of Offshoring

There are obstacles to offshoring that are often overlooked, since the benefit of cost-cutting is a lot more attractive. These include:

  • Communication barrier
  • Political stability or the lack thereof.
  • Ethical issues due to difference in pay. 
  • Long distance management
  • Lack of socio-cultural awareness.