Offshoring was, for a long time, one of the best, most cost-effective ways for an entrepreneur to break into a foreign market, circumnavigate restrictive regulations, and maximize their profits.
However, we live in a more globalized world, where it seems like offshoring may be a bit redundant.
What Do We Mean By That?
Well, you can easily register a company in your own hometown and still hire a remote workforce from across the globe.
In the past, some countries lacked regulations by which remote workers could register and pay taxes, but today, for the most part, this is quite well-regulated.
Then, there’s the issue of AI use, which may offset the job market so much that you may no longer even need to hire a “low-skilled” workforce from across the globe.
With all of these questions and many more, it’s impossible not to raise a question – is offshoring still worth it in 2024? Well, let’s try and see if we can find an answer to this question.
1. Growth Is Still Expected
Roughly 62% of surveyed companies had one or two offshore partners, with almost half having partners they had worked with for more than four years.
We’re talking about a significant number of businesses relying heavily on offshoring. If any transition were to happen, it would be monumental, incredibly expensive, and potentially even quite painful.
Still, this is not the same across all industries. The majority of surveyed companies outsource their IT.
Other industries that are often outsourced are the military industry, digital marketing, HR, and information services.
There’s a reason for this since outsourcing won’t always translate as well when it comes to some industries that are regionally-sensitive.
For instance, while you could technically outsource your accounting, offshoring it wouldn’t make much sense.
While a foreign accountant would, again, technically, be able to study your local laws, why not just hire someone with experience with local forms, requirements, and procedures?
This means that you could figure out which of these fields make sense to offshore – intuitively.
In these scenarios, nearshoring and onshoring would make far more sense. While it is still outsourcing, the difference is quite substantial.
2. Laws And Regulations
Sometimes, businesses are forced to go offshore in order to find a service that is not locally available.
The best example of this is the casino industry, which has some of the most extreme legal differences across different regions.
For instance, one of the strongest reasons to go for offshore casinos is the fact that this may be the only legal way for you to play casino games legally in your country.
In some countries, you see, playing casino games is legal as long as casinos are not locally hosted.
Then again, you have some of the biggest tourist hotspots (like Singapore) where, while betting is legal, it’s not available or legal to locals.
At the same time, you have areas like the Philipines, which have a special area where everything casino-related is legal, while this is not the case in the rest of the country.
Keep in mind that the online casino industry is one of the fastest-growing in the world and that no matter how complex these jurisdictional rules get, both casino owners and casino-goers will spend the time and energy to research them.
This can be incredibly lucrative, with some areas having a significant portion of the population interested in this form of entertainment, even without any locally owned or hosted establishment. It’s a pristine market that’s more than worth offshoring for.
3. Offshoring Manufacturing In 2024
One of the main reasons why offshoring has always been so politically controversial is largely due to manufacturing.
Politicians across the globe do their best to persuade their voters that they’ll either attract manufacturing investors to their developing country or bring these blue-collar jobs back from abroad.
Now, inflammatory rhetoric aside, the main reason why offshoring was always so popular was mostly due to reduced costs.
- Some countries have lower average wages, which means that you can hire a much larger number of workers for the same money (even substantially lower).
- Some investors were attracted by labor laws that are more enterprise-friendly than in their home country.
- Then, there’s always the issue of logistics and moving your operations to the region from which you’re acquiring the majority of your raw materials in order to speed up the logistics and save money on transportation. This also enables you to produce and ship your products to customers much faster.
The truth is that all three of these things will be offset with the help of AI.
The biggest problem with offshoring is the potential risk, and with the help of AI projections and analytics, risk mitigation will become far more accurate than before.
The AI can also help:
- Evaluate production processes to find inefficiency
- Help with restructuring your projects
- Eliminate unnecessary part numbers
In other words, with the help of AI-powered analytics, you’ll have an easy time making your offshoring more efficient.
4. Changes In Offshoring Destinations
One of the things you need to bear in mind about outsourcing is that the location matters quite a bit.
Sure, the majority of outsourcing services are provided by India (roughly 80%), and almost 59% of all enterprises are already outsourcing at least something.
At the moment, some of the countries that are outsourced to the most are the Philippines, Malaysia, and Poland, with Romania quickly catching up.
In 2023, Brazil drastically increased the number of these foreign investments.
Mexico and Argentina are also increasing the number of foreign investments that they’re receiving.
Together with Brazil, this has already created a trend of businesses that are offshoring to Latin America.
As for the countries that are outsourcing the most, the US is, as always, at the very top of the list, with states like California, Texas, and New York at the forefront. This is unlikely to change anytime next year.
Just keep in mind that this trend is on the upward swing, and even companies from these regions that aren’t currently offshoring are, at least, thinking about it.
Moreover, countries receiving a lot of offshore business are making their rules, regulations, and incentives greater in order to attract more and more investments.
