Outsourcing vs Offshoring: Is There a Clear Winner?

Outsourcing vs Offshoring: Is There a Clear Winner?

To many business owners, “offshoring” and “outsourcing” have the same meaning: sending work that would otherwise be completed in-house to freelancers based in other countries. While the two terms may seem similar, they have quite different meanings. Outsourcing refers to any type of external work that your business contracts someone to do, while offshoring refers to outsourcing work to a different country.

Considering both are intended at enhancing business efficiency and productivity, there is an ongoing debate between them. One thing is certain—the trend of relocating business operations overseas would continue, with thousands of companies reaping enormous benefits from either system. But of course, this is no guarantee that all businesses will strive using these methods. It all depends on how these are executed in your business operations. The best way to decide which method will work for your company’s operations is to evaluate the pros and cons.

What is outsourcing?

Outsourcing engages the services of a third-party provider to complete internal operations. It entrusts the completion of a certain business process to another company. By spinning off non-essential operations, the company can direct its focus on its core competencies. This business model claims to reduce labor and production cost, expedite transactions, improve service efficiency, and maximize use of external resources.

What is offshoring?

Offshoring is the process of outsourcing work to a country other than where your business is based but unlike outsourcing, offshoring lets you retain control of the business process.

A company can save up on labor and production cost when it hires talent and buys resources from developing countries.  For example, factories can be relocated to a country with a lower upkeep cost, so the product can be sold at a discounted price to developed nations.

The advantages and disadvantages of outsourcing vs. offshoring

Outsourcing has numerous benefits for businesses. Contracting external agencies or professionals can help them complete processes and tasks faster, reduce their costs, and run a more effective and profitable operation.

It can also allow the core staff of the business or organization to spend less time on ‘hands on’ projects. Time will be focused on the bigger picture and large strategic decisions that will help their business grow and develop.

When you outsource, however, you also run into potential problems. Many of these problems are amplified when processes and tasks are outsourced to companies or individuals in other countries.

One of these problems are communication. Since offshoring involves sending work to another country, time zones can make direct communication between the company and the contractor difficult to manage.

Language and culture can also play a factor in communications issues. Since many of the country’s most popular among offshoring firms have different native languages to most of the Western world, simple messages can be lost in translation.

Being able to control the quality of the work produced by your contractors can be an issue for companies that contract work offshore. When you work with an in-house team, you have total control over the work and creation process. When you outsource domestically, you have less control but are still able to keep in touch with your contractors. When you send work offshore, the level of control you have over quality and output is significantly more restricted.

The greatest disadvantage of outsourcing is the need to share critical and proprietary information about your business to an outsider. Although it helps companies save up on labor and production cost, there are also underlying risks that come with giving third-parties access to intellectual property. Even with draconian restrictions in place, trade secrets and proprietary information have been infringed and traded by unscrupulous external contractors.  

Which one is better?

In the end, it is all about finding the right balance between disseminating critical and non-critical parts of your operations. Offshoring is the most ideal option if you want to enhance your operations while retaining full control of the process. Although it has its own fair share of challenges, it is far safer than handing over important information about your business and entrusting service fulfillment to outsiders. Furthermore, by directly collaborating with your overseas team, you can implement a more efficient workflow without compromising output quality. When done right, offshoring offers an inexpensive way to assemble a strong and solid team from abroad that can help you enhance and expand your company’s services.

Should your business outsource or offshore?

Both outsourcing and offshoring offeras advantages and disadvantages for businesses and organizations. From quality control to cost, they both have extensive benefits, as well as issues that many businesses need to overcome.

Ultimately, the best solution for your business depends on your needs. If you need a high level of quality and communications, outsourcing may be best. If you need low costs and a systematized business, offshoring is often a better solution.