While offshoring and outsourcing often get used interchangeably, they describe different business practices that have the same goals: to improve efficiency, reduce costs, and leverage skills. Furthermore, both offshoring and outsourcing can have a significant impact on the operations and success of a business.
Offshoring refers to relocating business processes or production to a foreign country. Usually, offshoring is done to save costs and get access to skilled labor. Outsourcing, on the other hand, means delegating tasks or processes to an external third party. Outsourcing can be done domestically (in the same country where your business is located), or internationally (this is also called offshore outsourcing).
With Go Carpathian, you can explore the world of professional hires from Eastern Europe and South Africa. Through outsourcing in these regions, business owners can leverage expertise, reduce costs, and finally have time to focus on core activities while delegating non-core tasks.
In this article, we will answer the question what is the difference between offshoring and outsourcing, and their advantages and disadvantages, we will share examples and the main reasons why businesses decide to outsource or relocate their work.
Key Differences Between Offshoring and Outsourcing
According to McKinsey & Company, U.S. businesses dominate the global share of offshoring, accounting for 70% of the total market. Furthermore, ResearchGate reports that 15,2% of companies in various industries have offshored work while 37% of the U.S. small businesses opted for outsourcing.
Although they have almost identical goals, offshoring and outsourcing are conducted differently. Here are the main differences between offshoring and outsourcing:
Terms Definition
Offshoring involves relocating business activities to another country. For instance, a company that was established and based in the U.S. may establish a call center in India. On the other hand, outsourcing refers to hiring an outsourcing service provider to handle specific roles, such as marketing, IT, customer service, administration, etc.
Location
When it comes to location, offshoring is always located in a foreign country. Outsourcing can happen locally (this is called onshore outsourcing) or internationally (offshore outsourcing).
Control
Companies usually keep more control with offshoring. This is because offshoring includes setting up a completely owned subsidiary abroad. With outsourcing, control is handled by delegating certain tasks to a third-party agency. With Go Carpathian, you get access to high-quality global talents. Thanks to our expertise, we vet all candidates to make sure they are great fits not only professionally, but also, culturally.
Purpose
The purpose of offshoring and outsourcing is somewhat similar. Both offshoring and outsourcing are driven by the need to cut costs and access global talent markets. However, outsourcing is more focused on leveraging specialized expertise and reducing in-house tasks. This is precisely what Go Carpathian helps business owners with; we connect you with the best hires from Eastern Europe and South Africa so you can finally focus on your core tasks, such as innovation and growth while reducing operational costs.
Examples of Offshoring and Outsourcing
The impact of offshoring and outsourcing on jobs is significant. Both strategies create job opportunities and open the door to new business opportunities for business owners, local vendors, and freelancers around the world. Since outsourcing and offshoring have been present for some time, here are some of the most inspiring examples of how big companies used these practices to grow their business:
Examples of Offshoring
Offshoring refers to relocating parts of your operations to a different country. These companies are some of the most successful examples that used offshoring to save money and acquire skilled labor:
Apple
Apple used offshoring to relocate manufacturing of iPads, iPhones, and MacBooks to China. The tech giant partnered with companies like Foxconn and Pegatron to assemble the products. As a result, Apple lowered labor costs while keeping high production efficiency, which ultimately resulted in competitive pricing and scalability.
Ford Motor Company
Ford has offshored some of its car manufacturing operations to Mexico. In Mexico, plants manufacture different components and assemble vehicles thanks to the country’s lower labor costs and its proximity to the U.S. market. As a result, the transportation expenses were lowered while keeping high production standards.
Dell
As a leader in personal computers and IT hardware, Dell offshores the largest part of its manufacturing to China and Malaysia. As a result, Dell benefits from skilled labor at lower costs.
Boeing
Boeing offshores specific components for its airplanes to Japan and Italy. For instance, in Japan, Mitsubishi Heavy Industries crafts wings for Boeing planes. This strategy allows Boeing to partner with specialized companies to produce high-quality components.
Nike
Nike offshores much of its manufacturing to Vietnam, Indonesia, and Thailand. Manufacturing in these locations allows Nike to keep cost-effective labor while maintaining high output levels to meet global demand.
Examples of Outsourcing – How Outsourcing Can Help Your Business Grow
On the other hand, some companies decided to outsource some departments so they can focus on growth and innovation. Here are some of the best examples that can inspire you:
The company initially outsourced its app development to Russian developers to lower the costs. Aside from lowering costs, outsourcing allows companies to stay flexible and scale their activities, depending on their current needs.
