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Offshoring allows SMEs to reduce their development costs by more than 50%, a major economic opportunity in a global market estimated at $250 billion. This outsourcing strategy to lower-cost countries is growing by 8% annually until 2028, highlighting its increasing importance in the global economy.
Definition:
The term offshoring (also called off shore, from English) refers to the outsourcing of activities or production processes to foreign countries, mainly to benefit from cost and competitiveness advantages. It differs from outsourcing, which involves delegating activities to an external service provider without necessarily involving international relocation. The key distinction between offshoring and outsourcing lies in the international nature of offshoring. Offshoring always involves relocating outside the national territory. This practice is widely used in English-speaking markets and is based on key objectives: cost control, risk mitigation, and process simplification. Reference to French legislation helps clarify the official definitions of different categories of companies.
Small and medium-sized enterprises (SMEs) are defined based on their size, annual turnover, total balance sheet, and number of employees. According to France’s Economic Modernization Law, the SME category includes micro-enterprises and medium-sized businesses, each with specific criteria. A micro-enterprise has fewer than 10 employees and an annual turnover or balance sheet below €2 million, while a medium-sized business has fewer than 250 employees and either an annual turnover below €50 million or a balance sheet below €43 million. Micro-enterprises represent a significant portion of the SME category. French legislation classifies businesses precisely based on size and revenue, allowing for tailored definitions per category. Official texts provide various definitions to distinguish micro-enterprises, SMEs, and medium-sized enterprises, based on revenue thresholds in millions of euros.
For French SMEs, offshoring is a strategic opportunity to optimize resources, access an international talent pool, and focus on their core competencies. However, true profitability from offshoring projects typically appears after 14 months, and a Deloitte study reveals that 84% of failures are due to knowledge transfer issues.
This guide outlines the key steps, best practices, and pitfalls to avoid for successful and sustainable offshore outsourcing.
In a competitive economic environment, SMEs strive to maintain profitability through innovative solutions. The main drivers of offshoring include cost reduction and the strategic focus on core business, while transferring certain functions or specific parts of operations to external providers. For example, an IT SME using offshoring for technical support has optimized its operations and achieved substantial savings.
From an organizational perspective, offshoring allows companies to optimize specific operations by outsourcing services or areas where internal capacity is limited, while accurately measuring expected costs and benefits. Organizations select which services to offshore based on their internal capabilities, cost-benefit analysis, and strategic review of each activity.
It’s worth noting that the public sector also uses offshoring, though in specific ways—typically for non-essential functions—while adhering to sector-specific regulations. In any offshoring project, managing information and ensuring confidentiality is crucial, as sensitive data is exchanged between parties.
It’s therefore essential to define which activities are core competencies to retain internally and which can be entrusted to external partners. Outsourcing may concern the delivery of a product or a service, and responsibility must be clearly defined in the contract to prevent future disputes.
Globalization and digitalization have reshaped the economic landscape for SMEs. 73% of business leaders consider outsourcing a strategic necessity, not just a cost-cutting tool. Recent economic fluctuations have increased the need for agility, and offshoring offers the flexibility to adapt to market changes without compromising quality.
Moreover, digitalization facilitates offshoring by enabling SMEs to transform operations more effectively, optimizing remote management and international process integration.
For an SME, offshoring involves transferring specific functions or parts of activities to providers in lower-cost countries, based on the organization’s area of expertise. It may concern a well-defined portion of a function or activity, aligned with the company's strategic needs. External providers deliver services or operations, with the SME evaluating whether to handle tasks internally or externally.
Contrary to popular belief, offshoring is not reserved for large enterprises: 62% of SMEs practicing offshoring report a noticeable improvement in competitiveness. Identifying which activities to outsource should take into account the strategic core and what should remain in-house.
This strategy allows access to rare skills, refocuses resources on core activities, and increases production capacity without heavy investments. Finally, responsibility for the outsourced deliverable must be clearly defined in the contract to ensure quality and compliance.
