Is your enterprise finding success? If it is, that’s great! However, now that your business is growing, you need new team members to cover the escalating work demands.
As we speak, you have two workable scaling solutions to choose from—outsourcing or offshoring.
Many entrepreneurs and business owners choose to outsource repetitive business functions to a third party. Others find more perks in offshoring their operations outside their homeland.
But what is really the difference when you outsource or offshore?
Let’s weigh in on outsourcing vs. offshoring and discuss their major differences—from the nature of work to time zone differences.
Ready?
When you’re scaling and expanding operations, you must understand the difference between offshoring and outsourcing. Why? So, you can decide which solution aligns with your needs.
Let’s cut to the chase and define these viable staffing solutions and see how they differ.
This is a business practice where a company hires outside help within or outside the home country to perform a specific function.
You are delegating business tasks like IT support to a third-party provider in the Philippines, India or your native country.
Outsourcing gives you the power to turn over your menial tasks to a reliable external vendor. Your chosen service provider handles your non-core functions and frees up your time to focus on important projects.
This is also a business practice where a company moves a complete operation or process to a different country, typically to reduce costs. Still, the management stays within the organization.
You establish a software development center in India, where you can take advantage of their large and skilled IT workforce and lower rates.
By offshoring, you can create a team of employees in an offshore location and benefit from cutbacks in labor and operating costs.
To further demonstrate the dissimilarities of outsourcing and offshoring, we dissected their key elements below.
Outsourcing and offshoring are gaining mainstream popularity as business solutions. Both present a myriad of potential benefits such as cost reduction and streamlined operations, which are key factors in driving business growth.
Right now, the global outsourcing market is valued at $854.64 billion and could grow to $1110 billion by 2030. The sector is projected to reach a 5.4% compound annual growth rate.
Concurrently, many top brands have long set up headquarters in different corners of the world. They don’t just outsource remote workers to other countries. But they also establish in-house facilities in foreign lands, capitalizing on local resources and talent.
So, what exactly is the difference between outsourcing and offshoring? Let’s find out.
Outsourcing focuses on passing on a specific business activity to an outside vendor. For instance, you’re contracting a remote administrative assistant in the Philippines to deal with your admin work.
Offshoring entails transferring an entire business operation or service outside of your home base. For instance, you may decide to open a factory in China where the labor cost is much cheaper. Basically, you’re establishing your own facility in that country.
With outsourcing, you’re handing management control of your outsourced business function to another company. Nonetheless, you still maintain collaboration and communication via communication and management tools.
Alternatively, offshoring means you keep full control of your operation. From the people to the processes, you have complete management to ensure seamless operation.
Outsourcing is a cost-reduction strategy that is most especially beneficial for short-term projects. By using external resources, you can save money up to 70% on labor costs alone.
On the other hand, offshoring is ideal for the long term in reducing costs. You can trim down the labor and operating outlays for utilities and equipment.
When you outsource, the remote workers you’re working with are not your employees. They are independent contractors who are not directly employed by your company.
Meanwhile, offshoring is bringing in people who become your actual employees. You’re investing in this “new team” and building a mutually beneficial relationship with them.
You don’t have to invest in advanced technologies or any digital software when outsourcing. Your third-party service provider, say a virtual assistant, will provide the resources necessary to complete the task and deliver it on time.
However, when you’re offshoring, you have to invest in digital tools to keep your workflow smooth and intact. You will also be responsible for implementing, maintaining and enhancing your systems.
Infrastructure relates to a company’s logistical needs, and this is where outsourcing and offshoring draw a line.
When you outsource, you don’t have to deal with any infrastructure requirements. Your external provider has the resources to successfully handle your business task.
In the meantime, when you offshore, you need to find a location and invest in infrastructure. Also, you must adhere to the local regulatory requirements in that country as you set up your operation.
You don’t have to concern yourself with cultural diversity when you outsource within your home country. But when you delegate overseas, it becomes a crucial matter.
On the other hand, offshoring requires you to be open to cultural differences. Building your operation in a foreign land demands that you consider the country’s long-standing culture and traditions.
Time zone difference is a stumbling block in collaborating and operating at a distance.
Outsourcing to another continent impacts your business positively and negatively. As such, varying time zones provide round-the-clock productivity and faster response times.
With offshoring, you must learn to adjust to the different time zones. In particular, you should organize and design a rotating schedule to cater to global customers.
Scalability is crucial for expanding operations and growing the business to the next level. That’s why many organizations lean into outsourcing and offshoring.
Outsourcing helps your company streamline processes in the short term. You can tap into diverse expertise and access technology to optimize processes and improve performance.
Offshoring is perfect for increasing operation over an extended period. It also enables you to grow globally and reach a wider market, giving your business a competitive edge.
Outsourcing has fewer issues. While it’s an excellent practice to decrease expenditures, it also asks you to understand cultural differences and bridge communication gaps. This is so you can enhance operations and working relationships.
Nonetheless, the challenges are still way higher when you try to plant your business operation in an international territory. Offshoring calls for a comprehensive assessment—from the market to the local stipulations and regulations.
However, if you can triumphantly integrate your system into the local scene, you can reap endless perks like increased efficiency.
Outsourcing is contracting a third-party vendor to perform a particular business function on behalf of a company. Meanwhile, offshoring is the process of basing a company’s processes or operations offshore.
Nevertheless, both of these staffing solutions are viable options to scale operations and cut costs.
Offshoring happens when a company relocates parts of its operation to another country. For example, when a firm opens a research facility in Ukraine, that firm is offshoring. They’re accessing the local talent to get the work done at a competitive price.
On the other hand, outsourcing is delegating business tasks to someone outside the company, in or out of the country. For instance, Google is hiring remote professionals to handle digital marketing instead of relying on its labor force within the company. They wish to make use of outside expertise and tap into a versatile global pool.
So, what’s the passing judgment between outsourcing and offshoring?
Outsourcing is delegating a task to an external vendor; offshoring is moving an operation of the company to another location offshore.
If you’re on the lookout for cost-effective solutions to grow your business, those two will suffice. They’re not alike, though. Therefore, before moving forward, weigh in on your decision and choose the business practice that suits your needs.
Looking to outsource your routine tasks to a virtual assistant? Reach out to us! At VAV, we have a teeming pool of skillful VAs eager to help you scale.
