What Is Offshoring
In simple terms, offshoring refers to the process of transferring a business processes from one country to another in the purpose of exploring new markets or taking advantage of the labor arbitrage. In other terms offshoring can be regarded as outsourcing the business functions or process to another country. There may be many reasons for outsourcing the business process. One of the reasons may be either to tap in new talent or resource which is not available in that country, another reason may be to evade the government restrictions in that country or rather to fetch new markets. Simply put offshoring impacts positively to the economical sustainability of a company.
Offshoring is believed to have originated way back in India due to government restrictions on foreign business. Back in the 1970s the government of India mandated that all foreign business should have a majority of ownership by local Indians. This resulted in many foreign business owners fleeing from the country fending the country to manage its technical infrastructure. Another reason that could have caused many businesses to offshore their business processes is postulated to be due to the advent in technology. Advent in technology brought in massive telecommunication systems and the internet, which enabled companies to get work done that is computer based from seemingly anywhere in the world.
Externalization is a common term that is often confused with offshoring, they both refer to the transfer of trade however, the two systems are quite different in there characteristics. Externalization refers to nearshoring which simply means the company transferring its businesses to a nearby country which shares the same time zone. On the contrary, offshoring involves the company or business transferring its business processes to a long distance country that is supremely different in regards to the time zones.
Offshoring is remarkably healthy for the economy of the country and the world at large. Offshoring has enabled different countries like Philippines and china to speed up the growth of their economy by associating themselves with business sectors that grow. Business analysts and economists suggest that offshoring is the next evolutionary step in the overall economic development of a company and the nation.
Offshoring faces some significant challenges in that publicity and cases of data security has limited some companies from participating in externalization of their businesses. Nevertheless, this has not been a serious limitation for companies to outsource some of their processes since internal outsourcing has been a better alternative for most companies.
In summary, externalization covers the general aspect of business trading where companies engage in transfer of business process to other countries in the aim of cutting costs of production, taking advantage of the available labor outside their own country.