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Outsourcing is Different from Offshoring, How? A Complete Knowledge

Posted by Akash Jaiswal
Outsourcing is Different from Offshoring

These days, the demand for specialties like IT and software engineering is growing day by day. Therefore, the terms 'offshoring' and 'outsourcing' have become significant commercial buzzwords.

Many people feel they are just too vague phrases that mean 'giving someone else your work,' but nothing could be further from the truth.

While both provide the benefit of remote work, outsourcing and offshoring are two completely different business techniques.

Well in this blog, we are going to discuss offshoring, and outsourcing, compare and contrast outsourcing vs. offshoring, as well as the benefits of each method for different sorts of businesses.

Have you ever considered expanding your team by utilizing a worldwide workforce? Continue reading to find out whether outsourcing or offshore is the better option.

Table of Content

 

 

Chapter 1

What is Offshore Meaning?

Offshore meaning is defined as the migration of a company's operations to a country other than its home country. In that case, resources are more cheaply available, cutting the company's overall costs.

It could indicate shifting the company's manufacturing facilities, service centers, or routine operations to another location.

The company wants to move its operations from a developed country to a developing country. So that it can take advantage of reduced labor costs, lax laws, less government intrusion, cheap resources, lower tax rates, and other advantages.

Offshore has emerged as a development element for economically poor countries in recent years, improving the country's Gross Domestic Product (GDP), infrastructural development, and lowering the unemployment rate.

Although it has a number of drawbacks, such as language barriers, communication barriers, and so on.

Chapter 2

What is Outsourcing Meaning?

Outsourcing (outside resourcing), often known as subcontracting, is a business process in which non-core or peripheral operations are transferred or delegated to external organizations (service providers).

Such third parties are experts at carrying out the operation and hence complete it quickly.

Businesses use this strategy to improve their attention on the activities in which they excel.

As a result, major international corporations handle the rest of the tasks, such as manufacturing, payroll, customer support, statutory record maintenance, and so on.

Outsourcing isn't limited to the domestic market; it's also possible to hire someone from another country.

There are two forms of outsourcing: business process outsourcing (BPO) and knowledge process outsourcing (KPO). Consider the following are some of the benefits of outsourcing:

  • Reduce your operational costs.
  • Increasing the level of quality
  • Focus on the most essential commercial operations.
  • Access to a talent pool of highly qualified individuals.

 

Chapter 3

How has Outshore Outsourcing Become so Popular in Recent Years?

Before we focus on the benefits of each business model, it's essential to understand why SMEs are relying on offshore outsourcing more than ever.

Well, here are a few of the most crucial points. Have a look at them!

1. Intense Talent Shortage:

The skills gap in the UK has more than doubled in the last decade, according to recent polls. Businesses must look for talent elsewhere due to a substantial talent shortage.

2. Internationalization:

A rising number of organizations have created a global footprint in the previous decade. On a worldwide scale, forming remote teams develops new business trends.

As a result, globalization encourages economic growth and competition, and the discussion over offshoring vs outsourcing is really a side effect.

3. The Necessity of Innovation:

As a result of the rapidly changing business and the need to offer innovative products and services, offshoring and outsourcing have risen in popularity.

4. The Mold was Destroyed:

While in-house firms appeared to be functioning smoothly, due to the vast volume of work that needed to be done, the operation of such a venture was typically inflexible and brittle.

Manufacturing and selling had deteriorated into a time-consuming process with little to no innovation.

Companies began to see outsourcing and offshore as a way to break free from traditional business models while also possibly producing significant profits.

Read More: Call Center Outsourcing in 2022- Your Outsourcing Guide

Chapter 4

What is the Difference Between Outsourcing Vs Offshoring?

Consider the following topmost differences between outsourcing Vs offshoring. They are mentioned below. Let's come to the points directly.

The Basis of Comparison Outsourcing Offshoring
Basic Definition Outsourcing is a business practice in which a company hires a third party to provide services or produce goods that were previously conducted in-house by the company's own workers and personnel. Offshoring is the practice of firms from wealthy countries outsourcing activities to underdeveloped countries in order to minimize the cost of doing business.
Implied Meaning It hires a trustable third-party vendor to perform the operations. It includes shifting of operations and the office as well.
Location It can be done either in the same country or can be outside its primary country. It can be done only outside of the country or you can say outside its primary country.
Needs

