Offshoring and outsourcing are both business strategies. They are utilised for different reasons and each has its merits. Their commonality is that they both enable a company to maximise output and minimise overheads while expanding.
What is Offshoring
Offshoring involves accessing resources in a country other than that in which the company is based. Usually, this is related to establishing administrative or technical service work centres. When a company offshores processes, they remain responsible for the technical supervision and direction of those employed. A company does not have to deal directly with the local country’s rules and regulations within an offshore setting. However, they still have the assurance that they are compliant with them.
Advantages and Disadvantages of Offshoring
Offshoring can decrease a company’s overhead, which is why it is usually the main reason for doing it. There are also additional reasons why companies choose to offshore. For example, offshoring can increase a company’s competitive advantage. It does this by enabling a company to decrease the cost of business. While simultaneously accessing high-calibre expertise at a lower cost of employment. This can result in improved quality of services. Offshoring to another country can also result in efficiency gains, for example, a company being able to extend customer service hours.
While offshoring yields excellent advantages there are several things to be aware of. Time zone differences can mean delays in communication and deliverables. They can also make having meetings simultaneously with all team members tricky. Cultural differences and language barriers can result in misunderstandings as well as unexpected confrontations. All these factors can result in quality control issues. Managing two parallel systems can lead to an increase in administration requirements, which can add unexpected costs. As with any exchange of information, security and intellectual property issues can arise.
What is Outsourcing
Company Outsourcing is the reliance on an external person or team, not under the company’s direct control, to produce an outcome. This could be in the form of a physical output or a process outcome. For example, merchandising, engineering, copywriting, accounting, or recruitment.
Advantages and Disadvantages of Outsourcing
The primary reason a company chooses to outsource is that it is unable to fulfil all its business requirements. Outsourcing can be a once-off, stop-gap or long-term solution. Its applicability is flexible, making it a great solution when there’s a shortfall. Additional reasons for outsourcing include cost containment, capacity issues, the need for better skill sets and intellectual capacity, improved quality of output and increased focus on core business.
A lack of direct control is the biggest risk of outsourcing business processes to an external entity. Accordingly, a company could experience challenges with service delivery timeframes, external management issues, a lack of flexibility and process adaptability or issues with security and confidentiality. There is also a danger of hidden costs in relation to handovers, layoffs or selection processes.
Depending on where business is outsourced to, time zones, cultural differences and language barriers might need to be considered.
How do Offshoring and Outsourcing Differ?
There are overlaps between why a company would choose to offshore or outsource. For example, cost minimization while improving quality or gaining access to external skillsets and resources. The reason a company will choose to outsource or offshore is therefore usually determined by the differences between the two options.
| Outsourcing | Offshoring | |
| Personnel | Third-party i.e. the use of established contractors. | Recruit for and establish a technical or administrative service team for exclusive and direct company use. |
| Oversight | Indirect control and full reliance on an external contractor. | The company maintains control over the technical direction and supervision of employed work team(s). |
| Timeframe | Short Term. Someone or a team is usually employed as long as it takes to fulfil a specific requirement. Can be on an ad hoc basis or as a stop-gap solution. | Longer term, with the intention of ongoing use of established services. |
| What | ● Selected department functions.
● Complete business processes. ● Production of goods and/or services. |
● Selected in-house jobs.
● Expansion of existing company resources. |
| Purpose | Quickly access resources at a competitive rate without incurring establishment and maintenance costs. Often an immediate solution to accomplish a specific task. | Accessing overseas resources with the intention of upscaling and expanding existing business with a long-term view on sustainability. |
How to Offshore or Outsource
The decision to offshore or outsource is a sound business one. However, once the decision has been made it needs to be implemented. This presents a company with two options. They can either do it themselves or they can employ an expert company to assist them.
Intuitively many companies opt, often for cost reasons, to treat the move to offshore or outsource as an internal project. However, this does not factor in the complexities of working within an overseas environment. For example, labour laws, tax compliance, and company regulations. Thus, often, the consequence is that the company spends more money than intended and the project takes longer than expected due to cross-border challenges and legalities. Which can then result in it being discontinued.
Therefore, choosing to work with an expert company makes sound business sense as it can prevent many issues from occurring, expedite processes, and better contain costs.
10 Advantages to working with Key Recruitment Agency:
- Saves time.
- Enables better cost estimations.
- Contains costs.
- Ensures legal requirements are fulfilled.
- Better guarantees tax compliance.
- Safeguards against labour violations.
- Access to skilled employees and contractors.
- Advice from experts that is relevant and reliable.
- Process oversight, support, and assistance
- Successful track record of offshoring and outsourcing.
To find out more about how Key Recruitment Agency can assist you with offshoring and outsourcing contact us today.