Offshoring vs Outsourcing: Which is Right for Your Company?

It’s important to know the difference between Offshoring vs Outsourcing in order to pick the solution that’s right for your company.

Key takeaways:

  • Offshoring is when you hire teams outside of the U.S.; outsourcing is when you hire a third-party vendor to share the work.
  • There are pros and cons to each strategy.
  • South America is a popular offshoring destination because it shares the U.S. Eastern time zone.

In today’s workplace, there are numerous ways to handle your company’s workload. Two of the most popular – offshoring and outsourcing – are also often the least understood. It’s easy to confuse them or think they are interchangeable, but they are two very distinct and separate ways of working.

To put it plainly – if you offshore, you assign work to teams outside of the U.S.; if you outsource, you enlist a third-party vendor to take on a particular set of tasks. Both options allow businesses to grow quickly without relying solely on local, in-house talent. There are many popular offshoring sources outside the U.S., including South America (“Silicon Vallecitos”) which sits conveniently in the U.S. Eastern time zone.

Below, we’ll take a deeper dive into the offshoring and outsourcing landscape and review the benefits and potential pitfalls of each of these strategies.

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Offshoring

When a business decides to offshore some of its work, it’s usually to help lower labor costs. Developing regions such as China, India, and Latin America have a less expensive labor pool. Products are manufactured in these regions and sold back to the West at a lower rate, creating more business profit. This is why tech companies like Apple or fashion retailers like H&M can offer products at lower prices.

Many companies also offshore services in addition to physical goods. A longstanding example is India’s huge IT industry, made up primarily of Western companies relocating operations overseas.

Reasons for companies to consider offshoring

  • Larger talent pool. Your HR team can pick from the best developers, engineers, and any other role from across the globe, rather than just who’s within commuting distance. The sky’s the limit for the talent of potential new hires! Not only do you have access to the best of the best, but you can also tailor your searches to focus on a single project, rather than worry about how someone will fit into the company as a whole.
  • A time zone that works for you. Some of the most affordable offshore markets have one major drawback – they’re on the other side of the globe, in a time zone close to or over 12 hours different. India, one of the more popular offshore destinations, is 10.5 hours ahead of the U.S. east coast. This can be tricky if your teams need to work together for long stretches of time. A nearshore firm in regions like Latin America that rises, works, and sleeps on your schedule gives you a more unified team and reliable work product.
  • Lower costs. Bringing in local top talent can be a challenge, particularly for technical positions, in an age when Google, Facebook, and Amazon can easily offer six-figure salaries to start. This issue is exacerbated by certain types of positions, such as DevOps, and reliability engineers expecting top-level salaries and benefits.

There are also some inherent risks in offshoring:

  • Communication obstacles. Remote work tools have come a long way, but even with the best collaboration software, video conferencing, and file-sharing tech at your fingertips, things can still get lost in the shuffle. This can lead to higher costs and production delays.
  • Cultural barriers. While employees spread across different countries may share the same technical skills, cultural preferences may vary in creative departments such as engineering, design, and writing. A graphic designer in Buenos Aires or Beijing may have a different aesthetic from one in San Francisco or Scranton.
  • Unsupported code. Your offshore firm may produce excellent work, but, once they leave the project, you’ll have to maintain it. Otherwise, you’ll need to pay them more to come in and fix bugs or update code.

Now, let’s turn our attention to outsourcing.

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Outsourcing

Outsourcing is a powerful tool because it lets a business do what it does best – focus on its core competency. It strips away logistical or financial barriers that get in the way of day-to-day functional needs and lets you find the best candidates regardless of where they live.

Most companies distribute at least some tasks to third-party firms with expertise in IT, accounting, or legal who provide their services at a lower cost than in-house professionals.

Other benefits include:

  • Cost savings. The internal resources needed to staff your own IT department, for example, can be a huge financial burden. Outsourcing these services saves on salaries, training, and benefits.
  • Getting back to basics. When you’re free to focus on your primary business, it’s much easier to grow. Just as important, your outsourced workforce can take the hit when demand fluctuates, leaving your in-house staff intact.
  • Access to the best minds. Hiring for a specific skill set like IT or legal can present a challenge if you don’t have a big pool to pull from locally. And if you do find someone who lives elsewhere, you may incur relocation costs and work delays. Outsourcing allows you to snag the best talent out there, no matter where they live.

Here are a few of the potential concerns about outsourcing:

  • Lack of control. It’s easier to clearly define the parameters of what your teams do, what software and tools they use, and what credentials they have when they’re seated right down the hall.
  • Potential security threats. When you share data and proprietary information with outside firms, there is always the possibility that they can be compromised or stolen. Be clear with a third party how data will be handled, stored, and secured, and be sure they sign a confidentiality or non-disclosure agreement.
  • Quality control. It can take time for outsourced talent to get up to speed on processes, procedures, and protocols. Some patience may be required to hit the expected level. In the meantime, this can mean lost revenue and project delays.

Offshoring vs Outsourcing?

Offshoring isn’t always outsourcing. Large corporations like Microsoft have significant business operations in India, so their work in that country is in fact native to the business. Another example is the U.S. auto industry, which relies heavily on production at plants they own in Mexico.

When choosing which solution is best for your company, you’ll want to consider what kind of job you need done, how much it will cost, how necessary it is for all your team members to be in the same time zone, and how they will match culturally. But many of the world’s most successful companies have figured it out – Apple, Google, Microsoft, and Visa are just a few of the major corporations that rely on outsourcing to maintain their market dominance.

Consider the benefits of an offshore firm

While offshoring and outsourcing have drawbacks, their benefits can be significant. And where you elect to send the work you need done is one of the most important decisions. If you’re giving projects to a firm across the ocean that’s asleep when you’re at work, it’s time to consider an augmented team based in a market like South America.

With a deep roster of professionals in software development, software engineers, suppliers, and BPO in IT/software, Folder IT can help scale your operation with strategies tailor-made for your business. Get in touch today and let’s talk about how we can help you.

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