1. Insufficient knowledge of the subject.

2. Opportunity to focus on important or core activities while outsourcing the rest.

3. The cost-cutting potential to focus on less expensive labor.

1. To get around certain norms and regulations that are obstructing the firm's operations in other ways.

2. Labor costs are lower.

3. Expanding into new markets is a goal.

Major Gains

1. Expert services are used and benefited from.

2. Furthermore, the corporation's risk is shared with the vendor to whom it has outsourced.

3. There would also be less money spent on recruitment and operations.

1. Access to lower-cost labor is once again available.

2. Specialized skills are available offshore.

3. It may also be able to provide the necessary "local" expansion partners.

4. The firm also benefits from economies of scale by operating in larger international marketplaces.

Key Objectives The major purpose of a corporation that has decided to outsource is to focus on the most crucial or core business processes or activities. The main objective of offshoring would be lower labor costs.

 

Chapter 5

What are the Offshoring Examples?

Before you start the offshoring process, there are lots of things that you need to do first. As we know, consistency is the primary key to success.

As a result, you should make a precise to-do list while determining how and where to offshore your tech organization.

"Where should I go offshore?" is the first question. The choice of the destination country can have a substantial impact on the outcome, according to successful offshore cases.

Eastern Europe is a vital and cost-effective outsourcing hub. This is demonstrated by the following list of real-life examples.

1. WhatsApp:

Offshoring allows your in-house team to concentrate on the most critical difficulties that your firm is facing at the time.

Before the launch of WhatsApp in 2009, the company had been outsourcing its software development to Eastern Europe. While its in-house developers focused on client-related obligations like customer service, WhatsApp relied on offshore experience to manage the backstage, create design solutions, and oversee core app development.

The conversation software quickly rose to the top of the AppStore and Google Play charts.

This situation pushed Facebook to pay $19 billion for WhatsApp, allowing it to outperform its major competitor. At the time, it was the largest venture-backed corporate acquisition ever made.

2. Google:

Google is another topmost player in the list of successful offshoring. In 2020, the company will formally open its R&D center in Ukraine, based on CloudSimple.

Even when you have the world's largest developer crew, there is always the potential for development and innovation, as this organization proves.

CloudSimple has partnered with Google Cloud to improve its VMware conversion service. There's also little question that a lack of information had no bearing on the decision to outsource.

Offshore hiring, on the other hand, resulted in a huge reduction in business expenses. Alcor is a wonderful place to start if you're seeking Ukrainian IT skills.

3. Amazon:

Amazon's technique of expansion, offshoring, was a success. Ring, a startup with an R&D center in Kyiv, Ukraine, was bought in 2018.

Outdoor home security solutions are the company's specialty. As a result, Amazon's market competitiveness grew as a result of this deal. Alcor was glad to provide accounting and payroll services to them.

In addition, within a year, the country's second offshore development center in the west was launched. They praise Ukraine's "huge pool of high-quality IT personnel," according to recent comments.

4. BigCommerce:

BigCommerce's success is one of several examples of outsourcing. It is an IT product company that provides cutting-edge e-commerce solutions.

They wanted to expand, but there was a dearth of qualified IT engineers in the United States. Their partnership with multinational outsourcing businesses was draining and ineffectual.

As a result, the IT firm turned to Alcor for cost-effective product development and team-building solutions.

We were ecstatic to provide complete support to BigCommerce's Ukrainian R&D center. The company had settled into its new location within a month, and its personnel had grown to nearly 30 developers within a half-year.

Also check: Call Center Outsourcing: Benefits that Debunks all its Myths

Chapter 6

What is Offshore Outsourcing in BPO?

Offshore outsourcing is also known as Business Process Outsourcing (BPO). It is the process of doing several activities and operations for your business using educated staff and with a nominal service cost.

IT, sales, and administrative tasks are commonly outsourced from countries like the Philippines and India to companies all over the world.

Businesses can benefit from access to other countries with more resources for employees with specialized capabilities. Outsourcing customer service to call centers is a frequent type of overseas outsourcing. These BPO firms offer high-quality customer service at a fraction of the expense of hiring locally.

Companies aim to outsource minor tasks, similar to nearshore outsourcing, so that in-house employees can focus on the most essential areas of the business.

One benefit of offshore outsourcing for businesses is that they don't have to worry about the overhead expenditures that come with having more in-house employees.

In general, having fewer human resources, high-quality outputs, and higher profits may benefit the organization.

Read More: Business Process Outsourcing Models- How to choose the best model for your business?

Chapter 7

How to Build Offshoring Strategy Framework?

Well, here we summarized a few points that you need to consider while planning the offshoring strategy framework. So, let’s come to the points directly.

