The two most trending terms in the IT industry these days are Offshoring and Outsourcing. These are the methodologies to carry out the software development and other key IT operations with the help of teams or individuals working elsewhere than onsite. However, both these processes are similar, but they are not the same. There are some key differences between Offshore Product Development and Outsourcing which we will discuss further in this blog.
First, let us get clear on the concepts of Offshoring and Outsourcing. So, without any further ado, let’s start…
Outsourcing is the process of subcontracting or delegating the non-core IT operations of a business to external service providers. These service providers are experts in their domains to perform the specific tasks given to them efficiently. The purpose of outsourcing is to shift the focus to the task company can do the best and eliminate the tasks where they cannot attain maximum output. For example- if a company has a core operation to manufacture a product, it will outsource the activities like payroll, customer service, and maintenance of statutory records.
Offshoring on the other hand is the process of shifting the core business activity to someplace else where the resources are cheaper and easily available. The main purpose of Offshore Product Development is to minimize the cost and maximize the output, efficiency, and quality of the product or service. Offshoring may include the shifting of the company’s production house or service centers to the target offshore location overseas. When selecting an offshore location, companies look for low labor costs, lenient laws, less government interference, cheap availability of resources, less tax rate, and other variables that turn to their advantage.
Even the people working in the IT industry have sometimes confused between these two terms. It is due to the overlapping benefits they have to offer. But there are substantially observable differences between Offshoring and Outsourcing.
Some of the key differences between the two are the following:
The basic idea behind outsourcing is to assign the peripheral activities supporting the core area of the business to external services having expertise in the specific activities. While Offshore Product Development is the relocation of the entire business unit to a faraway location where resources are cheaper, better, and easily available.
In outsourcing, the delegated business activities are completely controlled by third-party services and the location of the core operations remains the same. On the other hand, offshoring includes the relocation of both services and offices.
Outsourcing is done within the country that is the primary location of the business as well as the other countries. Offshoring always means going overseas, out of the organization’s primary location.
The main purpose most business organizations choose to outsource their certain activities is to divert all due focus on the key area of their business. While the key purpose of choosing offshore development is to acquire cheap and best labor & resources.
In outsourcing, the activities are performed by the staff of the vendor or the service provider. They are not employees of your company. On the other hand, if you are choosing offshore development, the personnel working on the business operations will be your employees. At least till the said project ends.
Considering all the facts above, we can conclusively say that Offshoring and Outsourcing are not something to get confused between. Outsourcing is a process that increases the efficiency of a business by relying on a third-party service provider that specializes in a specific area. A lot of Software Outsourcing Companies are out there as an example to prove this point. While offshoring enables an organization to maintain complete control over the operation even operating at an overseas location away from home.
Praveen is a seasoned IT Solutions Leader and Director at RSK Business Solutions, a technology-driven IT Consulting Company that specializes in Bespoke Software Development, Agile Consulting, Mobile App Development, Smart Sourcing, and much more. For the last 17 years, he has been delivering quality custom IT solutions that help businesses achieve their goals.