Offshoring vs. Outsourcing: Difference and Benefits | Indeed.com

Unlike outsourcing, the decision to offshore does not necessarily mean that the work will be performed by a third party. While that can happen, ... FindjobsCompanyreviewsFindsalariesUploadyourresumeSigninSigninEmployers/PostJobStartofmaincontent CareerGuideCoronavirusJobResourcesFindingaJobMoreResumes&CoverLettersInterviewingStartingaNewJobResumeSamplesPay&SalaryCareerDevelopmentCareerPathsCoverLetterSamplesCoronavirusJobResourcesFindingaJobResumes&CoverLettersInterviewingStartingaNewJobMoreResumeSamplesPay&SalaryCareerDevelopmentCareerPathsCoverLetterSamplesCareerDevelopmentOffshoringvs.Outsourcing:DifferenceandBenefitsOffshoringvs.Outsourcing:DifferenceandBenefitsByIndeedEditorialTeamSeptember3,2021TwitterLinkedInFacebookEmailCopytoClipboardOutsourcingandoffshoringarebothoptionsthatallowyoutoincreaseyourorganization’sproductivityand,ultimately,profitability.Inthisarticle,we’lldefinethedifferencesbetweenoutsourcingandoffshoringandthebenefitsofeach.Whatisoutsourcingvs.offshoring?Outsourcingreferstotheprocessoftransferringanaspectofthecompany’soperationstoathird-partyfirm.Thismayoccurwithinthesamecountryorresultinacross-bordertransferofwork.Additionally,theoutsourcingmaybepermanentorlinkedtoafixed-termcontractfortheperformanceofservices.Offshoringmaysharecertainsimilaritiestooutsourcing,butitisdifferentinseveralimportantrespects.Acompanyoffshoresitsoperationswhenittransfersthemtoanothercountrytoachievecertainbenefits,suchascuttingcosts,reducingitstaxburdenorbeingabletoshipproductsmoreeasilytomarket.Unlikeoutsourcing,thedecisiontooffshoredoesnotnecessarilymeanthattheworkwillbeperformedbyathirdparty.Whilethatcanhappen,thecompanymayalsochoosetomaintaindirectcontrolofitsoperationsinanothercountry.Forexample,itcouldchoosetoopenanewlocationorfactoryoverseas.Related:Outsourcing:WhatItIsandHowItWorksHistoryofoutsourcingandoffshoringThetermoutsourcingenteredtheworldofbusinessinthesecondhalfofthe20thcentury.Companiesfoundthattheycouldhireexternalproviderswhohadtheabilitytogetworkdonefasterandmoreefficiently.Thisledthemtoincreasethepracticeofhiringexternalproviderstocompletetaskswherespecializedskillswerenecessary.Neartheendofthe20thcentury,asimprovementsweremadeinshippingtechnologyandtelecommunicationsinfrastructure,itbecamemoreefficienttohaveworkdoneincountrieswherewageswerelower.Thepracticecametobeknownasoffshoring.BenefitsofoutsourcingThereareseveralmajorbenefitsthatoutsourcingcanbringtoabusiness,providedthatthemoveisplannedcorrectlyandcarriedouteffectively.SavingmoneyThedecisiontooutsourcemaybedrivenbyyourcompany’sdesiretocutcosts.Outsourcingenablesthistobeachievedbypayingonlyfortheservicewhenneededratherthanemployingworkersfull-time.Forexample,youremployercouldmakethedecisiontooutsourceHRservicesbecausetheorganizationisn’tlargeenoughtoneedfull-timehelp.Thisallowsthemtocompletethenecessaryhumanresourcestaskswithoutthecostofanotherfull-timeemployee. Thedecisiontooutsourcemayalsobringsavingsinotherways,suchastheabilitytodownsizethecompany’smainheadquarters.BenefitingfromthespecialistsSometimesaparticularserviceormanufacturingprocessmaybesocomplexthatitisbestdonebyspecialists