Difference Between Outsourcing and Offshoring : Definition & Benefits

Offshoring and outsourcing have been used extensively in the business lexicon as early as the 1980s however, many would wonder: what is exactly is the difference and how to we choose which one is more beneficial to our companies?

These two commonly misunderstood aspects of the business world have eluded a surprisingly large proportion of the general public, knowing the difference can enrich our knowledge of business and make an informed decision on what is most beneficial to our business.  If you are a business owner, the questions you might ask yourself is:  What is the difference between offshoring and outsourcing? What are the benefits, advantages and disadvantages? Should I build an offshore team and open a new subsidiary, or should I hire an offshore services company (outsourcing)?

This article will help you understand what the difference is and decide which is most ideal.

History of outsourcing and offshoring

The term outsourcing entered the globe of business within the half of the 20th century. Companies found that they might hire external providers who had the flexibility to urge work done faster and more efficiently. This led them to extend the practice of hiring external providers to finish tasks where specialized skills were necessary.

Near the tip of the 20th century, as improvements were made in shipping technology and telecommunications infrastructure, it became more efficient to own work worn out countries where wages were lower. The practice came to be referred to as offshoring. This difference in both terms leads to Outsourcing vs Offshoring.

Offshoring VS Outsourcing

The terms Offshoring and Outsourcing, even though they sound similar and both include workforce from outside the company, are quite different.

To offer a general definition, Outsourcing is the process of hiring talent for your business using a third party. In contrast, Offshoring is finding labour in a different country and even a different continent, mainly for the sake of long-term cost-effectiveness. The two types of work are not mutually exclusive, as it is possible to outsource but not offshore (hiring a local HR company for your employing needs) or offshore work but not outsource it(employing a call centre service from India to operate for European clients)

The merging of the two created offshore outsourcing, where third parties operating in different countries are contracted to perform labour. This happens mostly so companies can save some expenses and still provide excellent service wherever their clients are in the world.

Offshoring: What is It and When Do We Need It?

The definition of Offshoring we must keep in mind is:  "Offshoring is the relocation of a business process to another country"

What does this imply? Offshoring is mostly related to geographical relocation. It is often negatively viewed by most from an ethical perspective, as one might say this is an inexpensive labour pool designed to lower costs and relocate its facilities in ‘cheaper’ countries.

The Indian IT industry has seen a massive wave of relocations from the West whereas other big corporations take advantage of China’s cheap manufacturing labour force, moving their production factories, much like Apple’s supplier, Foxconn. Cutting across the political verbiage, offshoring can prove to be most beneficial to some large-scale businesses.

Low Labor Costs

It can prove more affordable for companies to pay their offshore (foreign employees) much lower salaries than in the home countries. Often the same quality is maintained, foreign employees can deliver the same quality work for much lower labor costs.   This can increase your revenue and maximize your income

Cost Savings

In the competitive business world, profit boost will naturally be derived from reducing cost and labor expenses.  On average, multi-national corporations reduce their costs by 30%, just by relocating parts of its business to a different country. Aside from the salaries mentioned above, other compensation and benefits schemes are much cheaper in offshore countries. Medical costs and health insurance, bonuses, and other compensations are lower in developing countries such as India, proving to be very cost-effective and granting you the opportunity to invest in more research and development for your company, returning profits for your investors and shareholders.

Tax Advantages

Overseas companies will enjoy tax benefits by relocating, the corporate tax rate being much higher in the west.

Run Your Business 27/7

By offshore relocation, you can cover time zones otherwise not possible during your normal business operations. With 24/7 coverage, means you can continuously work on your projects until they are finished.

Read Also: Efficient Outsourcing – How to hire and manage remote employees

The advantages may be appealing, however relocating an entire department to a new country may prove to be equally costly.

Renting buildings, cost of infrastructure and materials are added expenses about which even large-scale corporations will think twice before undertaking. Is there a solution?

Outsourcing: a Popular Alternative to Offshoring

Outsourcing could provide to resolve all of the offshoring’s shortcomings. A most popular business practice where jobs or services are undertaken by a third party, which could otherwise be normally performed by your own employee's staff.

The basic ideology is to transfer transaction activities to experts in order to provide the organization with the ability to focus on its expertise. 

The term outsourcing appeared in the business world in the late 20th century. Companies outsource work in which they don't have the expertise to take advantage of specialized skilled external staff at a low cost. They found this option of outsourcing very fascinating for expanding their business. 

Companies or entrepreneurs often use outsourcing as a way to lower costs, improve their efficiency by relying on third-party providers with expertise in performing the outsourced task.

It is safe to say because the third-party’s primary focus is on the particular task, it would be able to do it cheaper faster, and better, granting you the valuable time you may spend distributing your internal employees more effectively, and such gaining a competitive advantage in the market.

Companies such as Invedus will deliver the same advantages we have discovered with offshoring while adding a few benefits which are hard to ignore. As a business owner, you must choose your third party wisely. Your outsourced team is an overseas extension of your business for which you will want the best of quality and most value for money.

Hiring a company for its communication skills, high-quality training, organizing the office space and environment, and handling all employee needs will prove to be most effective, as you will feel you have full control of your team and a skilled labour force successfully managed and trained on your core company values.

Not needing to worry about such organizational commitments, will free up valuable time you may use to focus on your business goals and planning.

Dedicated HR, Dedicated Employees, and Dedicated Manages- all three organized and working for you and your projects while allowing you to free up your internal resources and focus on what is most important: How can you bring your business forward?

By outsourcing, you will truly feel you are now part of a global market, where technological advancements have transgressed national boundaries. You will have access to the best of the best, skilled and highly educated workers with years of experience in the domain you are looking for, handpicked to suit your needs.

While finding such employees, may prove to be difficult, third-party outsourcing companies such as Invedus will offer a bespoke portfolio of quality employees, handpicked with your requirements in mind. 

Added responsibilities of recruitments and interviewing are long gone, as this is more easily available to you with outsourcing: a tailored hiring process from A to Z while still maintaining low operational and labour costs.

Over the years, the western business has preferred to outsource to countries such as India, being the preferred destination which dominates the outsourcing landscape, standing at around.

The US $ 118 billion. Companies such as Invedus are heavily focused on the latest technologies and infrastructure, conducting their training programs by using the latest technologies at the core of its strategy.

Outsourcing businesses are at the heart of India’s foreign income and economy, this means flexible policies and a welcoming environment for you and our outsourced business to strive in.

To conclude, Outsourcing has proven to be the most popular choice in the modern business world, pushing the boundaries normal offshoring will face and could very well be a pillar of your business and a welcoming helping hand that can help achieve your business ambitions.