What factors should you consider before offshoring business functions?

25th January 2016

Offshoring can be an attractive premise for some companies, but what do businesses need to consider before making the move?

The temptations of freeing up existing domestic real estate and lower labour costs can see many Australian businesses bite the bullet and send their business functions offshore. While it was once just manufacturing jobs that were exported, now white-collar roles across administration, IT, finance and sales support are being sent offshore.
Take stock of these important factors before offshoring your business functions.
Legal issues
Australian businesses need to consider any legal issues that may arise if they offshore business functions. In order to offshore, companies can either establish their own business overseas as a branch office or outsource work to an existing offshore company.
The advantages of the first option include better control over management and processes, ensuring duties will be properly carried out. However, a disadvantage to think about is any friction between the parent company’s policies and the legal framework of the foreign country. The second option of outsourcing can be beneficial for short-term or intermittent projects, however conflicting laws between the two countries can also be an issue.
Before transferring any work offshore, companies should create a strategy to minimise the risks of working overseas. Other legal factors to take into consideration include differing intellectual property laws, judicial systems and company bankruptcy rules across the two countries.
Companies should develop a contract for any offshore outsourcing agreements, specifying the work to be undertaken, schedules and deadlines for projects, and quality guarantees to measure performance. Additionally, taking the time to select an appropriate vendor for projects and setting out a dispute-resolution procedure should it be needed is essential to avoid any legal issues.
Social and cultural factors
Companies can come up against social and cultural barriers when offshoring a business function to a foreign country, which can greatly affect the long-term success of a project or business unit.
Managers and executive staff may find they have to deal with different approaches to completing tasks, varying attitudes toward conflict and also diverse decision-making styles. Cultural issues can also increase significantly after businesses have established an offshore centre and moved into a rapid-growth phase of scaling up employee numbers.
As the business function grows and more staff with less experience in Australian or multinational companies come on board, miscommunication can begin to seep in. However, companies can overcome this by engaging outside expertise to carry out an assessment of cultural working differences that could impede team effectiveness. Cross-cultural awareness training is also a good option for companies to educate all levels of management and across the workforce.
Technological considerations
Many businesses offshore business functions in IT and administration to save money and access lower labour costs. But there are a number of technological considerations to take into account when offshoring business functions, such as data privacy, security concerns and general technical issues that may not be able to be resolved remotely.
Before considering the offshoring of these business functions, companies should look to technological developments at home that can be utilised. With the rise of leading-edge automation software, companies may not even need to offshore functions across areas like administration and accounting.
Companies can now automate manual processes such as data entry and document editing. The software automatically reads and converts image files, PDFs and MS documents to searchable and editable text documents, before compressing and connecting them to the cloud to store and share.
This can save companies between two and 10 hours of repetitive administration work each week per staff member. This type of software could also help businesses cut back certain business functions across administration entirely, which would also negate a move offshore.
Do your homework and make sure you take into account any legal, cultural or technological considerations before making the move offshore.
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