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Outsourcing vs Offshoring: Know the Key Difference and Find Out What’s Right for Your Business

Outsourcing vs Offshoring

Nowadays, it is very common for companies to seek the services of third-party firms and even countries in some aspects of their daily business operations. There are various setups available for business owners to improve productivity, properly delegate tasks, and reduce costs. Outsourcing and offshoring are becoming a trend that can be appropriate for any business function. However, these two setups can be quite confusing for business owners who are not familiar with their definitions and the benefits that they provide.

Continue reading to learn about the differences between offshoring and outsourcing, benefits, and examples, and find out which setup is a perfect fit for your business needs.

Definition of Offshoring and Outsourcing

What is Outsourcing?

Outsourcing is described as an “umbrella” term that covers the process of contracting and hiring third parties to perform specific business activities that are typically performed by in-house staff.

What is Offshoring?

Offshoring is a strategy under outsourcing. It is the process of relocating business processes or entire businesses to another country.

The Difference Between Outsourcing and Offshoring

To understand the differences between the two, take note first of the similarities. Outsourcing and offshoring are two setups where companies choose third-party agencies and firms outside the company premises to perform specific tasks with the help of competent manpower. Just like outsourcing, companies usually offshore to minimize operational and overhead costs.

One key difference between the two is that outsourcing usually entails contracting out specific tasks or projects, while offshoring often involves relocating entire business operations.

Another distinction is that outsourcing can be done within the same country (i.e., domestic outsourcing), while offshoring always involves moving operations to a different country (i.e., offshore outsourcing).

The differences between these two revolve around different aspects such as work assignments, timeline, involvement, work quality, and time and scalability.

Offshoring vs Outsourcing: Work Assignments

Outsourcing: Your business will utilize the services of a third-party provider.

Offshoring: A dedicated offshore team completes the work for your business.

Many companies outsource tasks to expedite the delivery of services and improve business productivity. However, in outsourcing, staff who are tapped by the service provider to get the job done do not have a full-time commitment to the task. Some of them can be contractual or freelance workers hired by your outsourcing partner.

Unlike outsourcing, offshoring allows assigning team members in the continuation and completion of your business operations to another country. Companies that choose to offshore can state important company policies and clear work expectations. One of the pros of offshoring companies is that they hire dedicated teams which can serve as an extension of your in-house team. They work on your organization’s business processes exclusively, so you can perform regular monitoring of their activities and ensure the quality of final outputs.

Outsourcing vs Offshoring: Functions

Outsourcing: The function focuses on a specific task that is vital in business operations.

Offshoring: The function focuses on a complete role that is usually complex and technical.

Outsourcing business tasks tend to help companies with services catered to a huge market. Most of the time, outsourcing involves quota-based activities which are time, quality, and quantity-focused. Offshoring is different in the sense that the business objectives under a particular task or project are for long-term goals.

When it comes to function, offshoring works like specialized outsourcing, where the offshore team members are all required to have a specific skill set and expertise dedicated to a project. Keep in mind that outsourcing companies may also hire experts to perform a business role that your company demands.

Difference Between Offshore and Outsourced Teams: Your Involvement

Outsourcing: Low to moderate involvement in staff selection and task delegation.

Offshoring: High involvement in staff selection, task delegation, and performance monitoring.

You might wonder how are you going to manage the work assignments and tasks of teams outside your business premises, especially when there are challenges such as cultural diversity and language differences. If you choose to entrust the entire business solution activity to your service provider due to time management problems and heavy workloads, then outsourcing may be the right setup for you. Outsourcing allows the service provider to freely select the staff for a specific project with the minimum yet necessary information that you provided before the start of the agreement.

If you are a business owner who wants full control and high levels of involvement in talent acquisition, training, and performance monitoring, offshoring can help you feel confident with the progress of your project or task. Offshoring also allows you to share your business standards and policies to make sure that everything is managed in accordance with the company’s core business objectives and values.

Difference Between Offshoring and Outsourcing: Work Quality

Outsourcing: Not Consistent. Work quality varies depending on the skills of the staff assigned.

Offshoring: Consistent. Work quality depends on the standards you set.

Every business owner wants consistently excellent quality for the products and services that his/her company offers. Thus, monitoring business processes outside the company can be very challenging. In business process outsourcing, the quality of service and final output depends on the skills and expertise of the assigned team member. It is important to keep in mind that adopting the outsourcing model gives you a limited opportunity to screen staff and assess their skills. This could result in varying levels of service quality and performance.

