Trump’s rhetoric against offshoring has made outsourcing the subject of headlines. News outlets can’t stop talking about it. This media visibility would have been great if those same news outlets talked to experts and asked for clarifications about outsourcing. Unfortunately, none of the big news outlets were interested in seeking the truth. Here’s a list of the biggest misconceptions about offshore outsourcing that you’ll never see discussed in mainstream media.
1. All outsourcing is bad.
Outsourcing can also happen inside U.S. borders and it’s not only through the H1B Visa program. Distant Job offers a simple definition of outsourcing:
Outsourcing is an option from which a client gets some of their work done by subcontracting it to a third party. The third party may be located on the same street, in the same city, a different city, or even a different country.
Note that only some of the work is outsourced to a third-party provider. And, the company that outsources has the option not to build a captive center to house their offshore employees. Businesses can partner with an outsourcing company to do the work without worrying about construction costs, business registration permits, electricity and other overhead costs, and even staff recruitment and retention.
2. Companies can simply refuse to outsource offshore.
Refusing to outsource can mean foregoing expansion or worse. This is especially true for small-to-medium-sized businesses that don’t have enough money for adding a new office or renting a bigger one on top of hiring new workers and paying additional overhead costs. Outsourcing to an offshore service provider takes away the financial burdens of growing a start-up or small business
3. “You get what you pay for.”
People who are against outsourcing think that offshore staff simply cannot handle high-standard requirements. According to their rationale, the low cost of labor proves that you can never expect high-quality output from them.
However, the cost of wages paid isn’t the same for all countries because “the cost of living determines how much an offshore worker is paid, not the wage itself. For example, the minimum wage of an entry-level Filipino offshore worker is around $500 a month. At first glance, that’s chump change for a foreigner…but well above the rate in the local job market, which translates to offshoring jobs attracting topnotch talent.”
4. Quality work can only be done by in-house staff.
Having an in-house staff who are competent and reliable is standard practice. But, it’s not a standard thing to say that your onshore employees are the only people in the world who can do the job well. Many people in other countries can provide quality work as well as or even better than onshore staff. The fact that offshore staff cost lower than their onshore counterparts should not be your basis for judging their work.
Hiring a few people for your in-house staff is fine. But, when you start expanding you’ll need an influx of talented workers. Some big companies may be able to pay 20 dollars or more per hour for a new batch of employees. But, for small businesses or start-ups this option is often impractical or the worst option for them.
Also, hiring an in-house team does not guarantee that quality work will be done. It’s always a challenge to find great talent with the right mix of skills and experience. In any business relationship – whether it’s part of outsourcing or simply a domestic partnership – high-quality work should be expected.
It’s extremely challenging to recruit, hire and assemble a cohesive team on your own. High quality should be expected of any vendor relationship and it can certainly be delivered in an offshore setup where you have direct control of your offshore team and the quality of their work.
5. Offshore workers are difficult to manage because of cultural differences and the language barrier.
It’s true that it can be a struggle working with a remote team because of the timezone difference. Scheduling meetings can be hard work. But, hiring an outsourcing company that has employees who can speak English fluently and whose culture is not all that different from American culture can significantly lighten the load. This is exactly why the Philippines has been one of the top destinations for outsourcing.
Offshore outsourcing companies in the Philippines provide managed services support for their clients. These services include facilities management, tech support, accounting and payroll, human resources management, and full operational oversight. Working hours are accounted for, absenteeism and tardiness are immediately addressed, and employees receive feedback at the soonest time possible, so they can fix what’s wrong without wasting time.
6. Offshore staff in a different time zone may not be as productive as onshore or nearshore staff.
It’s not the offshore staff’s productivity levels that are a problem. The difference in work hours will only make it difficult for onshore and offshore staff to meet and discuss their agenda at a convenient time for everyone. Most of the time it’s the offshore staff that adjusts to the time difference. Many outsourcing employees work at night following the same work hours as their American counterparts. Other employees are assigned work hours that let them meet the rest of their team stateside for at least one hour after the onshore staff starts working.