1. Identify the Need:

Organizations must first determine whether or not they require the outsourcing of a process. Many factors influence this decision, the most important of which is the organization's capacity and financial limits, as well as the attitudes of employees toward offshore work.

2. Find a Vendor:

Offshoring projects frequently fail as a result of a faulty assessment of the vendor's technical capabilities. In the outsourced process, selecting a vendor with demonstrated competence, a clear performance track record, and execution strategies is important to the project's success.

Creating an internal understanding of offshoring strategies and sensitizing employees to the true need for outsourcing can assist management in making the shift to the offshore model.

3. Offshoring is Becoming Obsolete:

Companies that have successfully transitioned to outsourced operations can attest to the advantages of gradually outsourcing select tasks and procedures. Knowledge transmission between vendor and client teams, as well as collaboratively creating a performance plan, must be prioritized throughout this transition and deep into the project life cycle.

4. Complete Offshoring Transition:

Businesses should only start full-fledged offshore after successfully traversing the preceding steps. Even if the organization moves to full outsourcing, frequent operational performance monitoring is necessary to ensure that QA tests are in place and that standards are not being lowered.

Read More: Frequently Asked Questions On Call Center outsourcing

Chapter 8

How Does Offshore Help the Companies?

Offshore offers to relocate your business operation to a foreign country. Consider the following specific benefits of offshoring about how it is beneficial for the companies. Have a look at them!

1. Skilled Labor at Nominal Cost:

Finding a skilled applicant at a reasonable labor cost might be difficult in developed countries due to the high cost of living.

Popular outsourcing locations such as India, China, and Malaysia, on the other hand, have a vast pool of skilled labor. You can hire workers from these nations at a lower labor cost because they have lower living costs than countries like the United States and the United Kingdom.

In addition to decreasing labor expenses, offshoring can reduce or even eliminate the cost of recruitment.

If you use an outsourced service provider, for example, they will have the necessary knowledge and human resource personnel to give your company the finest qualified individuals.

2. Operational Controls Have Been Improved:

You lose control over the processes you outsource when you outsource a portion of your business activity.

You can avoid this by founding an outsourcing company and maintaining control over your company's operations.

Offshoring gives you the freedom to give orders, train your personnel, and do everything else your way. You retain primary job control, though, while your outsourcing partner follows your directions.

This is more adaptive than hiring a company to do the work for you.

3. The Possibility of Sustainably Scaling Up:

It's not easy to expand a firm. Even hiring a single qualified employee requires a significant financial outlay.

However, if that person leaves early, you may find yourself overworked. It would also take a great amount of extra effort on the part of your company's human resources department to identify and train a new employee.

Outsourcing makes scaling your business much easier, especially when you partner with a service provider. You can grow your offshore organization faster than you could with an in-house team, giving you more time to focus on important business goals that drive growth.

4. Consistency in Business Operations:

Regardless of time zone differences, your company can work with an outsourcing partner or service provider around the clock.

How?

You can run your business 24/7 by putting teams in different time zones all around the world. While you're asleep, your employees on the other side of the planet may be working.

If your parent company has any unfinished work, your local team can outsource it to your offshore team. This will ensure that projects at your parent and outsourcing firms follow the same process.

Continual business operations will help you provide superior customer service and boost client satisfaction.

5. Reach Out to Newer International Markets:

When you have an offshore company in another country, you can use your foreign labor force to help you explore new markets in different parts of the world.

An employee from another country may have a deeper understanding of their markets, geographical patterns, and commercial risks that you aren't aware of. They can help you find profitable offshore areas to conduct business.

Let's take a closer look at the main benefits of doing business offshore now that you're aware of them.

Also check: How Does Outsourcing a Call Center Fuels the Automotive Industry Growth?

Chapter 9

What are the Challenges in Offshoring?

In this era, several businesses across the world are continuously struggling to compete and win the offshoring business landscape league.

As a result, when compared to outsourcing providers, organizations have encountered challenges such as growing labor prices, new and non-adaptive business models, and a lack of understanding of existing company processes.

These are some of the inevitable reasons and primary drivers of business modernization. Many of you may be surprised to learn that cost-effectiveness isn't necessarily the driving force behind outsourcing.

Here is a list of a few reasons that stop businesses from offshoring outsourcing. Have a look at them!

1. Unexpected Huge Cost:

The unexpected higher cost is one of the top reasons why businesses want to outsource. Because outsourcing saves lost of cost. The most common issue with businesses is that they believe outsourcing will be low-cost and cost-effective.

