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Strategic Decisions: The Comprehensive Guide to Outsourcing vs. Offshoring

Your company may be considering various business management strategies, such as offshoring and hiring business process outsourcing solutions to become more efficient, lower your expenses, scale your operations, and improve your offerings.

Although outsourcing and offshoring can support some of the same goals, they’re completely different processes. Understanding the difference between these two techniques is the key to finding an operational structure that works for your company. By exploring the basics of both options, you can determine which solution is the best tool for expanding or refining your operations.

Understanding Outsourcing vs. Offshoring

With outsourcing and offshoring, you restructure your business activities to become more efficient, hiring external help or moving certain aspects of your business outside of your home country.

What Is Outsourcing?

Outsourcing is the process of hiring a third-party provider to handle certain functions in your company. You delegate entire aspects of your company to another organization specializing in those tasks. For example, many companies outsource their tech support needs to an IT or business processing company. Business process outsourcing (BPO) companies can be onshore, nearshore, or offshore, which means they can be located in your own country, a neighboring country, or a country in a completely different region.

Outsourcing allows you to focus on your core business without being bogged down by logistical and administrative tasks. It can also help your company achieve rapid growth without having to invest in expensive infrastructure to support your expansion. For example, you might outsource your customer service needs to a contact center that can handle a high volume of calls. Instead of hiring and training customer service representatives or paying for extensive call management tools, you can work with a specialized provider who already has the systems and staff to support your business needs.

What Is Offshoring?

Offshoring is the process of relocating certain roles, tasks, or departments to another country. It can involve outsourcing tasks to a foreign company, which is known as offshore outsourcing, but it more commonly refers to establishing an official branch of your company in another country, which is known as captive offshoring.

It’s important to understand the differences between captive offshoring vs. offshore outsourcing. With captive offshoring, you may decide to form a software engineering team in a country where skilled labor is more affordable, such as India. Even though the software engineers live and work in India, they’re still part of your core business. With offshore outsourcing, you would simply hire another company based in India to handle your software needs externally.

Offshoring is often a cost-saving measure that helps you access highly skilled employees at an affordable price. Some countries may have a greater supply of talented employees in a certain sector, allowing you to fill skill gaps on your team. If the area also has a lower cost of living, you can pay a competitive local wage while still saving on labor costs.

Offshoring vs. Outsourcing Differences

Companies can offshore talent, outsource tasks, or use a combination of both options to develop an efficient business structure. The following are some of the key distinctions between outsourcing and offshoring to help you determine which strategies are most relevant to your organization.

Operational Structure

When you decide to offshore jobs or departments, you expand your business into a new country. That means you’re directly hiring employees or contractors to be a part of your team, even though they live in a different location. This makes offshoring ideal for jobs or functions fully remote across time zones. When building teams in a new country, you’ll need to provide the tools and resources they need to complete their tasks. You may even need to register an official business entity in the country where you’re operating.

When outsourcing, you’re hiring a vendor to supply a service to your business. Although you’ll have an agreement about the service they’re providing, they’ll operate independently from your company. They’ll use their own tools and company infrastructure to complete their tasks according to your specifications as their client.

Financial Considerations

Both offshoring and outsourcing can be cost-saving measures. BPO providers specialize in handling certain tasks to operate efficiently for multiple clients. This makes hiring a third-party provider more affordable than creating your own internal team and taking on overhead costs like salaries, office costs, and equipment. Comparing call center outsourcing costs to the cost of hiring internally can help you calculate your potential savings.

With offshoring, you save money by taking advantage of the differences in labor costs from place to place. If your company operates in an area where skilled labor is expensive, you may be able to tap into similar talent at a budget price by hiring employees overseas.

Strategic Implications

Offshoring or outsourcing can play different roles in your business strategy. When you decide to outsource part of your business, you’re using a tool to help boost growth and focus on your core competencies. If you choose to offshore aspects of your company, you’re looking for a competitive advantage when building a skilled workforce — without exceeding your budget.

Ideal Applications: Outsourcing vs. Offshoring Examples

Offshoring is ideal for companies needing to improve their workforce while maintaining full control over their operations. For example, your company could hire an entire team of IT workers in a country where tech talent is both abundant and affordable, such as the Philippines. These representatives would still be direct employees of the company who report to internal management and follow its specialized protocols. As a result, your company could have a talented IT team that’s fully integrated with the rest of the business.

Outsourcing is a great solution for businesses that want to expand quickly without sacrificing quality and efficiency. For example, your company may realize that its current internal team can’t handle its customer service needs. It could work with a BPO team with the specialized tools and call center services it needs, plus knowledgeable representatives to answer those calls. The BPO provider would handle all the day-to-day details of running a customer support call center so that the company could focus on its main products and services.

How To Choose Between Offshoring and Outsourcing for Your Business

If you’re still not sure which solution is right for you, go through the following steps.

1. Identify Your Goals

Start by determining your overall goals for changing your business’s operational structure. Do you simply want to save money, or do you want to expand into a new international market? Understanding your objective can help you find a solution that supports your long-term goals.

2. Define a Timeline

Think about how quickly you want to start transforming your business. BPO providers often have end-to-end solutions ready, so you can quickly start using their services. Meanwhile, it can take more time to establish a legal business entity in a new country, hire individual team members, and set up a new workflow that includes your offshore team.

3. Consider Logistical Factors

Determine if there are any logistical barriers to either offshoring or outsourcing your business needs. When offshoring, you need to consider factors like time zones and cultural differences to ensure your team can communicate effectively. You may also want to think about how much control and involvement you expect to have when working with a BPO provider.

4. Compare Potential Partners and Employees

Research different BPO vendors to determine if any qualified organizations specialize in the type of work you want to outsource. Or, explore the talent market in different countries to see if offshoring specific jobs will save money. Compare both options to determine if one is more practical for your company.

Building Success Through Outsourcing and Offshoring

Success Through Outsourcing and Offshoring (1)

At Confie BPO, we can provide the outsourcing expertise you need to quickly scale your business without interrupting your operations.

Reach out at 800-684-2276 or contact us to discover how we can transform your business today.