Most people think offshoring and outsourcing are similar, but that is not the complete truth. With few similarities, differences are more at the core level.
Understanding the difference between both will help you choose the right option among them. The basic difference between offshoring vs outsourcing is that outsourcing can occur within the same location.
However, when it comes to offshore work, it goes beyond geography. Any company from point A can collaborate with an offshore software development company located at point B in this world.
To remove the clouds of doubt, we have created this blog to help you understand what is suitable for you: Offshoring vs Outsourcing.
In this blog, you’ll have all the necessary information. So, let’s start with the blog.
In simple terms, offshoring is the process of relocating work overseas. It works like companies or businesses choosing service providers for a specific task or entire process, like software development or mobile app development.
It allows companies to get the work done at an optimized cost, with tax benefits and soft compliance. It can be done with the help of a third party or with their own GIC (Global In-House Center). Globalization is one of the top factors behind the rise of offshore.
Most MNCs are leveraging offshoring, as with minimum efforts, they can have work done on time with low labor costs and a shorter turnaround time.
Let’s make it more interesting to understand offshoring with real-life examples.
Here are some of the best real-life examples of offshore software development. These examples tell the success stories of offshore collaboration between businesses.
Apps like WhatsApp are one of the top examples of offshore mobile app development. It is an American VoIP-free messaging app.
It was developed by Russian developers as the owners of WhatsApp offshored it to them. Later, in February 2014, Facebook acquired it for approximately USD 19.3 billion.
Google does not need an introduction to what it is. Once, it was only in America; now, it has a presence all over the world.
In 2020, they established their presence in Europe and acquired CloudSimple, a Ukrainian company. Including it, Google leverages offshoring for software development-related tasks and recruits professionals around the globe.
Netflix is an entertainment and tech giant that has a user base of millions around the globe. Behind the growth of Netflix, including its operational efficiency, offshoring is equally responsible. It leverages offshore business services in more than 40 regional markets, such as Asia, Latin America, and others.
TCS stands for Tata Consultancy Services and it has been recognized as one of the top Indian IT companies. It offers technology and software consulting services across the globe. Via offshore operations, it generates thousands of jobs in more than 50 countries. 80% of TCS’s business is offshore, while 20% is onshore.
GE is an electronics tech giant and American MNC that provides solutions for industries like healthcare, aviation, power, electronics, and others.
For offshore operations, it has a solid presence on Indian soil and has invested $120 million in a technology development center in Bangalore.
Offshoring offers several advantages to businesses so here are the following:
Low labor costs are one of the top benefits of offshore outsourcing, like offshore software development, offshore product development, and more. Most developing countries make the workforce available at a low cost and with soft compliance. So, businesses can easily hire offshore developers for their projects.
Again, the role of developing countries is crucial in providing offshore development services. Global companies can establish their infrastructure at lower costs, with tax benefits, affordable office space, and others. With offshoring, overhead costs are lower compared to in-shore or same-shore.
One of the biggest reasons behind the rise of offshoring is the shortage of skilled and talented resources. Businesses can access the wide talent pool at offshore locations.
They can hire experts at lower wages with high expertise. Suppose the cost to develop an Android app is higher at your location. You can get it done by hiring Indian developers at an optimized cost.
Suppose you want to enter a new market or expand your business. In that case, offshoring is a potential way to enter new markets and reach a wider customer base. It allows you to expand your business in new countries and gain profits.
With offshoring, you can focus on your core business activities. On the other hand, the offshore team you have hired can perform other tasks on your behalf. It also ensures your 24/7 availability by leveraging multiple time zones.
Every coin has two faces so there are some disadvantages associated with offshoring. So, here are these:
Overseas, you can hire the team but do not have control over the labor cost, as it can be changed anytime and controlled by the local government.
One of the biggest limitations of offshoring the business process is the time difference. Most companies face a time zone difference of approximately 5–10 hours; even in some cases, it is 12 hours, which can be a big challenge.
Overseas, you do not know when political unrest can happen. If it happens, then you will have no control over your offshore team and its operations.
