Outsourcing vs Offshoring: What’s the Difference?

Outsourcing vs Offshoring: What’s the Difference?

When looking for ways to increase your organization’s productivity and profitability, chances are you’ve found yourself thinking about outsourcing vs offshoring. Is there really a difference between the two? And, if there is, which one is best for your particular needs? 

Thousands of businesses around the globe are engaging in outsourcing and offshoring, and those numbers are growing by the day. Despite this, many people continue to use these terms interchangeably, not realizing that there are very clear differences between the two. 

In simple terms, outsourcing refers to the process of having certain tasks contracted to a third-party company. Offshoring, on the other hand, refers to building your own global team in another country.  

offshore employees meet up

Outsourcing: Partnering with an Anonymous Workforce

When you outsource, you send specific tasks to a completely different company that operates separately from your own. The workforce receiving these tasks is anonymous to you. There is no interaction between you and the outsourced team. It’s all about getting the job done quickly and affordably with as little back-and-forth as possible. In outsourcing, you’re sending tasks to a different company whose workforce is anonymous to you. 

Without a direct line of contact with someone in the outsourcing team, it’s difficult to keep tabs on project progress. As the client, you need to take the outsourcing provider at their word and believe that the job will be finished on time and to the level of quality you expect. 

This focus on automation doesn’t mean that outsourcing is a bad business model. It also doesn’t mean that outsourcing is the inferior choice. It does, however, mean that you need to spend some time figuring out which of your company’s tasks would easily be taken care of with this model. 

Repetitive, monotonous, time-consuming, and some creative tasks can be efficiently handled by a specialized outsourcing team. You’ll be able to have multiple jobs completed far quicker than they would be by your internal team, and you’ll increase your profit margin at the same time. Just be sure to provide clear guidelines at the onset of your partnership to avoid any pitfalls down the line. 

Benefits of Outsourcing

Outsourcing can have a broad range of benefits for businesses when executed correctly. These include:

Saving Money

By outsourcing certain services, an organization can cut costs by only paying for the service when needed. For example, a company that doesn’t need full-time help with HR could outsource some of its work to another firm. The company would be able to complete the necessary human resources tasks as and when needed, without the cost of another full-time employee.

Outsourcing may also save the company money in other ways. By outsourcing, companies are able to downsize their main headquarters and invest funds elsewhere – like into research or development of new products that keep them ahead of competitors.

Benefiting From Specialists

Outsourcing some of your company’s more complex services and manufacturing processes to specialists may be a good idea. You might decide that it is too time-consuming or expensive for in-house staff members to accomplish these tasks, such as data processing and management or insurance processing. 

Improving Flexibility

If your company is moving towards increased flexibility and efficiency, outsourcing may be a good option. Instead of making an existing team available for only one service like accounting or legal, you can use outsourced teams to provide these services when they are needed most. This means that work will get done in much less time than if it was completed by someone on your full-time staff who might also need to focus their attention elsewhere within the organization. 

hybrid workforce

Offshoring: Your Own, Custom-Built Team

Offshoring is a more collaborative form of outsourcing. Instead of sending work to an anonymous team, you’re sending it to an offshore team that you can manage. Furthermore, this team is custom-built to fit your precise requirements. Essentially, you have a team of cherry-picked talent that is completely dedicated to making your life easier. 

As an extension of your onshore team, an offshore team will adhere to your rules and standards. You are able to manage them in the same way you manage your internal teams. Usually, this involves assigning a dedicated project manager to oversee all tasks and be the main point of contact. 

Offshoring, while a little more expensive than a regular outsourcing model, is still more affordable than hiring and training in-house staff. You gain access to a world-class talent pool with your pick of the most experienced professionals in their fields. Training and upskilling programs are usually provided for these teams. All you need to focus on is getting the team integrated so that you can grow your business. 

Benefits of Offshoring

Offshoring can entail a number of benefits that are aligned with general outsourcing but with a few “bonus features”:

Lower Labor Costs

One of the reasons that companies might choose to offshore services is to save on labor costs. By working with teams in countries where salaries are lower than in the UK or US (but still extremely competitive for employees in those regions) businesses are able to achieve the same high service standards at a fraction of the original cost.

Increasing Productivity

Offshoring can help a company save money on expensive investments and provide more flexibility with the changing needs of a business. 

An offshore team is often responsible for higher productivity levels. Whether this means answering twice as many customer queries or filing triple as much paperwork, any increase in efficiency will boost overall profits. 

Business-Friendly Regulations

Destinations such as the Philippines or Kosovo, market themselves as “business-friendly countries”.  Offshoring to countries like these is often easy and quick. Paperwork can be processed in a few days, and regulatory issues are minimal.

Outsourcing vs Offshoring: Which Should You Choose?

Offshoring and outsourcing are two different strategies that can help your business. Here’s what you should consider when deciding which will be best for you: 

How Long You’ll Need the Service

There are several benefits to outsourcing. For example, if you have a marketing company but only occasionally work on video production requests, this is a fantastic use of outsourced labor! Outsourcing allows for faster response times and avoids the cost associated with hiring full-time employees. 

The Amount of Control Required

Offshoring is a great option if you want complete control over the operations and quality of your products or services. With an offshoring partnership, you have the opportunity to manage the team yourself and oversee project progress from start to finish. 

The investment for an offshore project may be more expensive up-front but you’ll notice significant cost savings (and less stress and frustration) in the long term. 

Confidentiality and Privacy

If your company needs to meet any confidential legal requirements or if your team handles sensitive client information, outsourcing might not be the most secure option. Working with an offshoring partner, however, means that you can take extra steps to avoid breaches and ensure that your offshore team falls in line.  

How Quickly You Need the Service

Offshoring requires extensive training to ensure that employees are able to engage in the same activities. Challenges such as cultural and time zone differences can hinder productivity while workers become acclimated, but this is a temporary inconvenience compared with costs associated with hiring local talent. 

Consider Offshoring as a Long-Term Commitment to Success 

Your internal team will also benefit from offshoring. On-site workers can focus on more important business goals as they have fewer distractions and fewer tasks to do. This allows your local staff members to work towards bigger picture items, and think about strategies that help you grow your company rather than splitting their attention in too many different directions.

Outsourcing and offshoring are both viable options for almost any business. Either one of these models makes it possible to achieve value and expansion for your company. However, you need to be able to differentiate between the two in order to discover which will complement your existing operations whilst supporting continuity and scalability.

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