Globalization makes the world feel smaller and smaller. Many entrepreneurs are already using the advantages of IT to hire employees in other countries. Many people know the terms outsourcing, offshoring, or software nearshoring for this. But what is the difference?
In this article, we explain how companies can take advantage of the relocation of jobs abroad and what needs to be considered. We clarify the difference between outsourcing and offshoring, describe the motivation of employers and whether it is worth using an agency.
Offshoring is a type of outsourcing in which the contracted company is located in distant countries and employs employees there. A typical offshore country for IT outsourcing would be Ukraine. Depending on the industry, India, Pakistan, China, the Philippines, Taiwan, or countries in Africa are also of interest. The greatest outsourcing advantages of offshore locations are the significantly lower personnel and infrastructure costs as well as the use of time differences, with which tasks can be processed around the clock.
However, the downsides can make outsourcing unprofitable. The processes first have to be adapted and the new way of distributing tasks also requires a certain amount of training until all processes have been properly implemented. If the IT provider has no experience, this can lead to difficulties in communication and tasks being not implemented in a satisfactory way. Especially companies that work with outsourcing companies from distant countries report such problems, which is why other solutions such as nearshoring make sense.
Outsourcing and Offshoring
Nowadays, many companies want to save costs and use new technologies and work with external service providers. Tasks are either transferred to internal departments, external companies in the country of your location, or external dedicated teams abroad. The terms outsourcing and offshoring are often confused.
The definition of outsourcing offshoring describes the relocation of jobs, which offers various advantages for companies. On the one hand, the costs for certain tasks can be reduced. By specializing in a certain area, processes can be optimized, purchase prices can be kept low and employees can work more efficiently. This means that external service providers can often offer lower prices than if the tasks were carried out by internal employees.
Another advantage is the high flexibility. Companies can have tasks carried out by order at any time without having to constantly keep the necessary resources available. As soon as a project is completed, there is no further administrative effort. Processes can thus be better managed and controlled.
Offshoring outsourcing also allows small businesses to benefit from large, optimized systems that cannot be integrated into small projects. By shifting tasks, the latest technologies can always be used that otherwise could not be integrated into the working environment. These models are particularly suitable in the IT sector. But what is the difference between offshoring and outsourcing?
Offshoring vs Outsourcing
The term outsourcing comes is divided into two parts: "out" and "source". According to the definition, a service is obtained from an external source. The tasks do not necessarily have to be handed over to foreign specialists, because outsourcing is also possible in your own country.
In most cases, tasks that were previously carried out by the company's employees are given to the outsourcing company. The above-mentioned advantages are hoped for. When it comes to outsourcing, precise planning, a precise description of the tasks and good cooperation with external agencies are essential. However, despite the precautionary measures, there is still a risk: Know-how is also being transferred to the other company. This can lead to dependencies on the supplier.
Outsourcing is therefore the transfer of specific tasks to specialists so that they can be carried out more efficiently, cheaper, and faster. The organizational relocation of tasks is made possible. The physical location of the company remains the same.
The offshoring outsourcing difference is that offshoring, on the other hand, describes the geographical relocation of tasks, projects, and employees. However, those who use the advantages of offshoring will also use methods of outsourcing. The dangers lie in the area of non-functioning communication, logistics, and cultural differences. Depending on the industry, the time difference can also lead to problems. For these reasons, modern companies now rely on nearshoring Ukraine, Poland, Bulgaria, Serbia, Romania, etc.
So, there is a difference between outsourcing and offshoring, which the Offshoring Outsourcing examples have shown.
Difference Between Outsourcing and Offshoring
To make the offshoring outsourcing difference clear, here are a few examples of offshoring outsourcing.
As an example of outsourcing offshoring, let's take a company that wants to create a software product. Since internal processing is too expensive, an external service provider in the same country could be commissioned. As the result, the reporting times and the payments are defined and the contract is signed by both partners. After the agreed time, the finished product is handed over to the client. With the payment, the project is finished. This way, outsourcing is perfect for short-term projects.
