Outsourcing vs offshoring: Are they truly different?
Business executives often use the terms “outsourcing” and “offshoring” interchangeably, not knowing that their slight differences are crucial in creating effective business solutions with a third-party provider.
The “outsourcing vs offshoring” confusion lies within their relationship. Both terms refer to the strategy of partnering with a third-party provider to unload several business functions. But outsourcing is more of an overarching term, while offshoring is just one of its forms.
Any business can outsource roles and functions, depending on its needs and goals. For example, a tech startup suddenly gets a surge of queries about a product they are about to launch because of an effective marketing campaign, which overwhelms their in-house customer service team.
The knee-jerk reaction would be to directly hire more agents to boost the existing customer service team, but the reality is that hiring skilled and experienced agents is easier said than done, especially with the global talent shortage today.
Outsourcing would be the more logical solution as it allows the tech startup to access trained, certified, experienced, and ready-to-deploy professionals. It also provides additional training, office support, and whatever assets needed for their work.
It is a package deal that allows the startup to get huge savings in overhead expenses compared with doing the end-to-end process of sourcing, screening, hiring, training, and onboarding, which can also eat up valuable time.
Outsourcing is even flexible enough to allow the startup to ease out of the deal if the surge mellows down, add more headcount if needed, or maintain the outsourced team if they expect the high number of queries to be their new normal.
Because outsourcing has been a consistent cost-efficient solution for businesses around the world, it has been adopted by nearly all industries. And over the years, it has evolved into many different shapes and forms to suit the very specific needs of each vertical.
Today’s most prominent types of outsourcing include IT, professional, business process, manufacturing, and more. Knowing all the different types of outsourcing may help you make a sound decision if you plan to begin your outsourcing journey.
Aside from the function-oriented types of outsourcing, there are also location-based forms of outsourcing, which include onshoring, nearshoring, and offshoring – terms that can also be confusing for business leaders who have just discovered the concept of outsourcing.
In simple terms, onshoring refers to outsourcing to a provider within the same country or region. Nearshoring, meanwhile, is the practice of outsourcing to providers in neighbouring countries or regions. Offshoring is outsourcing business functions to a provider in another part of the world.
Compared to onshoring and nearshoring, offshoring offers the best solution if your main motivation in outsourcing is cost savings because it allows business to access trained and experienced professionals from countries with lower costs of living.
Just the difference between the labour cost of accountants in the United States and the Philippines, one of the top outsourcing destinations in the world, will give you an idea of how much you can save when you rely on offshore solutions.
Outsourcing to the Philippines, a country within a different time zone, can even give you 24/7 capabilities, which could give you an edge over your competitors. Setups like these are highly beneficial to companies in the e-commerce industry, where demands can spill over beyond business hours.
Of course, there will always be concerns when building a team offshore. One aspect of offshoring that makes business leaders hesitate is data privacy and security, especially with the growing threat of data theft around the world.
But the reality is, any business, whether it operates onshore or offshore, will always be susceptible to cyberattacks if they do not have the proper technology and system, which outsourcing providers can offer.
Because the work of outsourcing providers offshore is global in nature, they put a huge portion of their investment in IT infrastructure and security. Providers use state-of-the-art technologies and protective software that can otherwise be too expensive for startups if they acquire them alone.
Another common concern of business leaders when it comes to offshoring is cultural differences. But this issue can easily be resolved by finding the right outsourcing partner with a program that integrates onshore and offshore teams.
When it comes to cultural adaptability, the Philippines remains one of the top countries on every list because of its cultural heritage and history of exposure to the western world. Filipinos are even known to have the best pool of English-speaking professionals.
Outsourcing vs offshoring: Why you need to know the difference
Addressing the “outsourcing vs offshoring” conundrum will put you in a position to understand the scope of outsourcing and how it can help you resolve the pain points that have been keeping your business from growing at a competitive rate.
It will also allow you to formulate the right questions that you may need to ask when looking for an outsourcing provider. Knowing what questions to ask is crucial in selecting a partner because it gives you a clear view of the service they can provide.
If you are interested in starting your own outsourcing journey, it is best to begin by writing a list of why you need to outsource and the goals you want to achieve during a specific period. Your “whys” and “must do’s” will help you make sound decisions when you begin outsourcing.
For starters, it will allow you to choose the right setup you need. Nearshore, onshore, and offshore outsourcing all have benefits, but it is up to you to decide which arrangement will give you the best results.