In an era of interconnected economies and digital growth, more businesses across the UK and EU are turning to other countries worldwide to help ease the strain on their local teams.
Two terms thrown around a lot are “outsourcing” and “offshoring”.
While they’re often used interchangeably, they’ve both got unique strategies and unique benefits.
But which one is best for your business? Let’s take a look at outsourcing vs. offshoring.
Outsourcing Vs Offshoring Defined
Before diving into which one is best, we should start by taking a look at both outsourcing and offshoring.
Let’s take a look at each model, its pros, and its cons.
What Is Outsourcing?
Outsourcing, in a sentence, is the process of hiring a team through a third party to handle the projects or tasks for your company, rather than handling them in-house.
It’s usually done when companies are trying to focus more on their core offerings.
For example, your company could outsource bookkeeping to an external company to take over the accounting function and make sure the financial records are up-to-date.
In the meantime, your company would be able to shift its focus on whatever core service you offer, rather than trying to figure out the bookkeeping.
Advantages of Outsourcing
There’s no doubt that outsourcing has its own advantages.
Fractional Costs
The biggest advantage of outsourcing is that you can access talent on a timesheet. For example, if you need the expertise of a CFO you could afford to hire that CFO for 10 hours per month, instead of full-time.
Cost Savings
Depending on where you outsource from, you could be looking at a lower employment cost.
Access To Specialists
In this example, outsourcing accounting services would give your company access to specialists who could handle certain workloads efficiently. You’d most probably have access to a fractional Finance Manager and a fractional bookkeeper.
Scalability
Outsourcing also allows your company to scale up and down without too much hassle, depending on your workload.
Disadvantages of Outsourcing
When looking at outsourcing vs offshoring, it’s also important to identify the disadvantages of outsourcing.
Quality Control
When choosing an outsourcing partner, you have no control over the people they put on your project.
While they usually start by putting qualified people on your project, they’ll shift those workers over to newer or better-paying work as time goes on. While the people they’ll appoint might not be bad, they definitely won’t be the best you could get.
Communication & Time Zone Challenges
More often than not, outsourcing companies that operate at lower costs tend to be in places such as India, which may not be as fluent in English as other countries would be.
On top of that, you’d be looking at anywhere from 3 to 5 hours difference in time zones, making real-time work difficult.
Dependency On Third Parties
Outsourcing services to third parties also creates a strong dependency on that company. While they can make promises, they can’t predict disruptions in their workflow – disruptions that would heavily affect you.
With both the pros and cons of outsourcing in mind, let’s take a look at offshoring.
What Is Offshoring?
Offshoring involves relocating or expanding specific business functions or processes to other countries, usually with a lower labour costs.
Unlike outsourcing, offshoring isn’t the offloading of work onto another company, but rather expanding your business to employ workers around the world.
For example, if you run a company in the UK, and bookkeeping is one of your core offerings, you could hire offshore bookkeepers from South Africa to join your in-house team.
Advantages Of Offshoring
Offshoring also has some of the same benefits as outsourcing, but there are a few unique pros.
More Control
Working with the example above, if you were to look at offshoring bookkeeping services, you’d have much greater control over your team. This would allow you to align that team with your overall business strategy much more smoothly.
It also allows you to control internal processes such as interviewing, screening, and training, as the process is based on your preferences.
Risk Diversification
While outsourcing involves handing off some of your responsibilities, offshoring would allow you to ensure that your company keeps functioning in the event of political or economic challenges in one location.
Dedicated Talent
While outsourcing teams can handle some of your tasks, they’re probably also working with a bunch of other clients.
Offshoring would allow you to access world-class talent at a much lower cost, and make sure that the talent on your team is dedicated specifically to your company.
Cost Efficiency
Offshoring means adding dedicated employees to your payroll. This ultimately means the overall cost is much lower. Bringing on full-time offshored staff also means that you’re not paying a profit margin to an outsourcing company.
If you had to hand a huge project over to an outsourced team, you’d be looking at a higher cost to match the workload.
On the other hand, an offshore team wouldn’t cost any more for that project than they would cost any other month.
Cultural Strengthening
Dedicating to an offshore team means building strong relationships with your international employees.
Countries like South Africa are a great example because of the overlap in cultural values and languages.
Time Zones
This depends on where you offshore to, but if we use South Africa as the example, you wouldn’t be looking at more than 2 hours difference in time zones. This allows you to work in real-time with employees who are working when you are.
Disadvantages Of Offshoring
It wouldn’t be fair to look at outsourcing vs. offshoring without identifying the disadvantages of offshoring.
Compliance Concerns
Offshoring an employee means making sure that your company abides by local rules and legislation. This can be a problem. But, if you work with a reliable employer of record (EOR), you’d be able to overcome this without too many issues.
Public Holidays
Some countries have public holidays that conflict with standard operating hours. This may disrupt flows unless you find countries with public holidays that overlap with your own.
Management Challenges
Any full-time employee that’s not in-office will need some help and guidance to get up and running. This does apply to offshoring. But, once you’ve established a routine and rhythm, you’ll find workflow stabilises quickly.
So, Offshoring Or Outsourcing?
In the battle of outsourcing vs offshoring, the decision will ultimately boil down to personal preferences and goals. Each model has advantages and disadvantages.
If you’re looking for a temporary solution to handling small projects, then outsourcing would be the best decision.
But, if you’re looking to effectively expand your business at a lower cost, then offshoring is the best decision for you.
Whatever your choice, make sure you do your research – and don’t be afraid to look at places like South Africa. They’ve got tons of untapped talent that’ll help you skyrocket your growth for a fraction of the cost.