Offshoring vs. Outsourcing: Understanding the Key Differences

Although the terms “offshoring” and “outsourcing” have been around for decades, the majority of people are still hesitant when it comes to telling the difference between the two notions.

So, outsourcing happens when a company hires a third-party service provider to do a job that you cannot do yourself. Whereas offshoring (nearshoring) means having the job done elsewhere outside your country. Offshoring normally happens for businesses who opt out of an in-house job for the sake of the reduced rate usually offered by the offshoring companies.

In the article today we are analyzing the main difference between offshoring and outsourcing, their pros and cons.

Key differences between Offshoring and Outsourcing

The main difference between the two lies in the fact that offshoring is 100% international, while outsourcing is primarily happening outside the organization.

Secondly, offshoring is subject to long-lasting criticism as it is viewed as stealing jobs from other countries. In addition to that, there is always a high-level risk due to geographics and politics, communication barriers based on different languages and cultural backgrounds, and others. With outsourcing, the main risks are connected to the fact that business owners are extremely reliant on their service providers and hope to meet all of their initial clients’ needs. Besides, lack of the necessary knowledge is another drawback as then you cannot control the process you know nothing about.

As to the main benefits of the two, offshoring providers have lower service costs, and large talent pools owing to which the job gets done quite fast. As to outsourcing, business owners are looking for a very specific set of skills and flexibility and it often is not much cheaper than in-house specialists yet still cost-efficient.

Let’s now get into more detail about the benefits of each model

The benefits of Outsourcing

• Cost efficient – as it is still cheaper going for outsourcing than hiring a whole group of new employees for some short-term project
• Vast talent pool – outsourcing companies often int out their strong skills so they attract new clients. With an in-house team, it is more complicated to maintain it on the same level where there are not so many tasks or projects to gain from
• The flexibility of the team – as outsourced projects are often unpredictable; it is good to have an option of either reducing the team when it is necessary as well as increase it

Risks of outsourcing vs offshoring

Despite the obvious benefits for the business, both outsourcing and offshoring bear a certain scope of risks. Taking them into account helps decision-makers to adhere to their internal policies and mitigate any potential risks.

• Additional fees and hidden costs are a major drawback since oftentimes nuances appear that have not been discussed and require additional spending to cover.
• The time difference may also cause significant issues in job performance as the offshore team may be in a different time zone which in its turn leads to delays in the deadlines
• Work culture is based on local working hours and holidays. To avoid this, it is advisable to look for teams that are able to work within your scheduled holidays and days off
• Communication is by far the most important aspect when it comes to the successful delivery of services. Pick a team with a good command of the language you are comfortable communicating in.
• Reliability of the outsourcing or offshore teams. This can be checked through reviews and feedback from existing clients. Make sure your partners do not provide similar services to your potential competitors too. Do not forget about NDAs so that none of your sensitive data is leaked or used for the benefit of your direct competitor.

Outsourcing or offshoring: which model is better?

If you hesitate about which type of cooperation to choose, analyze your business strategies and goals. In both cases, you hire remote teams of specialists to do the job for you. Indeed, they have a lot in common but are different at the same time.

Finding the right partner either for short or long-term cooperation depends on your plans for the future of your business. Depending on your business niche, demands, and tasks, opt for a model that will suit your interests. Bear in mind all the risks entailed by hiring a third-party service provider and conclude a very detailed contract that will protect both parties.

Although there are many opponents to both models and many people view them as stealing jobs from the people within a nation, business owner still views offshoring and outsourcing as a perfect solution to grow their business. Not always the jobs can be done in-house, and companies can have no other option rather than hire a remote third-party team. Eventually, the decision-making process requires a lot of effort and time before the final decision is concluded.

If you decide to stay within your country, then outsourcing is the right option for you. As it means that you hire remote teams both in-house and internationally. Offshoring is always international and means that you work with people outside your country.

Summary

Both outsourcing and offshoring are viewed as great tools for getting the job done without having to establish a team within your organization. It gives your business more freedom and does not require spending additional time and cost on the sourcing and hiring process. As you partner with a remote team, you get down to work right away.

To avoid failure, establish your requirements and expectations, discuss everything prior to signing the contract, and think over all the potential challenges and risks. Once you do that, you can start enjoying the process and focus on core tasks that are essential for your business’s success.

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