Because of advanced mobile and computing technology, geographic proximity of the employees is not that important anymore for businesses. Actually, it’s common for outsourcing companies in the Philippines to set a four-hour overlap in work schedules for their onshore and offshore teams. The teams can make use of this overlap to actually collaborate and give feedback on the work being done. Offshore staff can then focus on complex tasks that require their attention.
7. Offshoring is just too risky.
The risk that a shady company may deceive you and cost you millions rather than help you save is always there. And, it’s not just in outsourcing. Scammers are everywhere.
This is why referrals from other business owners or executives are important. Word-of-mouth recommendations are more reliable than the information you find on public forums or see on TV. If you didn’t know anyone who has done outsourcing before, then check out Better Business Bureau or Consumer Reports for authoritative reviews of outsourcing companies with U.S. offices.
It’s common sense to avoid outsourcing to countries with questionable laws or poor track records. It’s also important that you practice due diligence in building a partnership with an outsourcing company and formalize your relationship through enforceable contracts.
8. Offshore outsourcing is complex and difficult to set up.
You have two options when it comes to offshoring. You either set up a captive center where you can send your own managers to managed a team and handle the daily operations from there. Or, you can hire an offshore outsourcing company that has experience in handling remote work for clients abroad. The best choice for you depends on the size of your needs.
If your offshoring needs are small, it wouldn’t make much financial sense to set up an offshore subsidiary. Similarly, if you want to outsource a particular technology that an offshore vendor has spent years building a practice around, you might get better performance from the vendor than you would from your own captive operation.
If you chose to partner with an offshore outsourcing company, then good for you. Their role is to make things easier for you. They set up the workstations, manage the facilities, and make sure your remote staff is paid well. Many companies provide custom staffing solutions that fit your needs. If you needed only two or three people, then it’s no problem. They can set this up for you in no time.
9. Offshoring is only for businesses with substantial assets and capital.
Legal and financial planning is required when you’re thinking of setting up an offshore operation. The total costs of forming an offshore company will depend on the country you choose, and third-party services, such as electricity and internet connection, that you’ll need to operate the company. But, this only applies to companies looking to build a captive center offshore.
For small-to-medium-sized businesses, outsourcing definitely won’t empty their wallets. It’s a great way to cut down overhead costs and still get the work done on time. The offshore outsourcing company takes care of the workstations and equipment, electrical and Internet services, on-site management, and other necessary aspects of running a business. All you pay for are the people who work for you; a standard compensation package usually includes your staff’s monthly salary plus mandatory contributions, bonuses, and incentives for growth.
10. Businesses turn to offshoring as a way to avoid paying their taxes.
Tax evasion is different from tax reduction or tax avoidance; the former is illegal while the latter is not. The vast majority of companies who invested in offshore businesses wanted to maximize tax efficiency. Tax evasion generally means you avoid paying what should be paid as required by law. This includes cooking one’s books so they reflect lower profits, and thus, the business pays lower taxes.
On the other hand, tax avoidance or reduction means you find ways to not pay more than what you should, as the law permits of tax. Thus, companies in the United States can reduce their tax liability by moving some of their business operations to places with low tax rates. Or, they may partner with an offshore outsourcing provider to help lower their overhead expenses, and save money. They can use that money for expansion or pay off their accounts payable. But, they’re still going to pay their taxes to the U.S. government. There’s no evading that.
11. Outsourcing is illegal and offshore companies are not legitimate businesses.
One of the biggest misconceptions about offshore outsourcing is that it’s illegal because businesses are doing it to avoid paying taxes or to exploit workers in developing countries. Outsourcing is not about tax evasion or exploitation. There are legal measures in place in the country of origin and in the country of destination that protects the rights of both companies and their employees on both sides of the Pacific.
Some people mistakenly assume outsourcing companies are illegal to own or even be associated with because they’re located in another country. Setting up your own outsourcing company in another country or transacting business with an outsourcing company is perfectly legal. It’s okay as long as you follow the laws of that country regarding foreign ownership and the labor code. Not sure whether an outsourcing company in the Philippines was illegitimate or not? Check out the website of the Securities and Exchange Commission (SEC) or the Business Name Registry of DTI.
