- Offshoring is the process of moving business operations or processes in another country, while outsourcing is the process of delegating tasks or functions to external vendors.
- Both offshoring and outsourcing provide cost savings and operational efficiency, but each has unique benefits as well.
- Sysgen RPO is a leading offshore staffing solutions provider with the expertise and experience to help your US-based company stay competitive.
Despite the pandemic being over, its effects continue to be felt by US companies. Worker shortages are still a problem, with the overall labor participation being only at 62.7%. This is slightly below the pre-pandemic rate of 63.3%.
Other major challenges include rising labor costs and talent shortages, which up to 75% of US companies have reported. Due to these staffing concerns, many US businesses have turned to outsourcing and offshoring to stay competitive.
Continue reading this article to learn the key differences and benefits of each route.
Outsourcing vs Offshoring: What’s The Difference?
While outsourcing and offshoring have similarities, they are not quite the same. Outsourcing is the process of hiring consultants instead of employees to perform certain business functions.
These “hired outside help” can be from the same country, or abroad. For example, a technology company in San Francisco might hire a Texas-based design firm to do their website, while also hiring a factory in China to develop product prototypes.
Meanwhile, offshoring is the process of moving all or parts of your business abroad. For example, a US-based bank may offshore its customer service operations and accounting functions to the Philippines.
Benefits of Outsourcing and Offshoring
Both offshoring and outsourcing aim to reduce costs while improving operational efficiency. However, each one does so differently, while having their own unique benefits. Let’s explore them below.
Benefits of Outsourcing
- Reduced Labor and Hiring Costs – By contracting out tasks instead of hiring full-time employees, companies don’t have to pay for benefits or leaves. This saves up to 70% on labor costs alone. Outsourcing also reduces hiring costs, as there’s no need to invest in training, tools, and facilities anymore.
- Access to Highly Skilled Workers – Many businesses do not have the resources to run a full-time IT or accounting department. By outsourcing these specialized tasks, companies can access the services of top talent without hiring them for a full-time position.
- Increased Efficiency – Outsourcing frees your team from time-consuming admin duties or highly complex tasks and allows them to focus more on your company’s core functions. This makes it easier to focus on growth or product/service improvements.
Benefits of Offshoring
- Lower Labor and Overhead Costs – Hiring remote teams in developing countries unlocks up to 70% savings in labor costs, thanks to the much lower cost of living in these areas. Additionally, most offshore locations like the Philippines offer tax incentives that make them highly cost-effective destinations.
- Deeper Hiring Pool – Offshoring grants US companies access to a wider talent pool. This creates a talent surplus that increases the odds of hiring the most skilled or experienced candidates needed for the job
- Better Operational Control – Unlike outsourcing, offshoring keeps you in control of the day-to-day operations of your remote team. This ensures that any proprietary information or trade secrets are kept in-house, lessening the risk of data theft.
When to Choose Between Outsourcing and Offshoring
Outsourcing and offshoring are both attractive options that US companies can benefit from. Here are some things to consider when deciding between them:
Identify Key Internal Challenges
First, determine which parts of your organization hinder productivity and could benefit from specialist help. For example, a growing restaurant chain may need to outsource its accounting so it can put more resources towards expansion and advertising.
Meanwhile, a fast food giant can offshore the manufacturing of its takeout packages to another country to access lower labor and manufacturing costs
Scope and Operational Control
Determine the scope and level of control needed to oversee parts of your operations. With outsourcing, you take a mostly “hands-off” approach as your partner firm will be the one to run core functions on your behalf.
Meanwhile, offshoring still requires you to manage your operations abroad to ensure they are meeting goals and delivering the desired results.
Talent: Consultants vs Employees
When you outsource a task, the people assigned to work on it are not your employees. They are managed by an outside firm, which may mean they handle work from other clients as well. This divided focus may affect the quality of their output.
With offshoring, your remote team are still your employees, and thus, solely responsible to you. This option gives you more control, as you are still responsible for your staff’s training and development to get the best results from them.
Time-Frame: One-Off Projects vs Long-Term Operations
Generally speaking, outsourcing is better suited for one-time or seasonal projects, as investing in an in-house team to do them may not be financially justifiable. Meanwhile, offshoring is great for repetitive, large-scale tasks like customer service or data analytics.
Unlock the Benefits of Offshoring for Your Company
Outsourcing and offshoring are simple business concepts, but both require expert execution to pull off well. This is why it’s important to work with a trusted partner to minimize risks (such as miscommunication, and compliance violations) while maximizing the benefits.
Sysgen RPO is a leading offshore staffing solutions company in the Philippines. We are one of the pioneers in this industry, with over 30 years of experience in helping US-based companies grow through an ever-changing business landscape.
Our full suite of offshoring services was designed to address common labor challenges. These include Full Life Cycle Recruiting, Resume Sourcing, VMS Recruitment Support, Offshore Staffing, Recruitment Admin Support, and many more.
If you would like to know more about how we can help you stay competitive in these trying times, contact us here. We’d be happy to answer all your questions and concerns about outsourcing and offshoring to the Philippines.