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The Difference Between Offshoring and Outsourcing

May 31 ,2021
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Outsourcing is the umbrella term for the process of contracting a third-party provider to perform the tasks that you will assign to them. Strictly speaking, there are several forms of outsourcing strategies and offshoring is one of them. Other kinds of outsourcing include nearshoring (outsourcing to nearby countries) and farmshoring (outsourcing to rural areas in the same country). 

Outsourcing and offshoring may be similar in the most basic sense in that you are assigning a team from another location that’s physically outside of your local company’s premises to do specific business processes. Another similarity is that cost efficiency and overall productivity are usually the underlying reasons why outsourcing and offshoring services are employed.

However, there are still key differences between these two methods. Understanding these differences will help you decide on which option will best suit your business, depending on your goals and the services that you require.

Work Assignments 

Outsourcing: Utilising the services of a third-party provider in another country
Offshoring: Work is completed in another country by a dedicated team

With outsourcing, the work that you send is completed by an anonymous staff or freelancers from a different company. They are not considered full time or dedicated employees of your organisation. The relationship and delegation of tasks is typically via the solutions provider rather than directly to team members.

Through an offshoring services provider, you can outsource aspects of your business to a different country. Whilst often the employee contract is between the solutions provider and the client, staff are hired as a dedicated remote workforce for your company only. The offshore employee or team is basically an extension of your company’s locally based staff that you can directly manage.

Functions

Outsourcing: Refers to a specific task
Offshoring: Outsourcing a complete role

Outsourcing usually involves the hiring of a workforce to perform a specific singular task within a process chain. While these tasks can be tedious, repetitive, and time-consuming, these functions are vital as they help promote productivity by streamlining the overall business operations. These tasks are typically measured in time, quantity, and quality-based activities and in mass volume of headcount.

Offshoring involves assigning more complex functions and more engaged work to a dedicated team from another country. The offshore team is comprised of specialists who are well-trained and highly experienced in their roles that involve a myriad of functions and require a deeper level of responsibility and initiative. 

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Involvement

Outsourcing: Little interaction in talent acquisition, development plans and performance management
Offshoring: Fully involved in talent acquisition and integration of offshore members

In outsourcing, the third-party provider conducts the recruitment and the interviews without your involvement. Since some outsourced tasks are not entirely dependent on having to learn in-house knowledge of your core business operations, there is no need for you to fully integrate the outsourced staff to your company. It is the third-party provider who will supervise the team, provide training and conduct performance management processes.

In offshoring, you have complete involvement in the hiring and eventual selection of your candidates.  This includes providing your specific requirements to the offshore services provider, selecting from their most qualified candidates, interviewing them, and approving their employment.

You are also involved in the direct management of the team to ensure that their work is up to par with your business standards. It is expected that the new members of your offshore team will undergo an onboarding process that explains your company’s culture, objectives, and processes so they are completely aligned to fulfil your business goals.

Quality of Work

Outsourcing: Quality may fluctuate depending on who’s working on the project
Offshoring: You set work quality standards that your team adheres to

Outsourcing may affect the quality of work because the members of the team are not dedicated workers for your company. As a result, they are not entirely subject to your production control values. Since they are not regular employees of your organisation, different members of the outsourced team will be working on your project. This may also mean they are handling projects from various clients that may be given more priority over yours, which can affect your production timetable.

Offshore team members are considered as regular employees of your company. Just like your locally based team, your offshore staff are also required to uphold your company’s standards, policies, and processes. Since they are dedicated to work on your company’s tasks — and not for other clients — it is expected that they are focused only on the work that you assign them to. This will ensure consistency in terms of delivering high quality output. Staff quality is reviewed in partnership with the solution provider and forms part of staff performance evaluations.

Time and Scalability

Outsourcing: Quick solution for quick projects
Offshoring: Long-term solution, ideal for scalability

Outsourcing is scalable in the sense that it is a fast and efficient option for ad hoc or per hour-based projects. Outsourcing can solve problems for peaks and troughs with the ability to “flex up and down” staff when needed in periodic times of the year. When additional support is needed due to peak seasons of your business, such as filing income tax returns, outsourcing these functions can be an ideal solution. Given the hiring process is upon the provider, the lead time to hire should be quite quick.

An offshore team allows you to scale its size based on your business needs. There is no need to heavily invest upfront on manpower and equipment however is considered the ideal fit for those requiring a full-time employee capacity. Start off with a small team or large team and as your business expands, you can diversify the team by adding more roles as required. It is considered a longer-term approach given the hiring process is more personalised.

Check our handy comparison table for your at-a-glance reference:

  • Outsourcing
  • Tasks are delegated to a third-party provider
  • Typically refers to the outsourcing of a specific task
  • A general term for utilising the services of a third-party provider in another country
  • Work is accomplished by an anonymous team
  • Little to no involvement in talent acquisition, development plans and performance management
  • Quality of work may fluctuate based on which team member works on project or competing client priorities
  • Quick solution to accomplish tasks – ideal for ad hoc or per hour projects
  • Offshoring
  • Tasks are delegated directly to a dedicated team member
  • Refers to outsourcing a complete role
  • Work is completed in another country by your own dedicated resource
  • Work is accomplished and maintained by your own global team, an extension of your company
  • Usually involved from interview to offer. Full integration into your team under custom management arrangements
  • You set work quality standards that your team adheres to and upholds
  • Long-term approach to scaling your business

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Level the playing field with ASW’s offshoring services

In this highly competitive business environment – compounded further by the pandemic – the demand for outsourcing and offshoring services has increased significantly. As of 2021, there are over 30,000 businesses involved in the Business Process Outsourcing Industry in Australia alone.

Thanks to digital platforms, internet connection improvements and cloud-based systems, opportunities to access a wider pool of highly skilled talents have expanded exponentially. ASW offer an extensive workforce network from Vietnam, Malaysia, and the Philippines to give you the most qualified candidates for your business function requirements.

Read more about our offshoring process or contact us if you would like to arrange a discovery call with one of our specialists.