Now that your company is elevating, you’re thinking about bringing in new talents. You’ve heard about outsourcing and offshoring from fellow entrepreneurs… but you don’t really know which is more suitable for your growing empire.
Outsourcing or offshoring; is there even a difference?
Many professionals often confuse these terms. But truth be told, outsourcing vs. offshoring does make actual sense because these two are not one and the same.
So, before you decide between outsourcing or offshoring, let’s compare these delegation tactics; basic concepts, how they work and major differences.
Outsourcing is a business practice where you employ a third-party firm to perform services on your behalf. This may occur inside or outside your home country.
Outsourcing lets you work with an external vendor, so you can focus on the core operations of the company.
One of the key things that makes outsourcing so distinct is how it offers specialized services, such as business process outsourcing, IT outsourcing and project outsourcing.
There are so many things to do when running a company, and most of these are non-core tasks. With outsourcing, you finally have the time for the core functions—the ones that directly impact the growth of your business and give you a competitive edge over others.
You’re probably outsourcing because you require expertise on certain tasks that none of your in-house workers can provide. Since you’re outsourcing based on skill set and experience, you can ensure that your provider can get the job done in less time with top-notch quality.
Outsourcing allows you to hire on an “as-needed” basis. This means you can ramp up the operation based on demand and not worry about hiring and firing people constantly.
It’s cheap to outsource. Since your contractual remote workers are working outside the office, you don’t need to worry about overhead costs and compensation benefits.
Offshoring is moving your business operations to another country. This means relocating certain activities to an offshore location while still managing them from inside the company.
For example, you offshore the company’s help desk support to the Philippines, where the labor and operating costs are a lot cheaper than in your home country.
Companies love to offshore their operations to developing countries to reduce costs, tap new markets and gain a competitive edge. Labor costs are much lower in developing countries than in developed countries; therefore, businesses can save significant money.
When you’re offshoring, there’s a much better ecosystem of skilled human resources in different types of industries for specific types of tasks.
For instance, the Philippines has a large English-speaking population. This makes the country an ideal spot for offshoring customer support functions.
You need resources if you want to scale up the company. For example, if you want to bring in a skilled employee, you need to make huge financial investment to hire them.
But what happens if that worker decides to suddenly leave? This could disrupt the work, and hiring a new staff would take too much effort and money.
With offshoring, you can scale up faster and easier. You have the liberty to control your team and the tasks while your offshore partner delivers the requirements and services.
Outsourcing vs. offshoring has become a popular subject when speaking of cost-effective business solutions. Both have the potential to streamline business operations and promote long-term growth.
Many organizations have offshored business functions in different parts of the world. It has become a trend, especially in India, which is the top country for BPO offshoring, and the Philippines, where there are over 700 BPO companies across the archipelago.
Meanwhile, global outsourcing spending was estimated to be $731 billion in 2023. In fact, in China alone, over one million employees have joined the service outsourcing industry.
But what exactly is the difference between outsourcing and offshoring? Let’s find out by looking at several factors.
Outsourcing is when a company contracts a third party to perform some of its work. For example, employing a remote administrative assistant to perform the repetitive, time-consuming tasks in the office.
Offshoring is moving business functions or services to another country to reduce costs and improve efficiency. For example, a company may decide to open a new factory overseas, where the labor cost is much more economical.
When you’re outsourcing virtual assistants, these remote workers are not your employees. They are independent contractors who are not directly hired by the company.
On the flip side, offshoring is actually hiring people who are considered your employees. This means you’re practically investing in this “new team” and building relationships with them.
With outsourcing, you hand in control and responsibility to a third-party provider in running your business functions. Despite this, you still have to collaborate and maintain communication with them.
On the contrary, offshoring entails complete control of the operation. You still have to manage your people and processes to ensure a seamless workflow.
First of all, outsourcing and offshoring are both cost-effective. Outsourcing is a best-fit cost-reduction strategy for short-term projects. By using external resources, you can save as much as 70% on labor costs alone. You can easily integrate a talented pool into your system and have the freedom to scale however you need.
Meanwhile, offshoring is a much better solution for the long term. It can cut major expenses by moving business functions to another country—a business strategy that allows access to a skilled workforce that has cheap labor and operational costs.
Time zone differences are a point of consideration when you think about virtual collaboration. If you happen to outsource overseas, the time zone can have an impact on the work. You can’t work or communicate clearly in real time.
With offshoring, where two companies collaborate in different countries, time zone differences can also result in miscommunication and delayed work. In response, you need to work according to these differences. You can do so by creating shifting schedules to accommodate customers in different geographical locations.
Outsourcing has a few challenges. While it can cut costs, there are cultural differences and communication barriers to overcome.
With offshoring, there’s always a risk of relocating operations to a different country. It requires strict diligence, learning stipulations and regulations in a new environment.
Moreover, with time zone differences, sometimes the team can feel disconnected, and expectations are not met. Also, it will be hard to adjust work schedules to accommodate all clients.
Outsourcing is offloading some of your most tedious tasks to a third-party provider, while offshoring is about business functions and moving them to another country. So, yes, it’s possible to offshore work but not outsource it.
If you can find all your business needs and requirements in another country, then you don’t need to offshore in order to outsource.
Offshore insourcing, which is also referred to as “captive supplier,” is when a company contracts a wholly-owned subsidiary in a different country to perform certain business functions on its behalf.
On the other hand, offshore outsourcing is when a company hires a third party to perform business functions that support the organization outside their home country. Internal operations, such as call centers and accounting services, are prime examples of offshore outsourcing.
Domestic outsourcing, also known as onshore outsourcing, is when an organization contracts a third party, but within the same country to perform business functions.
Conversely, offshore outsourcing is when you hire services outside your home country.
There you have it: outsourcing vs. offshoring.
Remember, these two are not interchangeable, nor are they opposite of each other. You can offshore but not outsource, and also outsource but not offshore.
Outsourcing is about delegating functions to a third-party provider, while offshoring is about moving business operations outside your home country. Nonetheless, both are viable options that you can leverage to cut costs, expand your reach and scale processes.
If you’re looking to outsource your tasks now to a virtual assistant, connect with us, and we’ll help you sprint to your success faster.
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