Outsourcing vs offshoring has always been the talk of the town as businesses strive to achieve significant cost savings, innovate their systems, and expand their market share— all while maintaining productivity, efficiency, and high service quality.
However, outsourcing and offshoring are often confused with one another. As a result, many businesses adopt the wrong strategy because they don’t heed the critical differences between these two practices.
That said, we will distill the overwhelming (and confusing) differences between outsourcing and offshoring. At the end of this blog article, you will gain an in-depth understanding of these two business practices. At the same time, you will determine which one is suited for your business needs.
Definition and Nature of Operations
Outsourcing vs offshoring operate differently and thus should not be treated as interchangeable concepts. Let’s learn about them below:
1. Outsourcing
Outsourcing is when a company subcontracts a third party to carry out operational tasks outside the organization. There are many reasons why companies choose to outsource. One of which is to hire specialized talents that are not present in their organization. Some outsource to increase efficiency for time-consuming functions such as customer service and back-office functions.
Companies that have outsourced include Alibaba, founded by Jack Ma in 1999. When there was a scarcity of web developers in China, Jack Ma and his team started outsourcing their web development needs to the US. As a result, they successfully built a sustainable eCommerce infrastructure and became a popular online marketplace.
2. Offshoring
While outsourcing involves entrusting business processes to an outside party, offshoring, on the other hand, refers to transferring jobs to another country with lower labor costs. In offshoring, companies hire a dedicated remote workforce from another country.
Imagine you have an extension of your company’s locally based staff in an offshore location. If a service provider manages all activities in outsourcing, offshoring allows you to integrate the remote staff into your company entirely.
Therefore, your team will perform specific tasks based on your command. WhatsApp, for example, is among the many companies that have sought the benefits of offshore staffing. As a result, the company offshored its software development to Russia shortly before its inception in 2009.
To sum up, WhatsApp used offshore expertise to provide design solutions and handle core app development, while its in-house engineers focused on client-facing activities like customer support. Consequently, the chat app quickly rose to the top of the App Store and Google Play.
To Sum Up…
Outsourcing and offshoring are interrelated practices. However, both strategies vary in the way they carry out tasks for external organizations. Outsourcing can be done locally and globally, whereas offshoring can only be done abroad. Hence, when you outsource internationally, it can be referred to as an act of offshoring.
Cost Savings
One of the advantages of outsourcing and offshoring is cost savings. Let’s take a look at how these practices result in less overhead for your business:
1. Outsourcing
Outsourcing to another country yields higher cost savings. Outsourcing companies from a developing country provide state-of-the-art services without breaking the bank.
On the other hand, outsourcing domestically entails more expenses — especially labor and overhead. While cost savings are limited with domestic outsourcing, it offers tighter collaboration with your service provider.
2. Offshoring
If you want long-term cost savings, offshoring is the right strategy for your business. Building a local team means spending around $4,683 USD per hire. With an offshore team, you can cut the cost of hiring by a fraction, as your employees are located in a country with low labor costs and living expenses.
Work Assignments
When it comes to work assignments, you want to get things done at a speedy turnaround time. Between outsourcing vs offshoring, which one is the best?
1. Outsourcing
If you prefer a fast and flexible approach to work, outsourcing might be a good choice. In outsourcing, the delegation of tasks is through your service provider. Therefore, you can leave menial functions and focus on your core business operations.
2. Offshoring
If you choose to outsource tasks and projects that need your attention, you must lean towards offshoring. It may take time to accomplish tasks since it requires communication between you and your remote staff. But the good thing is you have all the control to ensure the work gets done.
Communication and Interactions
Communication and interactions are essential in building long-lasting relationships. Do you prefer little to no interaction, or do you want to integrate your remote staff into your company fully? Either way, check out how outsourcing vs offshoring differ in their approach to communication.
1. Outsourcing
Outsourcing is perfect for business owners who are often busy. Indeed, when juggling many responsibilities, you have no time to supervise and train your staff. That is to say, you want to get things done by handing over these business activities to your third-party provider.
2. Offshoring
Meanwhile, offshoring is ideal if you want to be fully involved in talent acquisition and integration of your offshore staff. With offshoring, you can explain your company’s culture, objectives, and processes to your team. By doing so, they can perform better and are more likely to stay with your organization.
Quality Standards
Quality of work guarantees better profits. In short, which between outsourcing vs offshoring can render the highest quality standards? There’s no doubt that both can promise high-quality standards. However, just like with work assignments, outsourcing and offshoring take a different approach in setting quality standards and expectations.
1. Outsourcing
The quality of work may be unstable in outsourcing because your outsourced workers are not devoted to your organization. In addition, employees handle multiple clients with time-sensitive campaigns in outsourcing companies. Thus, your tasks may often get put aside.
2. Offshoring
With offshoring, you have the authority to impose work quality requirements on your staff. Your team is expected to focus solely on the job you assign them because they are devoted to working on your company’s duties — not for other clients. This will ensure that they will consistently deliver high-quality work.
Workforce Scalability
Sometimes, your business may not be ready for the peak season.
This fact begs the question, “Which can help me scale up my business with an already-trained staff that can handle the increased volume of my business?”
1. Outsourcing
When the job flow during a seasonal peak is unclear, outsourcing could be of great help. For instance, a contact center can provide you with customer support agents equipped to take incoming calls and acquire the information needed from customers. When the busiest season ends, it’s just as easy to scale back to a smaller set of agents.
2. Offshoring
While outsourcing scales up your resources during peak seasons, offshoring can help you expand based on your needs. Offshoring allows you to begin with a small or a big team. Then, as your company grows, you may extend the team by adding more jobs as needed. Since you take charge of the hiring process, it is considered a longer-term strategy.
FAQs on Outsourcing vs Offshoring
1. Is It Possible to Outsource Without Offshoring?
Yes! Onshore outsourcing is a model in which tasks are delegated to a domestic service provider. Smooth collaboration, cultural compatibility, and time zone alignment are the advantages of onshoring. But because onshore outsourcing is concentrated domestically, labor expenses are going to be higher.
2. Can Outsourcing and Offshoring Companies Protect My Data?
Mitratech found that third-party-induced data breaches are the most concerning issue for the majority of surveyed companies (74%).
Not to worry, though, because the best service providers take data security seriously. These companies have advanced IT infrastructure and cybersecurity capabilities that can protect your data from online threats, including data breaches.
3. Which Strategy Is Better, Outsourcing or Offshoring?
There’s no strategy that’s better than the other. Choosing between outsourcing vs offshoring should be based on your business needs.
Want a dedicated overseas offshore team that you can build a long-term professional relationship with? Choose offshoring. Want to offload non-core business activities? Choose outsourcing.
Weigh the pros and cons of both practices, so you can make an informed decision and reap the benefits of your chosen strategy.
Make Offshore Team Building A Breeze
Building a high-performing team with specialized skills requires a lot of work. Hence, you may need offshore staffing to take the load off your shoulders. Offshore staffing can help you tap into global talent while keeping overhead expenses at bay.
Here at KDCI Outsourcing, we have offshoring specialists who can support your existing in-house team. From finance and accounting to digital marketing, we can build dedicated teams for any business function.
With our custom offshoring solutions, we can free up your internal resources, boost your operational efficiency, streamline your business operations, and increase your profits.
Need help with overcoming workflow inefficiencies and business challenges? Let KDCI Outsourcing do the heavy lifting. Contact us today!
