OFF - SHORING Flashcards
What is off-shoring
Offshoring involves the relocation of business activities from the home country to a different international location.
This could involve moving in house functions (i.e. a call centre/ a factory) overseas OR involve outsourcing to an overseas supplier.
Basically moving parts of your business overseas - could be to save money, or because that overseas supplier may be able to deliver the service more effectively.
When did off-shoring become popular
Offshoring was very popular around the early 2000’s - For example, the UK started setting up their call centres in India because not only was it cheaper, but they were able to pay the workers a very good wage considering the country that they are in.
What are the pros of off-shoring
To access lower production costs (particularly in emerging markets which enjoy the advantage of a lower labour cost - For example a place like India
Could potentially access better skilled labour and high quality supply
Potentially to make use of of existing capacity overseas - Maybe the company own a factory overseas that isn’t operating at full capacity, so they could take advantage of that, and employ more people to work in that factory
To take advantage of free trade areas and avoid protectionism (You can avoid taxes and restrictions, by producing the product in that country)
To make it easier to supply target international markets (where it is important to be located in, or near to close markets) - You learn more about that product if you are producing in that country.
What are the cons of off-shoring
Longer lead times for supply and risk of poorer quality (customer service effects) - Moving the call centres over to India lead to some of the customers not understanding what they were saying on the phone
Implications for corporate social responsibility (CSR) - Harder to control aspects of operating long distances away from the home country)
Additional management costs - In terms of time and travel. Potentially also difficult to communicate with people overseas (different time zones, and languages)
Impact on exchange rate - Can be harder to get finance whilst managing multiple different exchange rates. Also can be more expensive for companies to be paying people in different languages
