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Invisible Costs in Offshoring Services Work Essay

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Updated: Oct 20th, 2020

There are three main reasons to use offshoring in production: lower costs of manufacturing, employees with necessary skills and professional knowledge, and closeness to markets. The use of offshoring in the service industry has similar benefits, although the proximity of the markets becomes irrelevant to employees working remotely for the home market. However, offshoring can help employers to create a client support system that will be active and responsive at any time of the day.

Moreover, the process of working on various projects can also be made easier with different schedules, giving employees from different time zones more work and more time. The main disadvantage of offshoring lies in various invisible costs. The paper examines the challenge of offering products of a higher quality while reducing costs and the possible mechanisms for successful services offshoring.

The total costs of any organization include visible and invisible costs. While starting to recruit remotely working employees, one must remember about the hidden costs as they can significantly affect customer’s relationship with the business. Service quality, additional costs, customer retention, customer’s attitude towards the country of offshoring are often intangible or hard to calculate. However, they are important. For example, interaction intensity plays a significant role in customer satisfaction. It deals with direct and indirect customer contacts and is based on what and how the company can offer to its clients.

Its first element is represented by service content, a tangible or intangible product that a customer can receive after a successful transaction. Here, interaction intensity depends on the clarity of the firm’s service offering and the customer’s understanding of personal needs and the company’s services. The second part is service processes which include production and delivery. Processes can be broken into steps for better control, and the sequence of steps can influence the outcome. Furthermore, processes happen in real-time and have deviations that make them unique. They can be standardized (low interaction intensity) and non-standardized (high interaction intensity).

All processes can require explicit knowledge, such as skills and learned information, and implicit knowledge – beliefs, intuition, and perspectives. Interaction intensity is low for processes with explicit knowledge and high for processes with implicit knowledge. Three main types of processes’ interdependence also affect interaction intensity. The sequential model is easy to manage and requires low intensity. The pooled type has employees and clients working in parallel and present results in the end. In the reciprocal model, everyone works with each other. It requires the highest level of interaction intensity.

Offshoring also brings out the issue of interaction distance based on geographic, cultural, and language differences. The combination of interaction intensity and distance affect invisible costs. For instance, different time zones, accent intelligibility, and cultural differences negatively influence service quality. Similarly, different approaches to the speed of service, communication style, and conflict resolution also create problems and distance the customer from the service.

Cost-effective offshoring depends on the type of services. Routine work without communication can be done by the most remote locations because customer interaction is not essential. Moderate interaction intensity requires less distant countries and fewer cultural differences. Customer complaints and other direct communication need countries that are comparable and close to the firm’s location. Offshoring of non-standardized services with implicit knowledge, complex judgment, and expert level skills is difficult. Thus, most similar countries can be used for such offshoring only if it is necessary.

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