Language barriers can also be a potential challenge for your work. If your offshore software development team is not aware of international languages, then the results can be disastrous. Try to hire offshore developers whose second language is English.
If you are looking for when to choose offshoring, then it would be good for you if you wanted:
To find the difference between offshoring and outsourcing, it is also necessary to look into the key details of outsourcing. So, let’s continue with this blog.
Outsourcing is one of the professional processes in which one company hires a third party on a contract or regular basis to perform the job on their behalf.
It is one of the top terms related to the IT industry. Businesses often choose outsourcing from a cost-saving perspective. The outside company is called a service provider.
Outsourcing can be done for IT services, tech support, programming and application development, legacy application modernization services, network services, QA testing, and more.
One of the most interesting facts is that you can outsource the work onshore (in your country), nearshore (neighboring country or same time zone), and offshore (foreign country).
For better understanding, let’s read some real-life use cases.
Outsourcing is suitable for many industries, so here are some of the best examples of it.
For the best service experience, customer service outsourcing is the best. It helps businesses remain available 24/7 to meet their customers’ expectations.
If you deal in the manufacturing business, then you can do it at an affordable cost by outsourcing the work overseas or nearshore.
It takes much effort to find and hire talented IT resources, so the best idea is to outsource the work and hire talented IT professionals from different locations or global locations.
For large-scale enterprises, onboarding and managing human resources is a big challenge. The outsourced HR team can help you with it the best.
You can also outsource sales marketing for your business or brand. It can help you focus on your business instead of spending time on sales and marketing.
According to the definition, outsourcing involves getting work done by third parties, freelancers, or outsourced teams. Businesses can benefit from it in several ways, including:
Leveraging outsourcing, you can scale up or down your team according to your flexibility. Suppose you need software developers for 4-6 months. You can do it easily instead of hiring in-house IT resources for a few months.
Outsourcing can help you save costs as you can source your work outside at low labor costs at different locations. It includes savings on salaries, benefits, and operational expenses.
Outsourcing allows you to focus on core business activities. You can outsource multiple activities to outside locations, such as sales marketing, customer support, accounting, and more.
Outsourcing risk management to a third party is one of the biggest advantages. On your behalf, a third party will handle the risks, such as compliance management and others.
It can save you maximum time performing tasks such as recruitment, training, and managing additional staff. You can utilize this time to perform other activities.
Outsourcing can help you accelerate product delivery to the market as, on one side, you are doing your business; on the other hand, the outsourced team will handle product development.
Like offshoring, there are some disadvantages associated with outsourcing. So, here are these:
A third party will do the work, so you’ll have less control over how it is going as you will become one of the customers.
There may be some hidden costs associated that you may not know at the time of outsourcing the process.
Time zones and language are some of the biggest challenges to outsourcing. So sometimes it’ll not be easy to communicate with the outsourcing service providers.
Most of the outsourcing service providers adhere to the NDA process. However, breaches happen or may happen, so be aware of them.
If you want to know one solid reason to outsource your work, then it is when you are growing. But if you want to know more, here are these:
Now, things are quite clear, so it is time to differentiate between Offshoring and Outsourcing.
Offshoring and outsourcing are both business processes involving outsiders or third parties providing the services or handling any operational tasks. Both sound similar but they have some differences, which are:
Although we have gone through all the related details of offshoring and outsourcing, it is not easy to decide who is the winner because both options are right in their place.
Simply put, you can choose any of the options based on your needs. On the one hand, outsourcing allows you to share the work with us outside your country; on the other hand, while going offshore, you’ll have experts from overseas locations.
In terms of benefits, offshore software development is the best, where you can access a talented pool. On the other hand, if you need help with tasks such as accounting, HR management, customer support, and others, then outsourcing is the best. So, the call will be yours.
As a top offshore software development company, you can discuss the advantages of offshoring IT services for your company in detail. Talk to our expert.
Our experts will help you end-to-end, from consulting to implementing the actual solution. We’ll be delighted to discuss your project.
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