The tech behemoth actively engages in outsourcing by employing remote workers globally for software development tasks. Thanks to outsourcing, companies can access high-quality global talents at lower costs.
Amazon
Amazon outsources customer service operations, mostly call centers, in South Africa and the Philippines. Just like other companies that outsource their tasks, Amazon managed to save costs and keep efficiency.
Spotify
Spotify outsources software development to leverage talent from Eastern Europe. For Spotify, just like many other companies in the world, outsourcing enhances product development and engineering capabilities thanks to having the chance to connect with professionals around the world.
Lyft
Lyft has also outsourced a part of its work to Eastern Europe. To be more specific, Lyft has established a software team in Eastern Europe and opened the door to accessing local engineering professionals and focusing on service improvements. And that is another good thing about outsourcing: when you outsource your non-core operations, you can finally focus on growth.
Offshoring and Outsourcing: Advantages and Disadvantages
Like everything else in business and life, offshoring and outsourcing have good and bad sides. Here are some of the most notable advantages and disadvantages of offshoring and outsourcing:
Advantages of Offshoring:
One of the most important advantages of outsourcing is lower labor and operational costs in foreign countries. Also, offshoring gives business owners access to talented professionals, especially in the manufacturing, IT, and engineering industries. Another advantage is that establishing a presence in a new market opens the door to growth opportunities and global expansion.
Disadvantages of Offshoring:
Often with offshoring, there is a risk of cultural and language barriers and time zone challenges that can slow day-to-day operations. Furthermore, offshoring has other disadvantages, such as quality control issues.
How to mitigate these disadvantages: While you can’t change your or someone else’s culture, there are ways to overcome these challenges. At Go Carpathian, we suggest that the management of the company always scouts the offshore location before venturing. The more your team is familiar with the culture and the language, the more you will be able to understand that country. Organize internal training to focus on understanding cultural differences to bridge this gap.
As for the time zone difference, in our experience, having at least a few shared work hours for your in-house and offshore teams can help teams collaborate and share feedback.
Finally, to ensure there are no quality control issues, we suggest you deploy a team to understand the local administration and regulations. Once you’ve completed the team setup, we strongly recommend designing a process that consists of check and balances for your partner to organize regular quality checkups.
Advantages of Outsourcing:
Business owners who decide to outsource their work have the opportunity to gain access to global talents without having to hire them in-house. Business owners also report that scalability and flexibility are other advantages of outsourcing as it allows them to scale operations up or down based on their current needs. Lastly, cost efficiency is usually one of the biggest reasons why companies choose outsourcing—reducing the need for training, employee benefits, and office space reduces costs significantly.
Disadvantages of Outsourcing:
When it comes to disadvantages, loss of control is among the most notable ones as quality and timelines might depend on the third party. Data security risks are also among the disadvantages because business owners share sensitive information with outsourced hires and are more exposed to breaches.
How to mitigate these disadvantages: As a seasoned outsourcing agency, Go Carpathian ensures a simple outsourcing process by thoroughly vetting candidates for cultural and professional compatibility while implementing data security measures to protect sensitive information.
Need a Partner in Outsourcing?
Now that we have defined what is the difference between offshoring and outsourcing, we can conclude that businesses choose these processes for various reasons. Both strategies allow business owners to adopt cost efficiency, access to global talent pools, and enhanced service delivery. Finally, both outsourcing and offshoring allow business owners to focus on core tasks.
If relocating a part of your business to another country doesn’t seem like a suitable option for you, outsourcing might be the best way to delegate tasks. With Go Carpathian, you can get connected with high-quality hires from Eastern Europe and South Africa.
Go Carpathian provides expertise in evaluating candidates to make sure you are connected with the best possible fit for your specific business needs and support to make sure that onboarding is seamless.
We are committed to delivering results while offering a satisfaction guarantee to make sure you are happy with your hires.
If you are considering our services, we know you are busy. That’s why we made partnering with us extremely simple:
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- Schedule a Discovery Call: Discuss your business needs and goals with their team.
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- Submit an Onboarding Form: Provide detailed information about the roles you want to fill.
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- Review Calibration Candidates: Evaluate pre-screened candidates to find the best fit for your business.
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- Onboard and Start: Integrate your new team member(s) into your workflow and begin reaping the benefits of outsourcing.
