Outsourcing vs Offshoring - Definition and Differences ...

Offshoring means relocating some business processes or operations to a different geographical location. While it's unusual for companies to ... 26Nov2019 9 min to read OutsourcingvsOffshoring–DefinitionandDifferences.DiscovertheBenefitsofBoth Management Outsourcing Offshoring IntheworldofIT,offshoringandoutsourcingaretwobuzzwordsthatareoftenmisunderstoodorconfused.Whilethere’ssomeoverlapbetweenthetwo,theyaredistinctbusinessstrategieswiththeirownsetofadvantagesanddrawbacks.Withoutfurtherado,let’sliftoffthefogofconfusion. WewilltellyouwhatthegoalofOutsourcingandOffshoringis. WewillalsointroducethemainOutsourcingbenefits… …andthedrawbacksofOutsourcing. WhatreallyOffshoringis? Wewillshowthemainadvantagesofoffshoring. ThedrawbacksofOffshoring. OutsourcingandOffshoringaretwoeffectivebusinessstrategies,butwhichoneisbetter? ThegoalofOutsourcingandOffshoring Bothoutsourcingandoffshoringaimtoimproveoperations.MultinationalcorporationsandSMBsseektoemployeitherstrategyoracombinationofthetwotogainacompetitiveadvantage.Themaindriversbehindeachapproachareto: Increaseproductivity Reducecosts Obtainmorequalifiedspecialists Accessadvancedtechnologicalsolutions Dependingonthebusinessneedsandtypeofoperations,therearedifferentrecommendationsforthesetwobusinessstrategies.   WhatIsOutsourcing? Outsourcingmeansdelegatingaportionofbusinessoperationsoraprocesstoathird-party.Mostoutsourcedprocessesrevolvearoundnon-essential,peripheralactivities.Whileit’softenassociatedwithcommissioningworktoanoverseaspartner,theoutsourcingcompany’slocationcanbethesameasthecompanylookingtohire. AccordingtoStatista,in2018,theglobaloutsourcingmarketreached$85.6billion. AccountingandITservicesarethetwomostoutsourcedbusinessoperationsatsmallbusinesses,asClutchreported.Anotherpopularareaisspecialistservices.AnexampleisLiveChatoutsourcing,whichisthebasicmethodofcustomersupportformanycompanies.  BenefitsofOutsourcing Outsourcingisatestedstrategytoimproveoperations.Bigcompaniesandsmallbusinessesturntooutsourcetoreapthebenefitsofthisapproach.A2016Deloittesurveyfoundthemainreasonswhycompaniesoutsource: 59%—reducecosts 57%—freemoreresourcestofocusoncorefunctions 47%—solvecapacityissues 31%—improveservicequality 28%—accesstospecializedtalent 17%—managebusinessenvironment 17%—speedupbusinesstransformation Let’stakeacloserlookatthemostimportantreasonsbehindoutsourcing. ReduceCosts Companiesoftenseektooutsourcetoobtaincheaperservicesandstillretainhighquality.Hiringin-housespecialistsgenerateoverheadandadditionalcostsassociatedwiththehiringprocess.Withoutsourcing,hiringcosts,aswellasworkspaceandequipmentexpenses,aredecreased.Ateamcanalsobehiredtoperformaspecificone-timetask,whichfreesthehumanresourcesdepartmentfrompreparingtheonboardingprocessforanin-houseteam. AccesstoSpecializedTalent Byoutsourcinghighlyspecializedtaskstoathird-partyprovider,acompanycanaccessinnovativesolutionsandtechnologiesatafractionofthecostcomparedtosettinguptheprocessandtechnologyin-house.Outsourcingactivitiesthatrequireskilledlabourcanalsohelpthecompanyfocusoncorefunctions. IncreasedEfficiency Byoutsourcingworktoexperts,you’reeliminatingtheperiodnecessarytotrainemployeesandfamiliarizethemwiththeproject.Theproductiontimeisthusdecreased,whichcanpositivelyimpactboththeoutput’squalityandquantity. Outsourcing Offshoring Definition Delegatingnon-corebusinessactivitiestoathird-party. Relocatingaportionofbusinessoperationstoadifferentgeographicallocation. Location Canbethesameasthehiringcountry. Differentthantheparentcountry. Projectcontrol Lesscontroloveroutsourcedprocesses. Highercontrolovertheproduction. Benefits Costreduction Moreresourcestofocusoncorefunctions Increasedproductioncapacity Improvedservicequality Accesstospecializedtalent Quickerbusinesstransformation Lowercosts Lighterregulations Taxandtariffrelief Drawbacks Communicationissues Possibleintellectualpropertyfraudandtheft Socialandculturaldifferences Difficultieswithqualitychecks Geopoliticalrisk Time-zonedifference   DrawbacksofOutsourcing IntellectualPropertyRisks Whencompaniesoutsource,theyusuallyshareproprietaryinformationregardingbusinessoperationswithathird-partyprovider.Whiletherearemeasuresthatcanprotectcompaniesfromintellectualpropertyfraudortheft,apossibledisclosureofsensitivebusinessinformationmustbetakenintoaccount. Doingaduediligencecheckofapotentialcontractor,it’soneofthenecessarystepswhenconsideringoutsourcinganybusinessprocesses.Signinganon-disclosureagreementbeforecommencingworkisanotherprerequisite. CommunicationIssues Dependingonthelocationoftheoutsourcingpartner,effectivecommunicationcouldpotentiallybeproblematic.Ifthecontractorislocatedinadifferenttimezone,timegapscanmakereal-timecommunicationcumbersome.Also,languagedifferencescansometimesleadtomisunderstandings. LessControl Becauseyou’redelegatingworktoanothercompany,youhavelesscontrolovertheexecution,whichcancauseminordiscrepanciesinhowthegoalsarereached.   