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Outsource Vs. Offshore: Choosing the Best IT Service
When an organization hires a third party to perform the work for them, it is generally known as outsourcing. This third party may be an individual or a company, usually referred to as a vendor, who takes full responsibility for the execution, delivery, and quality of the work, and it may be located in the same country as the client organization, or in a different country or even a different continent. The government also sometimes provides public services to private companies to get the work done, which can also be termed outsourcing.
Offshoring means getting your work done by a vendor or subcontractor in another country. The client organizations are usually located in developed or first world countries, while the vendors or subcontractors are based in less-developed third world countries where they do the work remotely, allowing the client organization to reduce cost. In recent years, most of the offshoring has been occurring in administrative and technical work.
Benefits of Outsourcing and Offshoring
There are three main reason business leaders turn to outsourcing and/or offshoring:
- To do more in a less amount of time;
- To get the level of expertise that is lacking within the company;
- To save money.
Outsourcing and offshoring are often confused with each other as their working methods and goals overlap. However, there are clear pros, cons, and tradeoffs associated with each of the approaches, on each of the three aspects outlined above: speed, expertise and cost.
Aims and Goals of Outsourcing and Offshoring
Both outsourcing and offshoring focus on improving work productivity and business efficiency. Many companies are turning to outsourcing and offshoring to get more benefits with less money. IT companies, multinational corporations, or companies with robust IT needs and infrastructure, are known to frequently use these two techniques to gain a competitive edge through:
- Increased productivity
- Better efficiency
- Lower costs
- Access to the most advanced and creative solutions
- Attracting highly qualified international talent for less, and more.
Pros and Cons of Offshoring
Pros of Offshoring
The main aim behind offshoring is to reduce costs and to increase work productivity. There are many benefits of offshoring, such as:
- Offshoring may reduce the cost of work by up to 59%
- The vendor country may have less strict rules and regulations related to business
- Availability of cheaper and specialized labor from remote areas
- Lower taxation and accountability issues in underdeveloped countries make it beneficial for the organizations
- Access to new market places which are way cheaper than the original country of the client organization.
Cons of Offshoring:
The drawbacks of offshoring are somewhat similar to those of local outsourcing, with the added layer of complexity associated with doing work in foreign countries. Some issues may happen due to the cultural or time zone differences. Some of the cons of offshoring may be:
- Differences in work ethics/cultural attitudes which may cause issues with adherence to deadlines
- Communication difficulties due to incompatibility of time zones, which may be especially challenging for testing and launches regular in any IT work
- Language barriers which may cause trouble with interpretation of requirements
- Legal differences: just like they may help, they may also cause additional headache or even legal troubles
- Unpredictable time off with different national holidays, some of which may lead the vendor team to disconnect for several days in a row
- Varied interpretation of quality standards which may lead to subpar work
Pros and Cons of Outsourcing
Pros of Outsourcing
Generally, outsourcing is used as an umbrella term for work performed outside the company, both locally and internationally. We have discussed the reasons to consider outsourcing work, especially IT, in the Benefits and Aims and Goals sections above.
Now, let’s look at a more narrow definition of outsourcing as opposed to offshoring. In this sense, outsourcing refers to the arrangement during which the work is performed by an external vendor from the same country as the client organization. So, a Florida hospital may hire an outsource IT firm, or managed service provider (MSP), from New York to manage their routine IT operations, build an app, or automate their document processing. Or an Oregon retailer may hire a Texas design firm to create an advertising campaign. Comparing local outsourcing with offshoping, the former has several important benefits:
- Same or closely compatible time zones and shared language is likely to remove most barriers to communication.
- The quality of work is reported to increase by approximately 31% by employing experts in the type of work rather than generalists.
- Closer familiarity with local regulations, requirements and standards which is especially critical in heavily-regulated fields like healthcare and law.
- Outsourcing manages and speeds up business transformation by up to 17%.
Cons of Outsourcing
There are many potential benefits of outsourcing, which are very beneficial for multinational organizations, but at the same time, there are a few important drawbacks that apply to both outsourcing and offshoring. These include:
- Privacy issues: Threat to company privacy and protected information as companies have to share information, including, sometimes, intellectual property or IP, with a third party. A properly compiled NDA agreement and contract will mitigate these risks.
- Communication problems: Miscommunication may still persist even with the shared language when the industry speak used by one of the partners is too complex or murky to be properly interpreted by the other. This is why it is critical for your IT vendor to speak your language and not “tech-speak.”
- Lack of control: Once the work is outsourced to another professional, you lose part of control over it. Minimal discrepancies regarding work can cost the organization a lot, so close management and regular, ideally weekly or daily, alignments are necessary. The agile framework works optimally for this.
There are many benefits to outsourcing or offshoring the work that isn’t a part of your team’s core competencies. Are you ready to explore your local IT outsourcing options? Get a free quote and consultation from the top rated MSP in NY, NJ, and FL.