Advantages and Risks of Offshoring. Business & Marketing Essay

Advantages and Risks of Offshoring
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March 30, 2020
Offshoring is one of the most utilized business processes, especially for large corporations around the world. In this process, a company relocates a segment or a business process from one geographical location to the other in order to take advantage of the price of production, state regulations, or culture of the workforce where the company intends to conduct business. One example of an American company that uses offshoring is Apple. Ever since it started production, Apple has outsourced a significant volume of its hardware components to several companies, one of which is Foxconn, which is in the city of New Taipei in Taiwan. Accordingly, this article would initially focus on the potential risks and advantages of offshoring processes. In the subsequent section, the author would also propose some alternatives in other to reduce the risks included in offshoring. All in all, the author of this article believes that with the help of careful planning, the benefits of offshoring greatly outweigh its risks.
Advantages of Offshoring
Some of the essential benefits of offshoring are; (1) lower costs, (2) flexibility and expansion, and (3) greater availability.
First, offshoring can significantly reduce the cost of production due to the lower prices of commodities, human resources, as well as taxes from other countries. For example, a significant number of companies in the US offshore some of their production processes to China to take advantage of the low cost of labor, streamlined production processes, and lower rates of taxes as compared when produced within the United States CITATION Bou17 \l 1033 (Boute & Van Mieghem, 2017).
Aside from the cost, another reason why US companies offshore their production processes are to help expand their customer base. Most international companies that expand their consumer base (i.e., Apple) use different modes where they establish their business operations in foreign soil. Accordingly, offshoring business segments such as distribution and production processes help establish a firm footing in different foreign countries by reducing the number of resources needed for production (i.e., hidden costs and shipping time) as well as by employing a local workforce that knows the culture of the place.
The third common advantage of offshoring is the around-the-clock availability of business processes that can lead to an increase in profitability and risk-management for the company. As compared to local production, offshoring allows the company to build branches in different time zones around the world. This is beneficial, especially in companies that require a flexible and responsive service whenever their clients need it.
Risks of Offshoring
Despite the significant benefits of offshoring, it is also vulnerable to a variety of risks. Some of ...