.Yourcompanymayhavedecidedthatitistootime-consumingorexpensivetotrainin-housestafftoaccomplishthesetasks.ThiscouldbethecaseforcertainIToperationsorthemanufacturingofaparticularproduct,suchasautoparts.Inthesesituations,yourcompanycoulddeterminethatthebestcourseofactionistooutsourcethejobtoaspecialistfirm.Inthisway,theycangainaccesstohighly-trained,expertprofessionals,whileatthesametimekeepingtheircostscompetitive.ImprovingflexibilityYouremployer’sdecisiontooutsourcemayalsobeconnectedwithimprovingtheflexibilityofitsoperations.Anexpertthirdpartyfocusedonprovidingaspecificservice,whetheritbeaccounting,cleaningorlegalservices,maybeabletooffertheseservicesinamoretimelymannerthananin-houseteam.Furthermore,athirdpartyisoftenbetterequippedtoaddresssuddenchangesindemand,suchasadroporriseinthenumberofproductsacompanyrequirestobeshipped.Readmore:TheAdvantagesofOutsourcingBenefitsofoffshoringSomeofthebenefitstobegainedfromoffshoringarelinkedtoefficienciesandlaborcosts,whileothersconcerntaxandlegalobligations.Duringthedecision-makingprocess,yourcompanywillhavetodeterminewhetherthesebenefitsoffsetthepotentialdrawbacksofoffshoring.Onlyafterdoingsowillyouremployerbeabletodecidewhetheroffshoringmakesfinancialsense.LowerlaborcostsOneofthemostobviousreasonsacompanymightchoosetooffshoreproductionorservicesistosaveonlaborcosts.Byopeningafactoryoverseas,companiescanaccesslaboratratesconsiderablylessthantheywouldincurstateside.ReducingthetaxbillOffshoringmayalsobemotivatedbyadesiretoreducetheamountoftaxesthecompanyispaying.Thismaybejustifiedasawaytofreeupmorecapitalforinvestmentsinnewproductsormodernizingthebusiness’manufacturingequipment.Thisstrategycanworkbecausethereareseverallocationsaroundtheworldwherecorporatetaxesareloworevennon-existentforbusinesses.Thebusinessmayberequiredtomovepartofitsoperationstothatcountryorsimplyregisteracompanythereinordertotakeadvantageofsuchbenefits.IncreasingproductivityYouremployermayarguethatthecostsavingsbroughtaboutbyoffshoring,alongwithgreaterlevelsoflaborflexibility,couldenablethecompanytooperatemoreproductively.Forexample,thecompanymaybeabletoestablishamodernfacilityatarelativelylowcostduetoinvestmentincentivesratherthantryingtoupgradeanoldfactoryatconsiderableexpense.Higherproductivitylevels,whetherintermsofproducing10percentmoreproductinayearoransweringtwiceasmanycustomerqueries,willmakethecompanymoreprofitable.Thisenablesthebusinesstoofferconsumersmorecompetitivepricingonproducts.Related:HowtoImproveEmployeeProductivityBusiness-friendlyregulationsSomepopularoffshoringdestinationsmarketthemselvesasbusiness-friendlycountries.It’softenpossibletocompleteallofthepaperworkandarrangementsrequiredtosetupoperationsinadayortwo,andregulatoryrequirementscanbeminimal.Forsomebusinessoperations,thismaybeattractiveduetotheflexibilityitoffersorthesecurityofknowingthatcompanyassetsaresafe.RisksandcriticismsOffshoringissubjecttoasignificantamountofcriticism.Manyblameoffshoringforstealingjobsfrompotentialemployeesinthecountry.Thatsaid,offshoringlowersthosecostsforcompaniesthatcanthenpassthosesavingsontoconsumers.Withoffshoring,though,therearerisksofprojectfailureasaresultofpoorcommunication,politicalorcivilunrestthatcouldimpactproductionordelivery,changesintheeconomicpolicyofothergovernmentsandpoorinfrastructureindevelopingcountriesthatcanimpactquality.Outsourcingisnotsubjecttothesameamountofcriticismorrisks.Forexample,outsourcing,whendonewithinthecountry,isn’tblamedforstealingjobs.Themainrisksassociatedwithoutsourcingareassociatedwithalackoffamiliaritywiththeclient’sbusiness.Thevendorandclientalsoarenotalignedwiththeirlong-termbusinessobjectives,whichcanpotentiallyimpactthequalityofservice.IndustrytrendsBothoutsourcingandoffshoringareontherise,asaneconomicrecessionworldwidehasforcedcompaniestoconsideralternativesforcuttingcostsandincreasingefficiencies.Companiesarecontinuingtoincreasebothoutsourcingandoffshoringoflargerpartsoftheirbusinessesthatarenotconsideredcore.Anothertrendisacquiringsmallervendorsthatcarrytheexpertiseneededtofulfilltheneedsofalargeorganization.Readmore:DefinitiveGuideToBPOTipsforchoosingoffshoringvs.outsourcingHerearesometipstohelpyoudecidewhetheroffshoringoroutsourcingwouldbebestforyourbusiness.IdentifythelengthoftimeyouneedtheserviceTheadvantageofoutsourcingisthatitworkswellforservicesthatyouonlyneedforashortperiodoftimeoronlyonoccasion.Forexample,ifyouhaveamarketingcompanybutonlyoccasionallyhaveclientrequestsforvideoproduction,thisisagreatexampleofsomethingtooutsource.Youcanaccommodatetherequestfasterandavoidthecostoftimerequiredforhiringin-house.DeterminetheamountofcontrolyouneedIfyouwanttohavecompletecontrolovertheoperationsandqualitycontrol,youmaywanttoconsideroffshoring.Forexample,let’ssayyourcompanymanufacturesplug-inairfresheners.YourteamputsthemtogetherintheUnitedStates,butyoupurchasethebottlesthroughathird-partyoverseasandhavenocontroloverhowthebottlesaremanufactured.Inordertogaincontrolovertheprocessfromstarttofinish,youmaywanttoconsideroffshoringandinvestinginafactoryoverseaswhereyourteamcanperformaqualityassurancecheckbasedontherequirementsyouspecify.Theinvestmentmaybemoresignificantup-front,butinthelongtermismaysaveyoumoneyandgiveyoutotalcontrol.ConsiderconfidentialityIfyourcompanyhandlessensitiveclientinformationormustmeetconfidentiallegalrequirements,outsourcingcanbedifficultorimpossible.Youmayneedtoconductadditionalmonitoringofexpensesortakestepstoavoidbreachesormisconductfromathird-partyprovider.DecidehowquicklyyouneedtheserviceTrainingemployeesisessentialwhenyouengageinoffshoring.Youmusttakeintoconsiderationchallengesinculturaldifferencesandcommunicationaswellastimezonedifferencesthatcanimpactyourabilitytotrain.Becauseofthetimeinvolvedintrainingoffshoreemployees,youmayseeatemporarydecelerationofproductivity.Long-term,though,offshoringishighlyproductiveandprofitable.BrowsemorearticlesWhatIsanNSFCertification?(AndHowToEarnOne)WhatIsaPre-collegeProgram?ADefinitiveGuideWhatIsUTMTracking?(PlusHowToSetUpTrackingin4Steps)WhatIsTreasuryManagement?(WithDefinitionandBenefits)WhatIsOrganicContent?(PlusBenefits,QualitiesandTips)WhatIsITProjectManagement?(WithBenefitsandTips)FAQ:WhatIsNeuromarketingandWhatIsItUsedFor?WhatIsaWebCrawler?:HowTheyWorkandHowTheyAffectSEOWhatIsRightsourcingandWhyIsItImportantforCompanies?BenefitsofaWork-From-HomeDressCode(WithTips)WhatIsaTurnkeyBusiness?(WithProsandCons)WhatIsScrum?ADefinitiveGuide