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Outsourcing vs. offshoring. Does it pay off?

In the world of IT, establishing which type of services would be best for your company is not easy. There are numerous approaches from which you can choose to follow within your IT project. Let us briefly discuss the differences between outsourcing and offshoring to explain the drawbacks and main benefits of choosing either one. 

The major reason for choosing outsourcing or offshoring is to improve your company operations. The thing is that sometimes one of those models fits a particular organization’s needs more than the other. In this situation not only the benefits and drawbacks of both outsourcing and offshoring need to be considered but also the individual requirements of your IT projects. 

What is outsourcing in IT? 

Companies that outsource IT services simply delegate a portion of business processes to a third party. It is more common to outsource such operations that are not essential for an organization but need to be carried out anyway, for example, cybersecurity. Companies usually do that, even if they are tech-savvy and develop software, as cybersecurity is a vast field of expertise and security requires considerable knowledge. So-called managed services are the type of services leveraged very often for such purposes.

By opting for outsourcing you are guaranteed by another company that some job is performed correctly without your and your employees’ involvement. This gives you time to focus on the core processes of your business operation. 

Benefits of outsourcing IT services 

There are many reasons why companies decide to take advantage of outsourcing their IT services. The main benefits of outsourcing that you should have in mind include:

  1. Reduced costs — frequently having your in-house team for dealing with some tasks are more expensive than outsourcing. If an IT company offers IT outsourced services at a lower price than the overall expense than if the job were done in-house, you should consider outsourcing. 
  2. High quality of services — it is not easy to form a team that will consist of the best of the best in some fields, but companies that focus on cybersecurity or data science can surely provide you with more professional support. 
  3. Increased efficiency — if you delegate tasks you are not able to handle inside your company, you save time to take care of things that matter most. 

Is there any reason not to choose IT outsourcing? 

Drawbacks of IT outsourcing 

There are always some disadvantages of outsourcing IT services. If you decide to outsource some IT-related tasks you lose control. The company that you hire has its internal procedures and ways of doing stuff. If you want to retain control over the project or the process, IT outsourcing may not be the best option for your organization. You could try staff augmentation though — it allows you to gain some new, experienced talents from a software house and add them to your in-house team for a while. 

What is offshoring in IT? 

Offshoring is similar to outsourcing in terms of reducing costs. Yet, to call it offshoring, your organization has to relocate those processes out of the country you normally operate into a different geographical location. Simply put, you move some tasks to a different country and create a branch of your company there. You then hire some specific specialists and they take care of some processes for the “mother-company”. 

Drawbacks of IT offshoring 

But, wouldn’t that make communication between your organization and this second company even harder than it is the case with outsourcing? Possibly — due to not only distance but also language or even strong cultural barriers. A second challenge may be to achieve high quality of services in the newly created team. 

Benefits of IT offshoring 

You may wonder why you should leverage offshoring instead of other types of IT outsourcing. Here are some main advantages of this approach: 

  1. Access to less costly, but highly specialized personnel — it is normal that wages of the staff in different parts of the world vary. It is not a secret that many large companies outsource services for example in India. According to Statista, the outsourcing industry is the highest within the Americas, followed by the EMEA and the Asia Pacific regions.
  2. Less restrictive regulations and lower taxes — taxes may be lower in the country you outsource from by leveraging offshoring. This may have a positive effect on the wages of employees and the overall costs of the company operation or production process (this is important mainly in manufacturing). 
  3. You are given more control — in case of offshoring, organizations looking for support for their main branch are involved in forming and integrating a new team under custom management arrangements that are required. 

What is the difference between outsourcing and offshoring? 

The main difference between offshoring and outsourcing is where the actual team works. In the case of outsourcing, the tasks will be taken care of by some company in the same country as the main company, and according to the standards required within that country. If you decide to leverage offshoring, you will probably participate in forming a dedicated team of professionals in a different country and need to define the standards of work on your own.

Stereotypically offshoring is perceived as leading to a situation where processes are of lower quality as compared to the local IT outsourcing companies’ results. It does not always have to be the case, though. Offshoring enables you not only to form your dedicated team but also to define custom management processes and standards. You don’t have that kind of control, for example, if you use managed services. If you opt for offshoring, you can influence the final result. 

Read also: Nearshoring vs Offshoring – What Is The Difference?

Are there any risks related to the difference between onshore and offshore outsourcing? 

Offshoring as an outsourcing approach is often criticized mainly because it means transferring jobs to other countries and the main reason for that is usually to reduce costs. It is a common practice these days, though, and it is rather difficult to discuss the actual effect on the job markets or financial situations in each country.

Additionally, there are other risks — geopolitical ones, language, and cultural differences that may cause substantial problems with communication within the company and its branches.

Outsourcing vs offshoring — which one should you choose for your next project?

Both business solutions — offshoring and outsourcing — enable companies to get access to talented professionals, reduce costs and improve efficiency. Still, these two approaches differ considerably. Offshoring requires your involvement in shaping new teams and processes in another country. Outsourcing relieves you of this burden. If you are considering hiring a company to take care of some of your processes in another country, make sure that they follow standards you find sufficient. You can read business customers’ testimonials on the company website.

Ask us how we are helping other companies to fulfill their responsibilities. We are looking forward to learning more about your business and we will be happy to provide you with professional IT support.

cto - Chris Gibas

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