UBS

Offshoring

What is Offshoring?

Offshoring is the practice of outsourcing activities to less-developed countries, mainly by corporations from developed countries, in order to reduce the cost of doing business. Lower labour costs, more forgiving environmental constraints, less severe labour rules, easier tax circumstances, and proximity to raw materials are just a few of the specific reasons for a corporation’s operations to be located outside of its home country.

Companies offshore use a variety of business structures, including outsourcing with a third party or creating their own Global In-house Center (GIC) presence on the offshore site. Offshoring encompasses not just the manufacture of physical products, but also the provision of services. The Indian IT industry, for example, has benefited from waves offshore by Western technology giants.

The company will benefit from the creation of this new business unit for other activities since it will be able to focus more on its main business operations. The organization greatly benefits from tax rate policies and other incentives.

They are mostly divided into two categories:

  • Product Offshoring – When the main product is manufactured elsewhere and imported for sale in the home market, this is referred to as product offshoring.
  • Service Offshoring – When a product is manufactured in the domestic market, but services such as customer service, IT, human resources, and marketing are outsourced.

Also, See: Organizational Development

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