If you want to obtain a high degree of output quality, you may need to boost your budget. Offshoring firms use world-class technical professionals that are astute and capable of answering the demands of specific enterprises.

2. Different Time Zone:

Well, just cost reduction is not everything. A different time zone is also a major challenge in offshore outsourcing since there are various offshore outsourcing destinations to choose from.

Additionally, another topmost challenge with different time zone is scheduling meetings. In some destinations, if a team works in the daytime and another team is sleeping. So in that case, it can be difficult to schedule a meeting that works for both the teams.

It can also be difficult to track the work performance when various teams are working on different parts of a project that are divided across a different time zone.

Understanding the time zone differences between your organization and the company to whom you are outsourcing is crucial. This can be done by using an online time zone converter or by arranging fewer meetings and using timesheets to promote speedier asynchronous communication.

3. Lack of Trust:

Yes, you heard right! Lack of trust is also a major challenge in offshore outsourcing. The main reason is that when a company outsourcing its work to an offshore country so they often worry about the quality of the work and also whether or not they will meet their project deadline.

Therefore, some companies hesitate to outsource work to offshore outsourcing. Why? Because they worry about the work quality, project deadline and most importantly confidential data will be leaked.

Therefore, there are various ways to trust the outsourcing partner. One of them is to create a deadline project plan and timeline and also make sure that you both agree on all the key milestones and deliverables.

Additionally, you can also take a regular review of the work progress. And lastly, you should have a better communication channel so that issues and problems can be solved quickly.

4. Language Issue:

It is also the main challenge in offshoring outsourcing. Because a miscommunication and a misunderstanding can affect both the partners and also impact the quality of the work that is delivered.

However, with a little work and forethought, most language barriers with offshore vendors and international personnel may be overcome.

One way is to use translation software or services that can help with text and document translation between languages. Another alternative is to hire an interpreter to assist personnel from other countries in communicating with one another.

By implementing these technologies, businesses and abroad vendors can overcome the language barrier and reap the benefits of offshore outsourcing.

5. Bad Communication:

A lack of communication is another issue that might occur with offshore outsourcing. Miscommunications and erroneous assumptions are common while working with geographically dispersed teams.

This is especially true if your team is located across different time zones. Miscommunication can lead to delays and errors, putting the project's timeframe and budget at risk.

Establishing clear communication channels, timesheets, and protocols early on and ensuring that everyone involved adheres to them is the simplest method to overcome these challenges.

Within teams, it's also vital to establish trust and mutual respect, as well as to give a variety of communication and collaboration options. Furthermore, customer service should be outstanding, and human resources should be able to communicate with one another.

6. Project Management:

In the case of offshore outsourcing, project management can be tough, but it is not impossible. The most important aspect is to ensure that everyone involved in the project knows the project's goals and objectives and that a good communication channel is in place to address any offshore operation issues or concerns as quickly as feasible.

A good project manager who understands the nuances of offshore outsourcing and can handle any potential issues that may arise with offshore providers is also essential. With adequate planning and communication, project management in offshore teams can be successful.

People Also Ask:

What is the Offshore Outsourcing?

Offshore outsourcing is one where an organization hires a third-party vendor to perform operations from an outsider company.

Why Offshore Outsourcing is Bad?

Consider the following list of challenges in offshore outsourcing.

  • Unexpected huge cost
  • Security of data
  • Different culture
  • Poor communication
  • Lack of trust
  • Different time zone
  • Different languages
  • Lack of skills and expertise

 

What are the popular examples of offshore outsourcing?

  • Whatsapp
  • Google
  • Amazon
  • Bigcommerce

 

How offshore outsourcing become popular in 2022-2023?

Well here is a list of a few benefits of offshore outsourcing that help it to become popular. Have a look at them!

  • It offers skilled labor at a nominal labor cost.
  • Improves operational controls.
  • Consistent business operations.
  • It provides an opportunity to enhance sustainably.
  • Save and reduce operational costs.

 

How many types of offshore outsourcing?

Offshore outsourcing is divided into two parts:

  • Nearshoring (neighboring nations with or without a shared border)
  • Farshoring (distant countries e.g. countries in East Asia)

 

Wrap Up:

Handling an in-house call center is not an easy task. The reason is that you have to focus on various tasks simultaneously. As a result, it may affect the customer experience. Additionally, a bad customer experience can affect your business sales and revenue as well. 

In that case, offshore outsourcing is an ideal way to share some of your operations with a trustable third-party company that belongs to another country. It helps in reducing labor costs as well as operational costs. It provides several gains to the organizations.


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