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Outsourcing and Offshoring

outsourcing and offshoringOUTSOURCING AND OFFSHORING: TO REDUCE COSTS, TARIFFS AND TAXES

Outsourcing is a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally. While this term is commonly used for having goods assembled or services rendered by divisions or separate entities outside of the United States, there is outsourcing directly within the United States itself. Offshoring, while often referred to as outsourcing categorically and interchangeably, is the actual performance of an entire operational process or service overseas with overseas management exclusively – the subtle difference is truly in the party managing the specific product, process or service being rendered. Global Edge prefers outsourcing relationships where the client company maintains a management presence at the offshore or outside site. This generally makes for greater efficiencies, a better-prepared and qualified offshore or outside labor force, and for better total quality management.

Outsourcing is an effective cost-saving strategy when used properly. It is sometimes more affordable to purchase a good from companies with comparative advantages than it is to produce the good internally. An example of a manufacturing company outsourcing would be Dell Computer buying some of its computer components from another manufacturer in order to save on production costs. Alternatively, businesses may decide to outsource book-keeping and payroll processing duties to independent accounting firms, as it may be cheaper than retaining an in-house accountant. Many call center and help desk or technical support via telephone or chat are outsourced to other countries in order to increase coverage and to reduce the per hour, per incident or per transaction to one of our client companies.

Where a client company’s goods or services might be priced noncompetitively due to an import duty or tariff imposed by another country (where the company’s goods are being sold or to which the client company’s services are being rendered), the tariff may be reduced by having a portion of the good produced or service rendered within that country or within one of the countries within its international trade treaty group (i.e., such as the European Union). Certain state and federal sales, use, commercial rent and income taxes may be reduced by prudently using an outsourcing approach.

The key to outsourcing successfully is not merely obtaining the cost, tariff or tax savings or reduction – it is actually quality control and ongoing relationship management and maintenance with the outsourced suppliers of the good, work or service. Global Edge will advise and assist the client in identifying, qualifying and selecting the best firms to outsource work to, given due consideration of the savings involved, but with a keen eye toward the quality of the outsourced good, process or service being rendered.

We also manage and maintain outsourced relationships continuously for our clients. The sad classic example of outsourcing that doesn’t work is the situation of the help desk or technical assistance phone or chat room service where waiting time for a response is overly long, where calls may be dropped, or the where the outsourced firm hires persons who are either not technically competent or appropriately fluent in the language of the client’s customer markets.

The loss in customers due to the poor quality of customer service and technical support may eventually outweigh any other economic benefits. That is precisely why these outsource providers must not only be carefully chosen, but why they must be properly managed, with their employees continuously trained and monitored for quality.