OffshoringDefinition Offshoringmeansrelocatingsomebusinessprocessesoroperationstoadifferentgeographicallocation.Whileit’sunusualforcompaniestooutsourcetheircoreactivities,offshoringcrucialoperationsarequitecommon. Oneofthebiggestperksofoffshoringisthattheworkisstillperformedwithinonecompany,whichholdssolecontroloverhowsomethingisdone. Offshoringbenefitscompaniesbysavingonlabourcostswhileretainingaccesstoqualifiedtalentandhigh-qualityresources. Tenleadingoffshoringdestinations.Source:Statista AdvantagesofOffshoring Themaindriverbehindoffshoringisreducingmanufacturingcosts.Butoffshoringalsoofferscompaniesadditionalbenefits: Lighterrulesandregulations Accesstocheaperspecializedlabour Easierintroductiontonewmarkets Lowertaxesandtariffs LowerCost Offshoringofferscompaniesanopportunitytohirespecializedtalentortoproducegoodsatalowerprice.Forexample,whenaUnitedStatescompanyaccessesresourcesinIndiaorthePhilippines,wherelabourcostsarecheaper,theimpactofthatdecisiononcostefficiencycanbeconsiderable.Simultaneously,thequalityofservicesreceivedcanbeonparwithwhat’savailabledomestically. LighterRegulations Somecountriesmakeiteasierformanufacturersorcompaniestoconductbusinessbyhavinglighterregulations.Offshoringcoreactivitiescanthusinvolvefewerproductionrestrictions,allowingorganizationstodeliverservicesorproductsaccordingtoplan. TaxesandTariffs Takingadvantageoftaxandtariffreliefpresentinsomecountriesofferscompaniessignificantcost-savingopportunities. HigherControl Bychoosingtooffshoreoperationsratherthanoutsourcethem,companiesretainfullcontrolovertheirinternalprocesses.Strictlyadheringtotheexecutionofcriticalbusinessoperationsisoftencrucialtomeetbusinessobjectives.   DisadvantagesofOffshoring Thedrawbacksofoffshoringaresomewhatsimilartothoseofoutsourcing,especiallyifthelatterisdoneinadifferentgeographicalregion. CulturalandSocialDifferences Culturalcustomscanhaveanoticeableimpactonoperationsconductedinanoffshoringlocation.Forexample,publicholidaysthatoccurondifferentdaysthanthoseinadomesticcountrycanresultindays-longdelaysinproductionordeliveryofservices. QualityCheck Companiesoffshoringtheiroperationscanusuallyexpecttohavemorecontrolovertheproduction.However,manyfactorscanstillinfluencethequalityofthefinishedproductordeliveredservice,eveniftheoffshorelocationfollowsguidelinesandrecommendations.   OutsourcingvsOffshoring:WhichOneIsBetter? Outsourcingandoffshoringaretwoeffectivebusinessstrategiesemployedbymanyinternationallyrenownedcompanies.Whileeachsolutionhasitsdistinctivecharacteristics,bothcanhelpcompaniesreduceproductioncosts,improvebusinessoperations,anddeliverhigherqualitytocustomers. Businesseslookingtodelegatesomeoftheiroperationsorprocessestoeitheranotherlocationorbusinesspartnerhavetomakeanin-depthassessmenttoseeifthebenefitsofimplementingastrategyoutweighanypossibledrawbacks.Companiescanalsoconsidercombiningoffshoringwithoutsourcingtobuildthemosteffectivebusinessstrategy. WehopethatthisarticlehelptounderstandOutsourcingvsOffshoringtopic.Ifyouneedanyhelpdon’thesitatetocontactus. Let'sSoftware   Share SUBSCRIBEourNEWSLETTER Areyouinterestedinnewsfromtheworldofsoftwaredevelopment?Subscribetoournewsletterandreceivealistofthemostinterestinginformation. Iacceptthetermsandconditionsandjointhenewsletter. ADDCOMMENTCancelreplyName Email(optional) Savemyname,email,andwebsiteinthisbrowserforthenexttimeIcomment. Comment RELATEDarticles Management 20Mar2022 16min OutsourceWebDevelopment-TipsandBenefitsforCompaniesLookingforaPartnership Outsourcingwebdevelopmenthasbeenaworldwidetrendformanyyearsbecauseofseveraladvantagesoverusingalocalteamfor... Readmore Management 8Nov2021 14min StaffAugmentation-BestPracticesforaClienttoOptimizeInquiries&Management Inthisarticle,youwillfindaboutthestaffaugmentationmodelandhowitcanbehelpfulforyourbusiness.Also... Readmore Management 6Sep2021 14min OffshoreSoftwareDevelopment-BestPracticesforWorkingwithanExternalCompany Inthispost,we’lltakeacloselookatwhattoconsiderwhencompanieslookforanoffshoresoftwaredevelopment... Readmore