Understanding Offshoring Vs Outsourcing

Understanding Offshoring vs Outsourcing

Understanding Offshoring Vs Outsourcing – Image Source: The Internet

Offshoring is considered lower risk than outsourcing or near-sourcing, as your company maintains control by providing the project guidelines and milestones, so everything is done the way you want it.

It’s important to understand the differences between offshoring and outsourcing when considering your company’s next strategic move.

Offshoring is equivalent to relocating a department of your company to a different country and employing a dedicated team who will work on a project/business function, whereas outsourcing means contracting out a whole project/business function to a third party, also in a different country (although occasionally companies outsource in their own country).

Both offshoring and outsourcing are primarily used as a rationale to reduce staffing costs and increase margin. Offshoring enables an organisation to maintain flexibility and control of a project, and it’s also easier to scale employment needs up and down, as required. For example, companies can employ expert software engineering talent offshore at a fraction of the cost of onshore software engineers, but importantly your company works with the offshore team to ensure work is carried out as per the job description/project brief.

Outsourcing to a third-party provider leaves an organisation vulnerable, as it no longer has control of its project, and there may be a lack of alignment between objectives and outcomes. Forbes magazine reports a decline in IT outsourcing, particularly outsourcing to India, due to a rise in wages, ‘job-hopping’, inflation, language barriers, and a reduction in quality. However offshoring IT functions is a growth area, as it’s an ideal way to find the right talent, with the right skills for the job.

Another term to be familiar with is near sourcing – it’s a process very similar in structure to outsourcing, but the country selected is located nearer to the home country or target market, and so, in theory, there are fewer issues, risks, and cultural differences to overcome.

Offshoring is considered lower risk than outsourcing or near-sourcing, as your company maintains control by providing the project guidelines and milestones, so everything is done the way you want it. An offshore provider such as Remote Resources in Vietnam will source and screen the talent for you, but your company has the final say in who is hired. It’s a win-win situation that leads to a team of well-qualified staff, accountability, and quality control.

Having workers operating in a different time zone has its pros and cons, but usually the positives outweigh the negatives, especially when considering that there’s only a three-hour difference between Australian Eastern Standard time and Vietnam. This makes communication easy, and it’s often better for clients, as it extends the concept of working hours/contact hours.

Vietnam enjoys a stable government and a strategic location in the Asia-Pacific region; it’s a less risky choice politically than China, Indonesia, or the Philippines, and better value and more reliable than India or Bangladesh. Vietnamese people are also more likely to stay in one job, due to their strong family ties.
The Reserve Bank of Australia reported in September 2017, that Australia is now moving to a service-orientated economy. Companies that produce and distribute goods have become more specialised in their core activities, and have increasingly outsourced or offshored their non-core activities. This means that business services (companies that provide services to other businesses) are on the rise, and this is driven by fast-moving changes in ICT. The demand for expertise in non-core activities is driving the need for quality and reliable offshore business solutions, such as those provided by Remote Resources.

Offshoring is equivalent to relocating a department of your company to a different country and employing a dedicated team who will work on a project/business function.