Offshoring is popular with companies. Businesses use offshoring as a way to lower production costs, avoid taxes, and escape government regulations. While this sounds lucrative, offshoring comes with many drawbacks and risks. Offshoring poses a risk to many companies, but no business is threatened more than the tech industry.
Research & Development
At first glance, offshoring may seem like a great idea for tech companies. Foreign countries offer cheap labor, friendly governments, and other benefits that make production great. But the benefits do not outweigh the costs. Labor may be cheap, but that does not guarantee innovative products. One of the benefits of employing American workers is that they have the education and imagination to come up with new ideas. These new ideas are what keep tech companies on the cutting edge. Sure, tech companies that offshore research and development may reap profits in the short term, but long term, they will lose out to companies that made the investment to stay ahead with top talent.
Foreign governments may appear friendly and cooperative, but that does not mean they are secure. Foreign governments run the risk of collapsing overnight or being overthrown because their traditions and institutions are fragile. The clever deals you made the week before could no longer be valid when power has suddenly switched hands.
Moreover, foreign governments cannot provide the same degree of protection. Without government protection, tech companies run the risk of having their ideas stolen by competitors without legal recourse. Tech companies will also have to deal with corruption. In order to do business there, you may have to offer bribes, turn a blind eye to unethical practices, and agree to remain silent about injustices.
Few government regulations sound attractive, but long term, the absence of a regulatory system can be detrimental. Without a strong regulatory system, there is no entity to protect businesses from hazardous conditions in the future. For example, suppose a tech company sets up shop in a rural area. Over time, other businesses open their doors nearby. Without government regulation, there is no way to guarantee that the chemical company up the street does not contaminate your drinking water or emit toxic fumes that keep your employees from working. Absent government regulation, there is no way to ensure the security of the business long term.
It is hard to control what you do not see every single day. This is the risk tech companies run when they offshore. A tech company that is headquartered in the United States but operates overseas cannot stay on top of production. It cannot guarantee that its products are meeting industry standards or are being manufactured safely for consumers. Sure, executives and board members can Skype and talk with production managers abroad, but without being there, there is no way to know for sure if what is being said abroad is true.
The better choice is to bring the operation home. Sure, it may cost a little more, but long term, you avoid losing millions in lawsuits due to faulty products or losing customers because they are not happy with the quality of the product.
Offshoring may look great in the short term, but in the long-run, the business will suffer. Tech companies in particular stand to lose much from offshoring, when they have so much invested in being innovative and remaining on the cutting edge. The wiser choice is to keep operations at home.
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