Offshoring practices have evolved—from basic tasks (data entry, customer service) to high-value functions (software development, R&D, digital marketing). Today, 47% of SMEs outsource strategic functions, seeking not only cost savings but also partnerships that bring real added value.
This evolution also includes service diversification, more complex operations, and the need for performance measurement and data management. Modern collaborative tools enable real-time tracking, reducing risks related to distance.
A successful offshoring process relies on strategic planning beyond just cost savings.
Identify Tasks to Outsource
Analyze internal processes to spot non-strategic or time-consuming tasks that can be outsourced. Identify which functions are weak internally and which are strategic. Commonly outsourced areas include customer support, maintenance, or administrative tasks, while project management may require local presence.
Evaluate Costs and Benefits
Carefully compare internal and external costs. A recent study shows that companies save on average 30% via IT offshoring [1]. This analysis must include indirect costs like project management, communication, and travel.
Furthermore, benefits go beyond cost savings. In 2023, over 50% of companies cited access to skills as the main advantage of IT offshoring [1]. This broader view ensures a proper ROI assessment.
Choose the Right Outsourcing Model
Several models fit different SME needs:
Model choice should align with the company’s strategy, flexibility, control, and cost needs. According to the Project Management Institute, 90% of successful offshore projects owe their success to solid project management [1].
Success relies on rigorous practices and a structured approach. 78% of successful projects follow precise management and communication protocols.
Draft a Detailed Specifications Document
Define objectives, expected results, timelines, KPIs, validation processes, and technical/legal terms. A clear brief reduces failure risk by 30%.
Establish Effective Communication
Set meeting schedules across time zones, use robust collaborative tools, and appoint dedicated contacts on both sides. Regular check-ins improve project satisfaction and ensure secure information flow.
Manage Cultural Differences
Cultural misunderstandings cause 56% of failures. Invest in cross-cultural training, adapt management, and plan in-person meetings at the start.
Ensure Ongoing Monitoring
Implement dashboards with KPIs, conduct regular reviews, and use automated reporting to spot and correct deviations. Regular measurement helps ensure expected performance.
Underestimating Hidden Costs
International development is a long-term investment. ROI typically appears after 4 to 5 years [3]. Commonly overlooked costs include:
To avoid this, evaluate costs accurately and budget for several years.
Neglecting Data Security
Confidential data protection is crucial. 63% of major security incidents involve external providers, with an average cost of €4.35 million per breach [4]. Additionally, 80% of companies that lost their data went bankrupt within 12 months [5].
To secure your data during offshoring:
Choosing a Provider Solely on Price
Cheapest isn't always best. A 10% cost cut that leads to 20% lower productivity is a poor trade-off [6]. A very low price may hide poor quality, disorganization, or inexperienced staff [7].
To make an informed choice, compare multiple proposals and assess:
Offshoring is a powerful strategy for SMEs aiming to stay competitive. Its economic advantages are substantial, but success depends on careful preparation, cost-benefit analysis, choosing the right model, and effective management. By avoiding common mistakes, SMEs can turn offshoring into a sustainable growth lever, access international talent, and focus on their core business.
French SMEs that adopt this strategy methodically will fully reap the benefits of globalization while preserving their competitiveness.
References
[1] https://www.bocasay.com/fr/guide-reussite-projet-developpement-informatique-offshore/
[2] https://www.abcportage.fr/service-entreprises/avantages-du-portage-salarial-pour-les-entreprises/lexternalisation-pour-les-pme/
[3] https://www.challenges.fr/economie/5-erreurs-a-eviter-quand-une-entreprise-se-lance-a-l-export_48979
[4] https://madatech.fr/contrats-externalisation-offshore-clauses-essentielles/
[5] https://nowteam.net/lexternalisation-de-mes-donnees-pourquoi-et-comment/
[6] https://madatech.fr/guide-externalisation-offshore-it-2025/
[7] https://esokia.com/fr/blog/sous-traitance-informatique-7-criteres-pour-choisir-le-bon-prestataire
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