The way we do business has rapidly changed in the last few years, technologies of telecommunication, information technology and media have of course been a major catalyst. The most recent and in some sense the oldest trend has been outsourcing and contract based work-FTE. Though both ideas have been here since the industrial revolution, their combination and organization plus the new technologies has led to a revolution in the way work is done.
To increase their flexibility, economy and creativity, many large and small companies have developed a strategy of focusing on their core business, and offshore outsourcing or work or FTE hiring.
Frequently, work is offshored in order to reduce labor expenses, to enter new markets, to tap talent currently unavailable domestically or to overcome regulations that prevent specific activities domestically as well.
Outsourcing Vs Offshoring
Outsourcing is the practice of using outside firms to handle work normally performed within the company. Offshoring is also a type of outsourcing; it involves having the outsourced business functions of the company done in another country.
Offshoring is sometimes contrasted with outsourcing.
- Companies subcontracting in the same country would be outsourcing, but not offshoring.
- On the other hand a company moving an internal business unit from one country to another would be offshoring, but not outsourcing.
- A company subcontracting business to a different company in another country would be both outsourcing and offshoring.
Offshoring Vs Full Time Equivalent
FTEhiring is a system which hires employees who work on a contract basis, Having FTE of 1.0 means that the person is equivalent to a full-time worker; while an FTE of 0.5 signals that the worker is only half-time.
Again when FTE is combined with outsourcing or offshoring it simply means that using the FTE standards you are subcontracting business to a different company in another country
Reasons & Benefits
There are many numerous reasons why Offshoring -FTE & outsourcing are considered
Control capital costs- Cost-cutting may not be the only reason to outsource, but it's certainly a major factor. Offshoring releases capital for investment elsewhere in your business, and allows you to avoid large expenditures in the early stages of your business.
Increase efficiency- Companies that do everything themselves have much higher research, development, marketing, and distribution expenses, An outside provider's cost structure and economy of scale can give your firm a boost and advantage.
Reduce labor costs-This is another big incentive as hiring or training staff for short-term or peripheral projects can be very expensive. Offshoring enables you to hire expert and trained employees at the fraction of the cost.
Take new projects quickly- An offshoring firm has the resources to start a project right away. Handling the same project in-house might involve months to hire people, train them, and provide the support they need. And if a project requires major capital investments the startup process can be even more complicated.
Focus on your core business-Offshoring can help your business to shift its focus from peripheral activities toward work that serves the customer, and it can help managers set their priorities more clearly.
Give you competitive edge-Outsourcing can help small firms by giving them access to the same economies of scale, efficiency, and expertise that large companies enjoy.
Reduce risk- Outsourcing providers assume and manage this risk for you, and they generally are much better at deciding how to avoid risk in their areas of expertise
Not many businesses really understand the benefits of outsourcing. It's true that outsourcing can save money, but that's not the only reason to do it.
- Staffing flexibility
- Acceleration of projects and quicker time to market
- High caliber professionals
- Ability to tap into best practices
- Knowledge transfer to permanent staff
- Cost-effective and predictable expenditures
- Access to the flexibility and creativity of experienced problem solvers
- Resource and core competency focus
- Reduce overheads, free up resources
- Avoid capital expenditure
- Offload non-core functions
- Enhance tactical and strategic advantages
- Spread your risks
- Focus scarce resources on time-critical projects
Offshoring can not only reduce costs but can also make you a global player in a very short time and within limited resources. There is almost a never ending list of services and tasks that could be Offshored, some are fairly rare, but others, such as IT and Human Resources, are becoming very common indeed.