Have you ever considered the distinction between outsourcing and offshoring? For the same activity, there are no two terms.
Unlike outsourcing, offshoring does not include a third party taking over the delivery and accountability of services for another company.
Offshoring is location-dependent, while outsourcing is not. For example, a company may completely employ an outsourcing service in the same building or location or another nation.
Offshoring is exactly what the name implies: the business is not located in the same nation as the company.
In this business article, we look at the similarities between outsourcing and offshore and some of the apparent benefits and drawbacks of each operating model.
How Did IT Firms Get Here?
Today’s software companies are at ease hiring contractors, also known as freelancers, on ad hoc projects and alongside their employees for development and operational responsibilities.
Non-employees and outsourcing departments, services, development, and operations management to third parties under contract and SLAs are common in the IT industry (service level agreements). Offshoring is also common, and a variant is known as ‘your shoring.’
Advantages and disadvantages
What factors determine the advantages and disadvantages of outsourcing vs. offshoring?
The company retains ownership of its service despite outsourcing and partial offshore.
Offshoring is when a company uses more advantageous operating circumstances, such as lower labor, property, and tax expenses, to operate a portion of its activities in a different nation.
An independent third-party provider provides the service abroad for the firm on occasion, but not always. It’s increasingly common for a company to possess or control a majority stake in the offshore corporation that provides the product or service.
The company may rename and register its offshore operation under a different name.
Outsourcing is when a company pays the price to have a third party perform a function on its behalf. The company may cancel the arrangement and find a new outsourcing provider or bring the activity in-house, known as insourcing.
Offshoring must be cost-effective to do it. Due to higher populations, some regions have lower labor costs, so they’re prime for manufacturing, software development, and back-office activities.
Outsourcing is not solely driven by cost, as it may have to happen for the business to be in a position to provide the service to its customers.
For example, a startup with no expertise in an area can outsource it and usually with no interruption to service delivery, so the customers often don’t know the business is not delivering it. Helpdesk and customer service areas are frequently outsourced, and the provider may or may not be onshore.
Collaboration tools make online communication relatively straightforward – when you can navigate timezones to catch people when they’re working. Language barriers can be a challenge if your outsourcing or offshore team speaks the same language as your core team.
However, with offshoring, you can afford to work with top-ranking professionals in their field that can really boost your business in many ways. If you are just outsourcing the task, sometimes the high-ticket contractors might not be within your company budget.
Software development outsourcing and offshoring are an excellent fit for tech firms with lots of projects. Software developers command varying hourly rates depending on their location. When your staffing needs are project-based, you can hire contractors, outsource to a development team or assign the project to the offshore business.
Continuity can speed up the delivery; hence one challenge for the business is getting a commitment from the outsourcing provider to always assign the staff familiar with the business’s projects. There is no downtime when the business has its own offshore operation as its staff is only on their projects.
You’ve handed the operational control and delivery to the provider with outsourcing. Who is hired and how they are managed while working on your service is out of your control. Plus, you don’t have a say n the provider’s tech, security, and processes.
Depending on what you’re outsourcing, team and company culture may also concern you. Suppose the provider’s culture is vastly different from your own, and it has the potential to damage relationships with customers. That could splinter relations that may end in terminating the agreement and securing services elsewhere.
With offshoring, where you have a stake in the entity or your business is a substantial percentage of all the work done by the outsourcing party, you do have a role and some control in everything relating to the service provided for your business. Product manufacturing and supply chain are different as they’re offshore outsourcing, and often the factories are located near the materials used in production.
Apple is a good example where all its production of devices is offshore in factories that have 200,000 or more workers.
The Best Of Both Worlds
For the need of a better word, how about calling the meeting of offshoring and outsourcing – ‘yourshoring‘. Confused? You soon won’t be – keep reading. 🙂
Yoursharing is a term coined by Turnkey Labs – you may call it something else. Still, it’s quite catchy for a solution that marries the best outsourcing with offshoring without any investment from the business (the client).
Instead of setting up your own software development team in another country, you can engage a business to exclusively do your software development.
This service does involve creating a development team in another country that is entirely focused on the needs of one company. So it’s your team, but you have none of the responsibility for HR, e.g., hiring, management, and payroll. You’d get the same outcome with your own offshoring operation, but you’d need to hire an HR team and finance and accounting professionals.
The challenges still remain are company culture, mission, vision, values, and rules.
That said, service providers are motivated to ensure they provide seamless integration with the business. Without it, the service is really just offshore outsourcing. Watch this space – yourshoring a word we’re all familiar with soon.