Offshoring vs. Outsourcing: Which Approach Is Best For Your Team's Needs?

In the modern workplace, there are many ways to distribute your company’s workload and many terms used to describe them. Two of the most common—offshoring and outsourcing—are also two of the most misunderstood. Many use them incorrectly or conflate them, but they are, in fact, two separate ways of working.

In short, when you outsource, you use a third-party vendor to handle a particular part of your business; when you offshore, you distribute tasks outside the U.S.

Let’s take a closer look at the offshoring vs. outsourcing landscape.

Outsourcing

Outsourcing is most often used to allow your company to focus on what’s known as its core competency—the essential product or service that you offer. It removes financial and logistical burdens that can come with fulfilling your company’s basic day-to-day functional needs.

These can include accounting, legal, HR, or IT. There are dozens of firms that specialize in these services and can, therefore, provide them at a higher level and often at a lower cost:

• Managed IT service providers. Outside IT firms can provide a higher level of security and 24/7/365 monitoring, a difficult task for your in-house staff if they don’t have expertise in the field. This can include everything from simple network maintenance to full software development.
• Cloud service providers. Companies such as Amazon Web Services or Microsoft Azure offer the virtual building blocks for enhanced storage and secure sales tools.
• Legal services. Most small to midsize companies don’t have the capacity to have legal counsel in-house.
• Accounting. Many businesses think they can have the poor soul who answers the phone or greets customers at the door also pay the bills and balance the books.

Outsourcing can also give a healthy boost to employee morale. If your best workers spend hours each day stuck on menial (if necessary) tasks that don’t fit their skill set, they will likely be less productive at—and less happy about—the work you actually hired them to do.

Outsourcing is the foundation on which decades of trade and productivity sit. Nearly every company distributes some of its tasks to outside firms. On one hand, this has allowed for substantial economic growth across the globe. On the other, some would argue that by moving key functions off-site, you also remove expertise and institutional knowledge that is vital for long-term prosperity.

Offshoring

Offshoring is primarily concerned with lowering the cost of labor. It does this by relocating the production of goods from the U.S. to developing regions such as India, China, and Latin America, where the labor pool is less expensive.

These factories then sell the goods back to the U.S. at a cheaper rate, bringing in more profit for the company. This very process is why clothing vendors (such as H&M) and electronics companies (such as Apple) are able to offer their products at (relatively) low prices.

This practice applies to services as well as physical goods. A prime example is India’s huge IT industry, which has been fueled by Western companies moving these operations overseas.

But offshoring isn’t always outsourcing. Large companies such as Microsoft have offices in India, so their IT operations are a native part of the business. Likewise, several American automotive manufacturers produce cars at their own plants in Mexico. And many tech startups rely on a hybrid staff with local developers and team members from South America.

Still Debating Outsourcing vs. Offshoring? Consider Nearshoring

If your ambitions are great but budgets are small, offshoring can seem like a tempting option to ensure your basic services are covered while you focus on changing the world. But if you don’t want to send the work across the ocean to a country with a 10.5-hour time difference, there may be a third option in the offshoring vs. outsourcing debate—consider an augmented team based in a nearshore market such as South America.

Jobsity’s cost benefit analysis of what outsourcing can offer is a good place to start as you embark on a journey into this market.

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Interested in hiring talented Latin American nearshore developers to add capacity to your team? Contact Jobsity: the nearshore staff augmentation choice for U.S. companies.