logo
logo
AI Products 

Outsourcing vs Offshoring - Key Differences and Comparisons in 2024?

avatar
Hanna Norris

This blog is originally published on Your Team In India and has been republished with permission.

Introduction

In the competitive digital landscape, organizations are constantly evolving and exploring strategies to stay competitive and optimize their operations. Outsourcing and Offshoring are two popular approaches that have emerged as viable solutions for making more informed decisions.

Although outsourcing and offshoring have some similar traits and functional aspects of working with remote software developers, these two approaches offer entirely different business models. If you are searching for clarity on IT outsourcing and offshore development services, then this blog is for you.

Understanding Outsourcing vs Offshoring: The Evolution Phase

The terms "outsourcing" and "offshoring" are often used interchangeably, but they refer to different business strategies. Both have evolved significantly over the past few decades, driven by globalization, technological advancements, and shifting economic landscapes. Here's a closer look at the evolution of outsourcing and offshoring and how they compare in 2024.

Outsourcing

In the mid-1900s, businesses looked for ways to expand and increase market shares. As technology advanced, handling complex management became a challenge. Outsourcing emerged to help companies to focus on core functions by outsourcing support tasks.

With time the companies started using IT outsourcing services as a cost-effective measure.

Outsourcing is a business practice in which companies use external providers to carry out business processes that would otherwise be handled internally, or in-house.

Outsourcing means working with third-party vendors who work with freelancers or with freelancers directly to achieve a specific deliverable. Generally, outsourcing is a cost-driven and contract-based model intended to reduce costs and gain access to part-time software developers. Since outsourcing works on a contract-based or project-based model, no resources are spent on idle workers.

Advantages of Outsourcing

With numerous successful examples of outsourcing, it is certain that this outsourcing service will definitely continue in 2024. But what makes outsourcing so popular among high-profile businesses?

a) Cost advantage

Outsourcing brings one significant advantage cost savings. It's a strategic move that can reduce your overall costs. Did you know that around 59% of businesses view software development outsourcing as a strategic move for reducing overall costs? Outsourcing services lets businesses save money by reducing labor costs and avoiding investing in expensive equipment and infrastructure, as the outsourcing partner takes care of these requirements. For instance, India is a prominent location that offers business process outsourcing at lower labor costs. So outsourcing to India can bring a significant advantage.

b) Access to higher-quality

By outsourcing specific services and partnering with an outsourcing company, businesses can easily access specialized expertise and skills. These service providers have experience and a comprehensive understanding of the domains that ensure the delivery of high-quality services only.

c) Focus on core competency

By outsourcing specific projects or tasks, businesses can focus more on their core competencies. They can delegate their specific business operations and let their resources focus on performing and achieving their primary business objectives. This way, the companies can acquire a competitive advantage.

d) Flexibility

The outsourcing model allows companies to scale up and scale down their resources based on specific business requirements. For example, suppose a business builds a software development team. So, technically, you permanently employ the team. Even if the project requirement slows down, you will still be paying a team of developers to be engaged with you.

Outsourcing models give resources flexibility and enable businesses to scale up or down their resources as and when required.

e) Infrastructural requirements

When using outsourcing or digital methods to access software development services, the cost of setting, maintaining, and optimizing the hardware tools is reduced. This means you do not have to invest a lot in the infrastructural setups, which leads to cost reduction and access to expertise within budgets.

f) Global expansion

Outsourcing software development can serve as a gateway to global expansion. By collaborating with software development talent in other locations, you can expand to new markets and business opportunities.

By taking advantage of the global development talent, you can gain access to newer markets.

Is outsourcing a viable strategy for your business?

If you urgently need a software developer and do not have the required expertise in-house, outsourcing can be an excellent option.

However, it can only be a great choice if you have a strong and ongoing association with the developer. On the contrary, if you have a long-term requirement, it is a relatively low-preferred choice.

Successful examples of companies that outsourced for massive growth

With such a huge success in the previous years, is offshore outsourcing really worth all the investments and hassles? Well, a clear answer to it is yes!

Check out some of the popular examples of big companies that have proven the outsourcing strategy a big yes!

1. Google

Google has successfully implemented outsourcing in its operations, outsourcing 120,000+ employees and taking advantage of outsourcing for Google Ads.

2. Alibaba

Alibaba started as China Yellow Pages outsourced its website development to a US firm in its early days due to the skills shortage in China. The company still relies on outsourcing partners for production, showcasing how it leverages offshore outsourcing to drive massive growth and expand internationally.

3. Slack

Slack is a popular collaboration tool for teams, with over 12 million daily users. Slack development was outsourced to a design firm responsible for the website, application, and even the logo.

Offshoring

The outsourcing model transformed the 1990s era well, and even the organizations were satisfied with the outcomes. However, what was lacking in outsourcing was " ownership."

Although the streamlined management of operations was there, but businesses lacked the sense of ownership that was much required for the operations of the business processes.

Being in charge of the entire business, they wanted to have complete control over outsourcing processes as well.

Then came the introduction of another business model -"OFFSHORING."

Offshoring provides a cost-efficient, flexible, and scalable system that offers businesses complete control over their processes.

Offshoring is the relocation of a business process from one country to another. It typically involves outsourcing an operational process to a less developed country with the intention of having services at reduced costs and complete control. In short, offshoring is transferring the ownership or activities of complete business processes to a country other than the country where the organization is located.

Offshoring means developing a permanent dedicated team of developers anywhere in the world. This approach is not just suitable, but ideal for companies looking to scale up their development team confidently. Since you have full control over the dedicated team, this model eliminates the risk of engaging with short-term contract-based developers.

For additional information and insights, refer to the complete blog: Outsourcing vs Offshoring - Key Differences and Comparisons

collect
0
avatar
Hanna Norris
guide
Zupyak is the world’s largest content marketing community, with over 400 000 members and 3 million articles. Explore and get your content discovered.
Read more