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Outsourcing is the high-level term used to describe contracting a third party to execute tasks assigned to them. Formally, offshoring is one of a number of outsourcing strategies, including onshoring and nearshoring outsourcing. Outsourcing and offshoring are similar in the most basic meaning — you assign tasks to external employees. However, there are several key differentiators that make these two approaches work for completely different needs. Understanding them will help you decide which one will work best for your company.
What’s the Difference Between Outsourcing and Offshoring?
1. Meaning
Outsourcing is the process when a customer contracts the execution of specific tasks to a third-party company specialized in the services they need. Companies can outsource a wide variety of tasks, from marketing to software development. In particular, outsourcing in the IT sector includes such services as turnkey software development as well as testing, design, DevOps, and others.
Offshoring refers to the transferring of business operations to another country to reduce costs. Compared to outsourcing, you may not transfer processes to a contractor and proceed with them in-house. However, you may also transfer some of your processes to a service provider to set up an offshore development center.
2. Main Goal
Companies that lack technical expertise outsource full-cycle projects or particular processes to outsourcing providers with a larger pool of tech talents. Still, customers may have a strong technical expertise but they need to scale their staff in a short time frame. In this case, they can leverage staff augmentation services, which is a specific subdivision of outsourcing.
The main intention of offshoring is often to cut down costs. That’s why most clients in the IT industry choose more cost-effective locations for opening an offshore development center as they can save on costs thanks to lower salaries in some regions, lower tax rates, etc.
3. Workforce Involvement
Outsourcing development services does not always mean that the staff provided by the contractor is not involved in other projects, unless you hire a dedicated development team. Moreover, they aren’t considered your in-house employees and will work under the provider’s policies, regulations, and workflows. Unlike firms that outsource, firms engaged in offshoring and offering offshore development services provide the staff to work in a slightly different scenario. When opening an ODC, employees are hired as a remote workforce dedicated to the client’s company only as if they were hired as an in-house team but working in an offshore country.
4. Functions Transferred
When it comes to outsourcing services, they typically refer to transferring a single task or process. Companies may augment their in-house team with additional human resources, entrust mobile development based on the provided UI design, sometimes even entrust full-cycle software development from scratch. Still, when launching an ODC, companies engage a remote team from another country to more complex tasks that require a more deep dedication and high-quality specialists.
5. Locations of Team Setup
Offshoring is different from outsourcing because remote teams or employees are located in a foreign country where team setup costs are lower. While outsourcing tasks, you can not only transfer it to a company located in another country but also do it within your native country. The main differentiator here is not where it’s performed but by whom it’s done, and they aren’t your in-house staff.
6. Time of Duration
Finally, outsourcing and offshore development projects are efficient during different periods of time. Outsourcing is more efficient for quick scaling and satisfying temporary workforce needs.
An offshore development center allows you to scale your business and is perfect for those companies that require full-time employee involvement. By launching an ODC with a few employees, you can expand your business by adding new roles, while entrusting a hiring process to your ODC setup partner.
Understanding Offshore Development Center Approach
Most people view offshore outsourcing as being good for long-term cooperation. For such projects, an offshore development center means reduced administrative costs, flexible project scaling, cost-effective infrastructure, and other benefits.
If you’re new to the ODC approach, you should read our dedicated material ‘’What is an offshore development center?’’ where we outline its benefits, challenges, and present a 5-step guide to ODC setup.
Meanwhile, if you’re thinking about business scaling opportunities, have a look at the tips that will help you understand whether ODC will serve you better.
Assess your project goals
Before searching for project delivery partners, it’s essential to evaluate your project and identify what your key objective is. Clarify the reason why you will transfer some of your tasks or the whole project to a software development partner. If it refers to saving costs on in-house development, infrastructure, hiring, and other aspects, then ODC may be your best choice.
Define the time-frame of the project
At this stage, you need to estimate at least approximately when the project will be completed. If it requires long-term cooperation with continuous scaling, then ODC will work for you.
Plan your staff resources
Then consider what positions you need to start expanding your business. Assess your in-house expertise and your ability to control the overall project delivery. In case your project requires a dedicated development team staffed with technical specialists and delivery management, but at the same time, you want to have control over the process, ODC would be a good option.
Define the location of the remote team
Finally, if you choose to hire specialists from less expensive countries, or offshore locations, it’s where ODC setup services will serve your needs.
Once you determine that an offshore development center is what you need, proceed with reading the 5-step guide to finding the right partner.
Final Thought
While outsourcing and offshoring may sound similar, they are quite different. No matter what approach you would choose for growing your business, it’s better to share this journey with a reliable partner.
Being recognized as one of the Top Offshore Software Development Companies for quality delivery of software development, we strive to adjust our service to our clients' needs. Find out more about our ODC setup services and contact us for more information.
