The IT market is growing globally, which triggers a higher demand for software engineers. Due to this demand, many businesses seek external parties, which makes outsourcing and offshoring buzzwords today.
A lot of people use these terms interchangeably. However, they’re not the same. For one, offshoring specifies the location, which is abroad, while onshoring is in the home country.
There’s also nearshoring, which is a nearby country. On the other hand, outsourcing isn’t defined by a destination country; instead, it’s a kind of delegation mode that doesn’t involve physical distance. Therefore, with outsourcing, you can be miles away from the employee and still have that person work for your business.
Let’s dive deeper into it, shall we?
Offshoring involves having specialists abroad engaged in a project or business. You can do this by direct offshoring or using a service provider to perform specific tasks.
The primary goal of offshoring is to help reduce costs, which means it provides lower salaries, taxes, and maintenance costs. Today, these are not the main reasons any more companies seek to offshore; they do so now because they look in other countries for talents because of the lack of qualified ones in their home country.
Software companies in the US continue to struggle to find and hire talented engineers. There are a million software developer vacancies in the country today, yet there’s only a small number of students who graduate and join the workforce every year. This is why many tech companies struggle with hiring despite the funds that they have.
This is where offshoring comes to play. Today, many companies shift their activities to distant locations to fill the talent gap. In fact, a lot of well-known companies are considering offshoring and outsourcing.
So, when a company decides to move offshore, they can start their office and take care of all operational issues on their own. Or, they can have a vendor set up everything for them.
A good example of offshoring is what Microsoft does. The company has one of the most profitable overseas operations, as the software giant has divided its subsidiaries into several foreign locations to take advantage of tax incentives. Despite an issue with the Internal Revenue Service in 2015, the software company continues to grow.
There are also a lot of multinational corporations that have set up offshoring structures to aid with taxes.
In the context of IT delivery, outsourcing is about delegating tasks to external professionals, whether in your country or overseas. The primary aim of this is to be more flexible when filling in the gap in expertise.
Moreover, outsourcing is a great way to have one-time tasks completed without the need to take the person on board. With this type of business model, the company only delegates the task and expects it to be completed. Therefore, the company isn’t interested in how or who performs the task; as long as it’s delivered in a specific set of time, then it’s all good.
Here’s how it works:
To outsource, you turn to a vendor with a project. The vendor has its own team to deliver the tasks. Moreover, the vendor will be the one to organize the workflow and technologies, and assign a project manager to the task. With that, all communication here will happen through a project manager.
Apple is one of the most successful companies in the tech industry today. However, you’ll be surprised to know that most of its manufacturing work is outsourced, yet their profits continue to rise. Most of their labor-intensive work is outsourced to China and other countries around the world. In turn, this saves them a lot of time when it comes to production.
Outsourcing vs. Offshoring
Now, we will discuss the major differences between the two methods of hiring talents:
- Aim: Offshoring allows companies to access a wider pool of talented software developers in high demand. On the other hand, outsourcing focuses on short-term goals and follows the lack of specialized expertise in the company.
- Location: Offshoring involves deciding to go abroad and hiring foreign professionals, while outsourcing can be done regardless of the location.
- Activities: Offshoring involves relocation of business processions, while outsourcing is about delegating non-core works or projects that must be accomplished to another party.
- Cultural specifics: The tech business pays special attention to cultural specifics. With that, values must be aligned with offshoring. Meanwhile, outsourcing can take place in your country, which means you don’t need to worry about cultural differences.
- Political undertones: These are more common in offshoring because many workplaces are being created in a foreign country. Meanwhile, outsourcing is free of any political concerns as you create new jobs in the country.
In offshore and outsourcing, remote staffing and outstaffing will likely come up, which can make things confusing. They are the same thing but only said in a different way.
- Offshore staffing: These are staffing solutions abroad where employees are integrated into the company culture and processes. They can be office- or home-based.
- Remote staffing: This is an extension of your existing team, but home-based.
- Outstaffing: This is an extension of the team and carries out job duties for the company but is employed by an outstaffing provider company.
Which One Should You Choose?
When choosing between offshoring and outsourcing, you just need to find the right balance between distributing critical and non-critical parts of your business operations.
For one, offshoring is ideal if you want to enhance business operations and retain full control of the process. On the other hand, outsourcing is ideal if you only want to achieve non-core tasks at a specific time period.
Either way, it’s important you fully know and understand the difference between the two and how you can use them to your advantage. Moreover, seek guidance and assistance from experts as well. By doing so, it will help you make the right decision for your company.
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