By Martin Hartley, Group CCO of European IT consulting business emagine.
Does offshoring save money?
It is no secret that offshoring services or projects can be highly cost-effective. The fact that global behemoths such as IBM, Google, and WhatsApp outsource offshore indicates a resounding ‘yes’, that offshoring can translate into significant operational savings for businesses. However, it can also become a financial and administrative drain when done for the wrong reasons or not managed properly, leading to dips in quality.
Whilst there is no definitive litmus test for whether a business should or shouldn’t offshore, there are some key considerations and steps that business leaders can follow to ensure they are making the right choice.
Overview
Broadly, the business practice of offshoring refers to relocating business operations, processes or services to locations remote to the business centre, with the main motivation being reduced labour costs. Typically for a company in the UK or EU, offshoring tends to mean India, which has emerged as a global hub. The Philippines and Vietnam are also popular offshoring hot spots.
The beginnings of offshoring as a business model date back to the 1960s and there have been multiple waves of adoption. According to OECD research, by the 1990s and early 2000s, offshoring had become widespread in IT, customer support, and back-office operations. In the financial services sector, operational costs increased and margins narrowed, driving businesses to move services and delivery teams offshore to become more profitable.
Nonetheless, in the 2010s, alongside offshoring success stories such as Google, Microsoft and WhatsApp, a big lesson that some companies were learning was how not to offshore, usually linked to dips in quality.
Historically, problems with offshoring have usually arisen due to a lack of infrastructure and understanding that businesses cannot simply take an operation and move it, like for like, to another country. There are cultural and regulatory differences that need to be factored in, and suitable governance and controls are essential.
Why does offshoring carry less risk today?
In 2025, advances in technology and communications tools, as well as a greater market maturity, have transformed offshoring into a strategic approach that can balance cost, skills, and efficiency. Changing working habits and organisational culture across the world post COVID-19 have also supported this shift.
In addition, the access to talent via offshoring has become peerless. For example, a firm focus on STEM subjects in India in recent decades has driven its emergence as a global hub for highly skilled talent. In fact, India produces in excess of 2.5 million STEM graduates every year, second only to China.
Cost savings remain a key motivation for offshoring, but to minimise risk it’s important that businesses do not view offshoring as a quick win to shrink outgoings but still focus on quality. A significant step in today’s offshoring models is the trend for businesses in the UK or EU to partner with a consultancy that has experience of the offshore market being considered. This knowledge is invaluable in setting up an operation that will run smoothly and sustainably.
Key considerations
Not all services or teams are suitable for offshoring and businesses should first assess financial resilience to be certain that any unexpected costs or consequences can be absorbed. Step one should always be a close interrogation of the business objectives in offshoring, defining deliverables and how these will be measured. Being crystal clear on the desired outcomes will enable business leaders to identify the best offshoring location to explore, taking into account the required skill sets, time zones, and budget constraints. Each location has its strengths.
Regulatory compliance is an immovable obstacle and the GDPR places firm boundaries around the movement of data. Datamanagement is at the centre of setting up new offshoring operations, requiring data protection agreements and solutions.
A businesses’ proximity to the operation is another key consideration, will the project or service be run at arm’s length, or in close collaboration with a partner organisation? This aspect must be thoroughly broken down to inform the best choice of delivery partner. Carrying out extensive due diligence on a potential partner is vital to verify experience and assess business success rates.
In any offshoring partnerships, aligning values and culture from the outset will set up an operation with the best chance of success. A poor culture fit can lead to miscommunication and conflict which may delay project delivery and negatively impact work. Setting clear delivery expectations from day one is also vital.
What does successful offshoring look like?
A successful offshore operation will have a robust structure, high retention rates and be built with scalability in mind. Whilst cost savings drive offshoring activities, these operations will not survive if a business narrows in on ‘cheap’ solutions. Success is built on mutual trust and revolves around quality, control and transparency.
If working with a consultancy, it’s essential for this partner to have a deep understanding of the local culture including in the workplace to ensure that a thriving and productive environment is created that is completely aligned with the parent business.
