What is the difference between offshoring and outsourcing?
To many business owners, outsourcing and offshoring hold the same meaning, which is sending jobs to freelancers who are located in outside countries instead of doing them in-house. Although the terms might be used interchangeably, they have different meanings when inspected closely.
Here are some things that you should know about outsourcing and offshoring:
What is outsourcing?
This refers to any kind of external work that a company commissions another party to do. Is your organization staff worked to the limit? You can outsource as this involves contracting some aspects of your work to third parties such as online freelancers.
Businesses outsource a wide array of processes, tasks, and projects. For instance, some companies outsource their customer support services to third party firms. You can also outsource by hiring contractors to do basic or repetitive tasks.
Technology companies usually outsource development aspects of their business so that the staff can focus on other essential projects. Your company can outsource a large number of processes and tasks to save time, which can be used to do other things. From corporate identity development to design, most of the largest corporations usually outsource some facets of their operations.
What is offshoring?
This typically refers to outsourcing work to different countries. When your business outsources, you can choose to contract within your country or opt for international companies. For instance, if your business is located in the US and you choose contractors from China, this is called offshoring.
While outsourcing is done to access people with advanced skill sets as well as speed up the completion of a task, offshoring is usually done to lower the costs of certain processes or tasks. The majority of large companies usually outsource customer support to other countries in order to reduce costs. In other cases, companies use staff from other companies to finish tasks at a much lower price compared to in-house staff.
The advantages and disadvantages of offshoring vs. outsourcing
When comparing outsourcing versus offshoring, the advantages and disadvantages are:
Run business more efficiently – outsourcing can help your company to complete projects and tasks much faster.
Reduce costs – when you outsource, you only pay for the hours worked. In-house workers usually get paid even if they are not working because nobody monitors their work.
Turn more profit – when you outsource and reduce your operation costs as well as complete projects faster, you will start turning more profit.
Creates time for other things – your staff will spend less time on hands-on projects and start focusing on strategic decisions that will grow your business.
Most of the problems with outsourcing occur when you contract people from other countries. They include:
Communication problems – because offshoring means sending work to foreign countries, there might be some communication barriers. This means that a simple message might get lost in translation.
Culture clashes – foreign countries might have corporate values that are different from those of the western world. Trying to do business without offending the contractors might be a challenge.
Quality control is difficult – being able to control the quality of work being done in a different country is difficult or impossible. This is vastly different from working with an in-house team, which you can oversee and control.
For many businesspersons, offshoring is a controversial topic because some people associate it with overworked and underpaid people. Others argue that it takes good jobs away from skilled people in their country of residence. If you want to offshore or outsource your services, you should weigh the pros and cons of each and make a decision that will benefit your business in the end.