Offshoring vs. Outsourcing: Understanding the Key Differences

Offshoring vs. Outsourcing: Understanding the Key Differences

Most organizations use outsourcing and offshoring to enhance their profitability and productivity. Outsourcing companies are third party firms or external providers that have specialized skills to undertake some aspect of an organizations operations. This can take place within the same geographical location or can cross borders on a permanent basis or for a fixed term. The contract usually states the tenure and is based on the efficiency and performance of the service.

On the other hand, offshoring occurs when a company transfers its operations to a new location or overseas, to achieve certain benefits. The company continues to maintain direct control of its operations while being able to cut costs, reduce tax payments and sell products easily.

What Are the Benefits Of Outsourcing?

The primary reason for most companies to outsource is to cut costs and take advantage of a better quality of human resources. Employers can pay only for the services required instead of employing a full-time employee. Apart from cost savings, the company can to downsize its main headquarters as well. In the case of certain processes or services that are complicated and complex, it is in the company’s best interest to outsource the job to a team of highly trained specialists.

The functions popularly include tech support, market choosing, legal services and financial support. More often than not, the cost and time spent on training an in-house staff can work out to be far more than hiring the services of an outsourcing company. Organizations may also look at improving the flexibility of their operations, increasing timely action and the ability to deal with sudden drops and surges in demand. Outsourcing can free space so that the company can focus on core tasks.

What Are the Benefits Of Offshoring?

As an employer looking to benefit in terms of taxes, labor costs and efficiency, offshoring can sometimes make more sense. Offshoring doesn’t just relate to products or physical goods but also to services. Choosing to open a factory or company overseas can bring with it access to labor at lower rates, resulting in higher savings. Companies may need to free more funds in order to invest in newer products or machinery. This can be achieved by shifting operations to or registering the company in a location which has a lower corporate tax bill. Many a time, offshoring facilitates an increase in productivity.

How you may ask? Well, by shifting operations to a place with lower costs and more labor flexibility, companies can easily set up a facility that is larger and more modern. Now companies have access to a diverse pool of talent which will raise the level of efficiency. Increasing productivity means that companies can offer customers better pricing on their products. There are certain locations that are considered to be business friendly. These destinations offer minimal requirements, swift paperwork, flexibility of business operations and security of company assets.

Tips to Choosing Offshoring or Outsourcing

How do you decide if offshoring or outsourcing would be best for your business? If your company requires the services of an outsourcing company only for a short period of time then business outsourcing service is a better choice. If the company wants to set up overseas but wants to keep complete control of quality and operations, then offshoring will help achieve the goal. Although this choice will warrant a greater investment up-front, it will show significant savings in the long run.

Offshoring also has a better advantage when it comes to maintaining confidential and sensitive client information. By staying in control, a company can monitor expenses, keep track of legal requirements, avoid breaches and correct any misconduct. Organizations short on time, will not be able to train their employees in specific communication and cross cultural behaviors. To add to this, varied time zones can pose to be quite a challenge. To solve this problem, offshoring is an option that should be considered especially since it guarantees higher productivity and profits in the long run.

Companies are constantly being forced to choose alternatives that will cut costs and increase productivity. Therefore both outsourcing and offshoring are considered by most companies that require specialized expertise in order to manage the larger needs and operations of a company.