Many companies look for cost-effective methods that can also give them complete ownership of their project. This is where offshoring and outsourcing came into play. For those of you who do not know what the two of these are, these two are the best business models available in the market. Let us know about the basics of these two business models.
Although there is no proper definition as to what outsourcing is, the core can be explained as it is quite simple. In simple terms, it refers to when your company or firm gives a certain project to a third-party firm to be completed.
For instance, a company outsources a software development firm to create, update, or maintain their application. It can be a team or even a single person for that matter.
While offshoring becomes a completely different matter. Outsourcing becomes offshoring when a firm or company chooses a development company from a different country and entrusts them to develop their app.
This way the companies can take good advantage of the countries where labor cost in the market is a bit more economical when compared to other nations. Tons of companies do this in countries like India, Latin America, and Eastern Europe.
Now that we know about the basic nature of what offshoring and outsourcing are, let us take a look at the pros and cons of offshoring and outsourcing. This can better help you to understand more about the two so you can put an end to the outsourcing vs offshoring debate with ease.
Pros and cons of offshoring and outsourcing
Pros of outsourcing and offshoring
1. Outsourcing
- Flexibility- one of the major benefits of outsourcing is the flexibility that comes with it. For instance, if a company builds an offshore team that handles finance. If the team has been permanently employed, you will still have to pay the team even if there is no real work to be done at times which is a loss in the eyes of a firm or a company. While on the other hand, if your outsourcing, you can manage the team for a few hours or days even as they only work when you need them to. This way outsourcing can better help firms with their apps and other development projects.
- Cost-effectiveness- this is a business model that comes with various benefits such as low cost which further helps with the savings. This business model almost eliminates the cost of administration and infrastructure maintenance, which further makes it a budget-friendly approach. According to a study, this business model reduces the total cost of the project by almost 45%.
- Resources- there are tons of business functions in every company, most of which are non-core activities, the kind that does not offer any advantage over their competitors. These kinds of non-core functions distract key members of the team from focusing on the primary tasks, which leads to wasting resources. Doing this helps you to focus on the core competencies.
2. Offshoring
- Ownership- unlike outsourcing, the offshoring business model keeps full control of their core business. This gives you the responsibility of recruiting an effective offshore team, training them, and directing them, all of this lies entirely in the hands of the company.
- Talent- one of the major benefits of taking your business offshore is that it allows you access to a huge amount of talent that is always at your disposal. There are cutthroat competition and tons of pressure in developed countries to recruit people that possess a great skill set, especially in the production and the software development area. Several countries like India and the Philippines focus more on training and educating people which leads to the great quality of labor.
- Cost-effectiveness- this is one of the main factors that drive companies to opt for offshoring. There are tons of great offshore companies in countries like India, where the cost of living is somewhat low when compared to the west which is why the companies take their projects offshore to access great talent minus the expenses that were to be made at home.
- Scalability- the two factors, offshoring and scalability go hand-in-hand. A company can simply establish remote centers in different parts of the world by building offshore teams successfully. This, in turn, gives the company a great chance to scale its business and to support clients anywhere and anytime they need it.
Cons of outsourcing and offshoring
1. Offshoring
- Geographical distance- the only drawback of offshoring is the challenge of collaborating in different time zones. If the implementation in the project is poor, it can very well lead to a delay in the delivery of products and services to the market.
2. Outsourcing
- Loss of control- it is often known that the company loses some control over their work whenever they choose to outsource. This further leads to poor communication and visibility which in turn affects the overall success of the project.
These are the pros and cons of offshoring and outsourcing. You can use all of these to assess and think for yourself as to who is the clear winner.