OFFSHORING

PRESENTED BY :
GAURAV KATYAL (08319)
HIMANGI MALIK (08321)
JANAK MAHESHWARI
(08322)

WHAT IS OFFSHORING?
Offshoring is the relocation by a company of a
business process from one country to another,
typically an operational process, such as
manufacturing or supporting processes, such as
accounting. It is the practice of basing some of a
company's processes or services overseas, so as
to take advantage of lower costs.

OFFSHORING V/S OUTSOURCING

BASIS

1.
DEFINITION

OFFSHORING

OUTSOURCING

Offshoring means
getting work done in
a different country.

Outsourcing refers to
contracting work out to
an external
organization.

2. BENEFITS Lower costs, better

availability of skilled
people, and getting
work done faster
through a global
talent pool.

Advantage of
specialized skills, cost
efficiencies and labor
flexibility.

3. RISKS

Misaligned interests of
clients and vendors,
increased reliance on
third parties, lack of inhouse knowledge of

Criticized for
transferring jobs, to
other countries,
geopolitical risk,
language differences

REASONS FOR OFFSHORING

Reduced costs cheaper land, loans ,
factories etc.
Economies of scale
New market entry- Growth strategy,
expanding the current business.
Talent pool- broader talent base to pull
employees from.
Overcome regulations- less
laws/regulations.
Access to wider and emerging markets.
Host nation infrastructure.

OFFSHORING MODELS
JOINT VENTURE

SUBSIDIARY
OFFSHORING

OFFSHORING

Directly SET UP a
subsidiary or local
office if the
management is
comfortable with
internationalization
and local market
operations.
Operate as
independent business
units or branches.
Key challenge to
manage expatriate
staff, line workers,
technical experts and
line managers from
multicultural

An organization ties
up with a local firm
or company.
Each company
contributes
resources.
Mayinclude buildoperate-transfer
(BOT) or build-ownoperate-transfer
(BOOT) clauses.
Pave the way for a
subsidiary down the
road.
For example, EDS'
entry into India.

Service Provider
Offshoring
Onsite
Subcontracting
with Offshoring.
Pure offshore
projects.
Offshoring
individual projects.
Global delivery
onsite/offshore
model.
Multi-vendor
offshoring.

INDIA AS AN OFFSHORING DESTINATION

POSITIVES
Skilled workforce and
hugetalent pool.
Favorable and
supportivepolicies for
offshoring.
Larger English
speakingworkforce as
compared toother
offshore destinations.
One of themost costeffectivedestinations
in the world.

NEGATIVES
Time-zone
difference.
Focusing on
developinginfrastruc
ture in tier-IIcities
but
experiencedtalent
pool is not ready
tomove there.
Lack in
skillavailability at
mid- andsenior-level
management.
Rising operating
costs salary
increase, more rents
etc.

DISADVANTAGES OF
OFFSHORING
Cultural and language barriers between
the companies.
Loss of customer focus, from the offshore
company.
Time differences.
Heavy reliance on an onsite resources.
Risk of exposing confidential data.
Synchronizing the deliverables.

Apple
Headquartered in California
World's second-largest information technology companyby
revenue
Hardware Products Mac, iPod , iPhone ,iPad
Online Services-iCloud, iTunes, AppStore

Revenue around $171 billion for year 2013

Profit around $35 billion.

Apple and Offshoring

Has $111.3 billion offshoremore than any other company.
Production of iPhones and iPads is offshore, primarily in
China.
Entirely dependent on offshoring manufacturing.
FoxConn - largest Apple offshoring company in China.
Employs 43,000 people in the U.S ,however, FoxConn has
230,000 employees to make Iphones and Ipads.500,000
more people in China involved in building Apple products.

MADE IN CHINA:WHY?
Extremely low wages in China as
compared to USA.

Labor Cost

MADE IN CHINA:WHY?
Working conditions 12-hour days, six
days a week.
The rapidly expanding Asian market
attracts Apples interests, and Chinas
location and position make it easily
access to other Asian countries.
China has large amount of well-educated
semi engineers and skilled workers, who
can work at a highly efficient level.

MADE IN CHINA:WHY?
China has large amount of well-educated
semi engineers and skilled workers, who
can work at a highly efficient level.
Untaxed profit kept U.S. off
shore in China.
America doesnt have
30,000 engineers and
700,000 factory workers who are willing
to work more than 60 hours a week

DISADVANTAGES
As oil price increased, logistics
charges have been dramatically
increased.
As the economic developing, the cost
of labor in China has increased
significantly and will
probably continue to
increase.

What not is Offshoring ?

3 mistakes in Offshoring

Research Paper
Offshoring : Value Creation through Economic
Change

Authors: Farrell, Diana

Source: Journal of Management Studies, May 2005

What the paper talks

about
?
This paper talks about the economic and managerial
dimensions of offshoring, drawn from recent research by
the McKinsey Global Institute. It argues that offshoring,
like other forms of trade, creates enormous value for
both companies and the economy as a whole.
While the potential cost savings for companies from
offshoring appear impressive, research suggests that
companies are leaving billions of dollars behind when
they offshore.
There are several ways companies could make capital-labor
trade-offs to create new markets and services. By
maximizing gains from offshoring, companies can both
cut costs and generate revenue. Given the benefits of
offshoring, the challenge is how to make the transition to

Future Trends of
Offshoring
Round-the-clock shifts lead to 30-40%
savings(estimated)
Cheaper capital requirement eg. American Express
Increasing labour inputs eg. Telemarketing firm
The globalized world is here to stay
IT will continue to evolve