Abstract: In today’s globalized economy, businesses are constantly seeking ways to enhance efficiency and reduce costs. One powerful strategy that has emerged is offshoring, where companies move jobs from onshore to offshore locations. By relocating jobs to offshore locations, businesses can achieve substantial cost savings and operational efficiencies. Unlike outsourcing, offshoring allows businesses to maintain control over business processes and the experience of both customers and employees.

Introduction: This white paper examines the financial and operational advantages of offshoring, highlighting its potential to revolutionize business practices and deliver significant value. Drawing from extensive experience, the author argues that many jobs, including customer-facing roles, can be performed more cost-effectively and efficiently by centralizing dispersed onshore jobs in well-chosen offshore locations.

Financial Benefits of Offshoring: The financial benefits of offshoring can be compelling and are primarily driven by two factors:

1. Wage Arbitration: Significant savings can be achieved through wage arbitrage, depending on the locations involved. For example, the wage difference between London and Krakow can be as much as $100,000 USD per employee on average.
2. Operational Efficiency: In a well-chosen location, companies can become employers of choice, attracting top talent with university degrees. Continuous improvement cultures thrive when teams are centralized, benefiting from practices like visual management boards and daily stand-up huddles. Centralized teams achieve critical mass, offering employees clear career paths and opportunities for promotion and growth, reducing employee attrition, and fostering knowledge sharing. Effective and efficient processes are easier to implement, train, coach, control and improve when everyone is in one location.

Enhanced Value Creation: While wage arbitration often provides the initial value, operational efficiencies can double the value uplift of offshoring. Companies that successfully offshore often continue to find new roles to move offshore, expanding their offshore workforce over time.

Mini Case Study: A leading blue-chip energy company started with all jobs onshore 20 years ago and now has 29% of its workforce in offshore locations. Initially, they offshored junior, transactional roles but gradually moved more senior and revenue generating roles offshore as well.

Benefits of Centralized Offshore Roles:

• Customers: Improved customer experience.
• Employers and Shareholders: Lower costs and higher efficiency.
• Employees: Opportunities to work in cutting-edge environments and be part of an expanding team.

Success Factors: Successful offshoring requires careful planning and execution. Key factors include:

• Middle Management Buy-In: Ensuring middle managers support the initiative.
• Senior Management Buy-In: acceptance that in the first year, parallel running means more, not less cost. This will need to be budgeted.
• Respect and Care for Pitching Staff: Treating onshore staff with respect.
• Respect and Care for Catching Staff: avoiding a master-slave relationship
• Staged Process: A well-executed, staged process that leaves nothing to chance.
• Robust Knowledge Transfer: Ensuring effective knowledge transfer.
• Double Staffing Period: Maintaining onshore staff availability during the transition.

What can go wrong: At OrangeCoat we have witnessed first-hand the following issues and know how to avoid them or mitigate the impact.

–        Location without headway for scaling: some locations have become so popular that demand grew faster than supply, leading to wage inflation and inability to attract best talent

–        Concentration risk: war and natural disasters

–        Forex mismatch: revenues are in USD but costs in Rupee for instance

–        Cultural mismatch: ability to share issues and say no when a no is needed

–        Dislocation of traditional onshore career pathways: as junior staff gets hired offshore, future VPs and directors will also most likely originate from these offshore locations.

Conclusion: At OrangeCoat, we have extensive experience with successful offshoring and a proven methodology to ensure your offshoring initiatives succeed and deliver value. Contact us to learn more about how we can help you achieve your offshoring goals.