Offshoring vs Outsourcing: Which one to opt for your Business?
Which one is the right setup for your business? Let’s make a comparison between the two to help you determine which setup suits your requirements.
1. Difference between Outsourcing and Offshoring
What Is Outsourcing?
It has appeared to be a strategic move since the 1990s. In short, it’s the practice of collaborating with another outside company in order to provide some parts or the whole service, design and manufacturing goods. Its demand arises when a company wants to cut off its extra investment in labor, materials and focus on what they do best.
What Is Offshoring?
It clearly means something that’s situated outside the national boundaries which usually leverages cost benefits.
Offshoring helps in lower cost, a better availability of trained and skilled employees and of course getting the work done in a much faster manner through the global talent pool. So when a company contracts a different company which does its operations in a different country then that particular case is called “Offshore Outsourcing”.
2. Difference in their Objectives.
The main objective of Outsourcing is to take advantage of the better quality of human resources that’s available. Outsourcing is allowing companies today to refocus on their core business and work towards their ultimate goal instead of getting into hiring and training an in-house team which includes a lot of cost.
The areas of work that’s majorly outsourced are Administration, Sales and Marketing, Technical Support, Human Resources etc.
The objective of Offshore is almost always cost reduction. Business owners get to pay fewer taxes and lower wages. This is among the major reasons why most multinational companies offshore their manufacturing units.
Although there are exemptions too. For instance, an ethnic apparel company based in the US might want to offshore the production line of Sarees to India due to quality reasons.
3. Difference in their workforce.
It’s basically obtaining a workforce through contracting a third party, hence the people working and performing functions for you would be the employees of that third party. There is no involvement of your own employees in those outsourced workers’ processes.
These workers may or may not be your own employees. They can be your own employed people only not located in the same country as you.
4. Difference in their location setups.
The location of the work isn’t of much importance but who it’s done by is. The third-party that you have hired in order to outsource your work does not necessarily have to be from a foriegn country, it can be in your own country too.
The main criteria of offshoring is the location. It must be done in some other country than your own. It’s majorly done in order to save money which is possible only if you shift your activities to a different, cost-effective country.
5. Difference in their benefits.
Cost Saving – The average cost-per-hire is $4,425. With a revamped recruiting process, a company can decrease the cost of hiring. And because the company would be saving time, they can reduce costs associated with time spent recruiting. Additionally, a high turnover rate means a company is constantly spending money filling those positions. By retaining talented employees, a company can reduce costs associated with turnover. Outsourcing work from an external third party is anyday more cost-effective than training a workforce.
Source Top Talent – Recruiters know exactly what to do to source talent. Not only do they help clients find quality candidates, but they also teach them the skills and implement the necessary tools so they know which candidates would be a good fit for their clients
Increased focus on core competencies – Instead of keeping yourself and your employees busy with ill-equipped tasks, outsourcing literally frees up the space for you and your employees to focus on the tasks you understand and should be concerned about. This will allow you to completely focus on your core competencies instead of worrying about and wasting time working towards the non-core activities that you are ill-equipped with.
a) Reduced operating cost – This is one of the biggest benefits of offshoring as the prime objective of it is to cut costs. One can lower its costs in a variety ways, some of which are
Reduced Labor Cost
Reduced Operational Cost
b) Access to a much larger Talent pool – You’re no longer limited in terms of your geography if you opt for Offshoring. Youhave access to highly skilled, diverse and talented workers from all across the globe. For example if you’re from the United States, you’re no longer limited to hire only within the US.
What is Offshore Outsourcing?
Offshore outsourcing refers to a situation where you hire a third – party which is functional in a different country. With the increase in Globalization, major companies of the world are opting for Offshore Outsourcing today due to its numerous benefits.
With lower wages, better operational costs and a variety of skilled workers – offshore outsourcing is becoming a norm.
Now that you’re aware of all the differences and similarities between the two, you are ready to take an informed decision for your business.