Offshoring involves strict quality and performance control and assurance. This means that consistent and firm business standards could require an offshore team to work at excellent levels. Since the majority of offshoring activities require the relocation of complete business processes, you can create a more comprehensive service level agreement that would benefit both your company and your offshore provider.

Examples of Outsourcing and Offshoring Activities

The offshoring and outsourcing markets are two of the most in-demand industries at the moment. Many offshoring and outsourcing providers offer specialized services that could bring short and long-term benefits to businesses. Here are some of the most popular offshoring and outsourcing activities that will help you grow your business:

Outsourcing

  • Customer Service
  • Marketing
  • Product Manufacturing

Offshoring

  • Consultation and Software Development
  • Financial Processing
  • IT Services

Benefits of Outsourcing and Offshoring

outsourcing

Benefits of Outsourcing

  • Higher Focus on Core Tasks
  • Lower Operational Costs
  • Better Growth Opportunities
  • Flexible Staff Schedules
  • Enforces Continuity and Risk Management
offshoring

Benefits of Offshoring

  • Cost Reduction
  • Better Quality and Performance Control
  • Cost-Effective and Skilled Manpower
  • 24/7 Operations
  • Full Assistance

What Are Some Common Outsourcing Mistakes?

Scope Creep

One of the most common mistakes when outsourcing is scope creep. This happens when the original scope of work is not well-defined, or when new tasks are added to the project without properly defining them. This can lead to confusion and frustration on both sides, and can ultimately result in a poor quality product.

Lack of Communication

Another common mistake is the lack of communication between the client and the service provider. It is important to have clear and concise communication in order to avoid misunderstandings. If there is a lack of communication, it can lead to delays in the project or even an inferior product.

Poor quality

A third common mistake when outsourcing is poor quality. This can happen for a number of reasons, such as using low-cost labor without proper supervision, or simply not having enough knowledge about the subject. Poor quality can lead to dissatisfied customers and ultimately damage your reputation.

What Are Some Common Offshoring Mistakes?

When looking for an offshore company to partner with, it’s important to do your research and make sure they are a good fit for your business. 

Not doing enough research

Not doing enough research is another common mistake when it comes to offshoring projects. It’s important that you know exactly what you’re getting into before you commit to anything. This means doing your research on the company you’re considering working with, as well as the country they’re based in. You should also be aware of any cultural differences that could impact your project.

Failing to communicate properly

One of the most common mistakes made when offshoring is failing to communicate properly. This can happen for a number of reasons, such as time zone differences or language barriers. It’s important to establish clear lines of communication from the start so that everyone is on the same page. Otherwise, it can lead to misunderstandings and frustration on both sides.

Why Are Offshoring And Outsourcing Important?

Offshoring and outsourcing can be beneficial to companies in a number of ways. By taking advantage of lower labor costs in other countries, companies can save money on their overall operating costs. In addition, offshoring and outsourcing can help companies to tap into new markets and to gain access to new talent pools.

Risks

There are also some risks associated with offshoring and outsourcing. These include the potential for cultural misunderstandings, language barriers, and political instability in the countries where operations are being outsourced. In addition, there is always the risk that intellectual property could be stolen or leaked when it is sent overseas.

Examples

Some examples of companies that have outsourced or offshore operations include Apple, IBM, Microsoft, and Google.

Choose the Right Setup for Your Business

The objective of outsourcing business processes is to deliver the best quality of service to clients and consumers on time. Outsourcing any business process comes with different benefits and risks, so it is very important to consider these. Make sure that when selecting an outsourced or offshore provider for your business, your project standard also benefits the outsourced or offshore team assigned to do the job.

Consider outsourcing and offshoring to help expedite your business process and achieve your business objectives. The nature of your business, your budget, and your business objectives will determine which setup is better for you. Does your business experience peak seasons when the workforce tends to be so exhausted? Do you have sales targets to obtain? Do you prefer quick solutions to long-term ones? Outsourcing might be the best setup for you. But if you want a dedicated team that you can manage to handle the tasks for your company, offshoring is one excellent way to get things done.

Have you decided which setup works well with your business? Share this article and help other companies decide too.

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