Alternatively, you can also set up your branch abroad. After renting an office, hiring people, and complying with the law, work can begin. After the end of the project, the facility can be closed again. This approach is suitable for long-term work and large projects.
Outsourcing is a broad umbrella term for different variants. A distinction is made between the following outsourcing options:
Application service providing
This form of outsourcing describes the possibility of only having software operated by an external company. Customers can use certain software without having to install it on their computers. The applications are run on external servers in data centers. This eliminates the need for installation, maintenance, and data backup.
Business process outsourcing
With this type of outsourcing, individual business processes are outsourced to external companies. This usually applies to finance, human resources, recruiting, logistics, or IT.
Managed services are particularly widespread in the IT sector. Here the provider takes overall information technology systems and ensures the communicative connection.
Out-tasking describes outsourcing in the form that individual and clearly defined tasks are given to external providers. This can include small tasks such as printing certain objects and digitizing documents or larger tasks such as web design or software development.
You should pay attention to these points to avoid disadvantages in outsourcing
The outsourcing of individual company areas repeatedly leads to the failure of the actual task. Neither outsourcing company nor the process itself is wrong; they are typical mistakes that should be avoided. The following points should be considered in your strategy:
Wrong outsourcing partner: The services of the outsourcing company should match its statements. This is the only way to achieve satisfactory results.
Unclear agreements: It should be clarified which areas and tasks are being outsourced. The control of the agreements is also important. Your expectations should be communicated to the outsourcing provider.
Clear contracts: The agreements between the two partners should be set out in the contracts. An experienced provider usually has legally secure contract documents.
Outsourcing or offshoring, what should I choose as an entrepreneur?
Outsourcing and offshoring offer companies’ different advantages. Costs can be saved, core competencies are strengthened, the quality of the work results increases together with the flexibility.
Pure outsourcing is particularly suitable if the projects only take place on a short-term basis or in different periods, i.e. are not needed permanently. External service providers can be assigned flexibly.
Relocating entire departments to another country via offshoring is only worthwhile for long projects or when entire branches of production are outsourced. Since this model is not very flexible, it is particularly suitable for large companies. The difference between outsourcing and offshoring can also be seen here.
Offshoring vs. Outsourcing, Is There A Middle Way?
The best variant is a combination of both. External service providers abroad can be sought and commissioned. You can hire a team of external employees in a country with low wages. Thanks to the skillful use of modern IT systems, even teams from several locations can work together without any restrictions. This model is also called out-staffing.
ESKA moves your business forward
Perhaps you are now also thinking about outsourcing your next software project to an external service provider. This not only makes it cheaper to create the app, but you can also concentrate on your core competencies. In the following, you will find out exactly how this works and why Eska can be the right partner.
After you have sent an inquiry to our customer service with the project description, you will receive an initial proposal with a team. We can choose within a large pool of talent and thus select the best specialists. This not only improves the product quality but also ensures a shorter turnaround time and lower costs.
Thanks to our optimized processes and communication channels, you can work efficiently with your new team. The advantage of out-staffing is that the employees only work for you and under your direct guidance. So, there is no distraction and all tasks are performed fast and efficiently.
Our office and our employees are located in Ukraine. Since agile software development requires close cooperation with your employees, the cultural differences should not be neglected if you want to outsource work. Ukraine is culturally (and geographically) close to Europe compared to India or other Asian countries. Besides, the way of working is more European, that is, orderly, punctual, and reliable.
For some years now, the topic of data protection has been moving more and more into focus. If you hand over work areas to external companies, then you should observe the special measures. When offshoring to other countries there is always the risk of a data breach. Since Ukraine has strict data protection regulations, Eska also implements various mechanisms to protect customer data. Also, we have a lot of experience in handling sensitive data. This means we can always guarantee the highest level of security.
For these reasons, we can help entrepreneurs do their business better. Our efficient way of working allows us to generate software products profitably. With our employees, we create your new team. Get Started Today!