12. Businesses outsource to offshore service providers because they’re looking for cheap labor.
The truth is there are fewer American workers who have the skills to perform certain jobs. In 2011, Business Insider revealed the following findings of a study on offshoring trends (some words in bold for emphasis):
Most American companies engaged in offshoring say a shortage of skilled domestic employees— not cost cutting — is the primary reason why they move some job functions overseas.
Also, manufacturers and high-tech/telecommunication (NASDAQ:QQQQ) companies are less likely to establish offshore operations and are moving increasingly toward the use of third-party providers of offshore labor.
This study was done by researchers from the Center for International Business Education and Research’s Offshoring Research Network (ORN) at Duke University’s Fuqua School of Business and The Conference Board, an independent research association.
13. Offshore outsourcing takes away jobs from Americans.
If we look at the Mass Layoff Statistics (MLS) data that were last collected in May 2013, the bulk of the mass layoffs occurred in the agriculture, forestry, fishing, and hunting industry. A big number of layoffs were also recorded in manufacturing, administrative and waste services, health care and social assistance, accommodation and food services, construction, and government. Jobs lost in information and technical services amounted to only 6.4% of the total number of layoffs for that year.
And, there’s no clear evidence that those mass layoffs were caused by companies relocating some of their operations offshore or outsourcing to skilled workers in other countries. Jobs are lost because of several reasons, not just outsourcing.
You often hear anti-outsourcing advocates claim that many Americans lost their manufacturing jobs to low-cost labor in China or Mexico. The truth is manufacturing companies chose to implement automation measures to increase efficiency and lower costs. Basically, machines have replaced human workers in agriculture, manufacturing, and service industries.
14. Outsourcing destroys all kinds of jobs, including high-end jobs.
Economists have observed that while routine jobs in manufacturing and customer service continue to be outsourced, non-routine cognitive and non-routine manual jobs have steadily risen over the years:
In effect, the workforce bifurcates into two groups doing non-routine work: highly paid, skilled workers (such as architects and senior managers) on the one hand and low-paid, unskilled workers (such as cleaners and burger-flippers) on the other.
Truth be told, few high-end jobs are at risk from outsourcing. Jobs in the renewable energy sector, for instance, will be impossible to outsource because employees are required to work on-site. Most of the jobs are in construction, installation, and maintenance. According to EDF’s Now Hiring report, “average wages for energy efficiency jobs are almost $5,000 above the national median, and wages for solar workers are above the national median of $17.04 per hour.”
15. Americans have nothing to gain from outsourcing.
Outsourcing is part of international trade. Businesses are looking for quality services to be delivered at a lower cost, and offshore providers have capable employees who can do quality work at a rate that’s lower than the American standard. This is how the global marketplace looks like now. But, this does not mean American workers will not get anything beneficial out of this global trend.
Outsourcing improves efficiency and generates savings. The money saved by companies can be reinvested into creating new goods and services, which will create new jobs. Even if the money is not reinvested, companies can use the money to raise the salaries of their American employees.
Outsourcing can also open new consumer markets for American businesses. Offshore outsourcing companies will need to purchase equipment, such as computers, printers and fax machines, from American companies.
At the same time, offshore employees are paid handsomely for their work, and this gives them greater purchasing power than non-outsourcing workers in their country. Because of the rise in online retail, these employees can buy anything they want through Amazon and eBay and get those products delivered to anywhere in the world. Independent merchants in the U.S. selling their goods and services through online retail sites can take advantage of this trend and focus their marketing efforts on this new consumer base.
So, Why Choose to Outsource?
Outsourcing some of the non-routine knowledge work that your company does can help you streamline your business processes. When you know your resources are not enough to support your plans for expansion or when your business grows at a faster rate than you can keep up with, outsourcing to managed services provider is a good way to keep things under control.
Outsourcing some of your back-office work to an offshore service provider with employees who have the right skills and experience lets you focus on doing what your company does best. You don’t have to worry about managing your offshore staff does or wasting your time and energy on keeping your offshore team on their toes. Not only will outsourcing make your business operations more efficient, it will also save you a great deal of money.