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Category: Expertise strategy

Offshoring part 1: The turn of the tide for offshoring

Over the past decade, emagine has partnered with many clients to establish successful offshore operations with them in India, leveraging extensive local expertise. In this article, offshoring expert James Tucker explores the origins of this business model, explaining its evolution and the promising potential it holds for the future.

By James Tucker, Enterprise Solutions Director at emagine

The practice has evolved significantly since the first wave of long-distance outsourcing, and a key trend in modern offshoring is for European businesses to partner with experienced consultancies that know the offshore market well and can therefore ensure smooth and sustainable operations.

The beginnings of offshoring as a business model date back well into the twentieth century.

After several waves of adoption, offshoring experienced a reverse trend around a decade ago but is now enjoying renewed momentum - so what has changed in the business landscape for offshoring?

 

The history of offshoring in nutshell

To begin with a definition, McKinsey describes the business practice of offshoring as the relocation of labour-intensive service industry functions to locations remote to the business centre, with the main motivation being reduced labour costs.

The first wave of offshoring began in the 1960s with manufacturing firms, primarily in the consumer electronics industry, relocating their production to countries with lower labour costs.

According to 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.

Read more about the OECD research here.

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.

Skip ahead to the 2010s, and alongside offshoring success stories such as Google, Microsoft and WhatsApp, a big lesson that some companies were learning was how not to offshore.

Read more about Microsoft's offshore success here.

Find more examples successful offshoring here.

The problem was 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 needed to catch up.

Many businesses started to see significant dips in quality through offshoring, exacerbated by high staff turnover. The resources used to address these issues caused costs to creep back up and, ultimately, the decision to bring operations back onshore to restabilise.

 

According to research, by the 1990s and early 2000s, offshoring had become widespread in IT, customer support, and back-office operations.

 

Fast forward to 2025, and the understanding of how offshoring can work best and what ‘good’ looks like has evolved beyond recognition and the market has matured. The stage is set for a renewed offshoring boom.

 

Why is offshoring regaining popularity?

A significant step in today’s offshoring models is the trend for businesses in the UK or EU to work with a partner organisation, a consultancy, that has knowledge and experience of the offshore market being considered. This experience is invaluable in setting up an operation that will run smoothly and sustainably.

Advancing technologies, changing working habits and organisational culture across the world have also evolved significantly in recent years. Lockdowns during the COVID-19 pandemic helped to make remote working an accepted 'new normal’.

Meanwhile, the talent that can be accessed 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 IT talent, as well as spurred prowess in space exploration, artificial intelligence and biotechnology. In fact, 34% of all the nation’s graduates come from STEM fields, with India producing in excess of 2.5 million STEM graduates every year, second only to China.

Read more about Indian women in STEM here.

Read more about STEM graduates in India.

The key motivations have not changed. Cost savings are as attractive to businesses now as they ever were, however, where offshoring previously gained a reputation for being cost versus quality, now the two can be combined.

Read more about the global distribution of STEM graduates.

Nonetheless, whilst cost savings are a key driver, it’s important that businesses do not view offshoring as a ‘race to the bottom’ to shrink outgoings, or else the same hurdles will emerge.

 

What do businesses need to consider before pressing ‘go’?

Not all services or teams are suitable for offshoring and there are many elements to consider before committing to an offshore operation.

For example, regulatory compliance can be a significant hurdle, with the GDPR rightly putting firm boundaries around the movement of data. Data management is at the centre of setting up new offshoring operations, requiring data protection agreements and solutions to protect all data.

The businesses’ proximity to the operation is another key consideration, which goes hand in hand with the choice of delivery partner, which is a crucial piece of the puzzle.

Depending on the project or service that is moving or setting up offshore, a key question to answer is whether it should be run at arm’s length or in close contact with a partner organisation.

 

The key motivations have not changed. Cost savings are as attractive to businesses now as they ever were, however, where offshoring previously gained a reputation for being cost versus quality, now the two can be combined.

 

The nature of the relationship will vary significantly from project to project, but it is important to ensure that this aspect has been thoroughly picked apart and a solution identified that will suit all stakeholders.

Before initiating an offshore operation, businesses should also assess financial resilience.

The size of a business will influence its suitability for setting up in an offshore location and absorbing any unexpected costs or consequences, although choosing the right offshoring partner will significantly minimise any risks.

Therefore, carrying out extensive due diligence on a potential partner firm is also vital to verify experience and assess business success rates.

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.

It’s essential for an offshore 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.

Whilst cost savings drive offshoring activities, long-term operations will not survive if a business narrows in on ‘cheap’ solutions.

emagine has repeatedly built up successful offshore operations for clients in India over the past decade, with extensive local expertise and understanding.

We also prioritise working as an extension of the client business with an honest relationship built on mutual trust and open lines of communication, fostering an ethos of continual improvement. Our focus always revolves around quality, control and transparency.

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