Outsourcing and Offshoring: What’s the Difference?

Outsourcing and offshoring are popular models of doing business. They allow companies to increase their productivity and profitability. There are some differences between the models, so if you are going to find out which option is suitable for your company and know the pros and cons very well, you have to comprehend the features peculiar to each option.

Large corporations have been resorting to offshoring and outsourcing for decades to reduce operating costs, attract the necessary expertise, and gain competitive advantages. Global competition in talent finding has made these collaboration models even more relevant and popular.

This article will compare outsourcing and offshoring, tell you about their main features, and share tips on when it is better to choose one over the other for your business.

The IT outsourcing sector is the biggest contributor to revenue in the IT Services market, with US$361 billion in 2021, and is projected to reach US$777.8 billion by 2028.

Statista

Outsourcing vs Offshoring: What is the Difference?

Outsourcing is the process of transferring the work to a third-party contractor outside your company to perform specific operations, solve set tasks, or fuel business processes.

In terms of software development, outsourcing means you hire a third-party development team to implement the project you need. They may complete this work in full or be responsible for just a specific part of it.

Other outsourcing examples:

• accounting and auditing
• IT infrastructure maintenance
• marketing activity
• design project development.

While interacting with IT service providers, companies can use this model to get access to innovations, avoid significant expenses, and focus on their core business activities.

Offshoring is similar to outsourcing in many ways, though it has its own peculiarities. When it comes to differences between the two models, the main one is that offshore software development involves contracting with a team located in another country. At the same time, customers retain complete control over all operations.

The service provider assembles a team from scratch for the customer and transfers supervisory data to make this team function as a division of the customer’s company.

Tips for Choosing Between Offshoring and Outsourcing

Our experience allows us to give you some tips to help you decide which model of interaction with service providers is the best for your company.

1. Estimate the time you will need to implement the project

Outsourcing is better for short-term projects. If you plan to develop a complex product involving many people, have no set deadline, and know the requirements may change, it is better for you to opt for offshoring.

Outsourcing allows you to quickly delegate project implementation to a third-party contractor and focus on your core expertise (or projects). Offshoring requires time to assemble and adapt a team.

2. How important it is for you to control work processes

If you are ready to delegate all or most of your project management to an agency you hire, outsourcing is just what you need. If it is essential for you to have complete control over operations, it is better to opt for offshoring then.

3. What budget do you plan to allocate for project implementation

IT outsourcing is a faster and cheaper interaction option. Offshoring requires more substantial immediate investments but ensures savings in the long run.

/ Image source: Krusche & Company GmbH /

4. Privacy factor

Considering the facts recollected above and understanding that high confidentiality and data security are crucial for you, offshoring is a more adequate option. With outsourcing, you may face some difficulties in ensuring these issues.

5. Technical and domain specialization

If your software development effort requires involving technology specialists with peculiar or niche expertise you can hardly find within your in-house team, it would be better to outsource the task. Either way, you will have a hard time controlling it efficiently since you have no in-house employees with the necessary expertise.

The opportunity to expand your company’s global presence in local markets is another benefit you can get when you decide to offshore your software development effort.

Conclusions

Outsourcing and offshoring have long ceased to be just ways of saving money. When you resort to them, your business gains several advantages. This fact makes these collaboration models increasingly popular among companies of all calibers.

Both concepts presume the delegation of some tasks to third-party service providers but to a different extent and with a different degree of control. This article lists the main differences between the two, and we hope the provided information will be helpful for you, helping you make the right decision.

SmartTek Solutions has extensive experience in outsourcing and offshoring cooperation with customers from all over the world. We can flexibly adapt our work to your needs and do everything it takes to provide the best results.

If you are looking for a reliable technology partner to assist you in your software development endeavor, contact us, and let us weigh up all the details!