Back in the day, an Excel worksheet was all you needed to keep track of contracts, orders, suppliers, and employees. But as the number of your orders and customers grows, you may need to grow with it. Eventually, it may become overwhelming for your staff to keep up with the pace of your business growth. To keep up with expansion, you may need some outside help. This is where outsourcing comes in.
Outsourcing can allow your business to free your in-house employees of some time-consuming and repetitive tasks. When it comes to outsourcing, two common models you can choose from are offshoring and onshoring. In this article, we shall take a look at the pros and cons of offshore and onshore outsourcing to help you decide which approach to take.
Offshore vs Onshore Outsourcing
- Pros Of Offshore Outsourcing
- Cons of Offshore Outsourcing
- Things To Consider When Outsourcing Offshore
- Pros of Onshore Outsourcing
- Cons of Onshore Outsourcing
- Things To Consider When Outsourcing Onshore
Which Way Should You Go: Offshore or Onshore?
- Understand Your Requirements
- Experience Level of the Company
- Portfolio and Client Testimonials
- Transparency Level of Company
- Resources & Technology
- Governance and Contract Laws
Offshore vs Onshore Outsourcing
When considering outsourcing, two popular options are offshoring and onshoring. Offshoring is an outsourcing model wherein you allocate non-core business processes to a provider overseas. With offshore outsourcing, you will be dealing with cultural and language barriers. They will most likely be working in a different time zone than yours. Offshoring offers the benefit of tax exemption and also if you want to expand your business into another country or territory.
On the other hand, onshore outsourcing refers to hiring a provider located in the same country. This is the simplest and most convenient approach because the outsourcing company works in the same time zone and there is no language and cultural barrier involved. Also, you can meet and discuss things face-to-face.
Now that we have an idea of what offshoring and onshoring are all about, let us take a look at the pros and cons of each type of outsourcing.
Offshore outsourcing means moving one or more of your business activities or processes to a provider located overseas. The idea is to streamline workflow and save on costs.
Pros of Offshore Outsourcing
Here’s how you can benefit from offshore outsourcing.
1. Reduced Costs
One of the biggest benefits of offshoring is that you can save on costs. Depending on which country you outsource to, offshore outsourcing can save you on labor expenses. By offshoring, you get reduced costs in the form of cheap labor, more affordable materials, greater efficiency, and increased service offerings that can generate revenues for your business. Offshore outsourcing can save your business an average savings of around 15%.
2. Access to specialized expertise
Hiring a specialized labor force like IT or financial services can be expensive and competitive domestically. With offshore outsourcing, your company gets access to niche workers at lower rates and with less competition resulting in lower hiring costs and better business outcomes.
3. 24/7 Customer Support
Today, customers face issues at any time of the day. They can contact your team not necessarily during the standard business hours. Offshore outsourcing gives you access to a 24/7 customer support team assuring you of round-the-clock support. When your business hours are over, the outsourcing provider takes over.
4. Favorable Government Policies
Governments in foreign countries grant special tax exemptions and incentives to companies that invest in their economy and provide employment. This can help bring in revenue and improve your bottom line. In countries like the Philippines, there are financial incentives and fewer business regulations to attract foreign investment in their country.
Cons of Offshore Outsourcing
Offshore outsourcing is not perfect. It also has its flaws that you need to consider to determine whether it’s right for your business needs:
1. Security Risks
Offshore outsourcing may entail sharing confidential business information with your offshore partner. This may pose some potential security risks not only to your business but also to the customers. Thus, you need to ensure that the outsourcing provider will have the necessary technology to keep data secured and risk-free.
2. Less Operational Control
Another major concern with offshore outsourcing is the loss of operational control. When you are not the one managing your timelines and addressing customer issues, small delays can become massive backlogs. For this reason, you need to do your research when it comes to the outsourcing provider you plan to work with.
3. Difference in Time Zone
Another disadvantage of offshore outsourcing is the time zone. This is especially true for time-sensitive and deadline-driven projects. For example, if you send an email to a country with different business hours than yours, you may have to wait until their business hours begin to get a response to your email.
4. Foreign Regulations
Also when considering offshore outsourcing, you may not be familiar with the laws and regulations in the other country where the provider is located. You should work out details regarding payment beforehand and be aware of any hidden costs. Make sure that the provider you are partnering with has a solid legal infrastructure to protect your intellectual property.
5. Language Barriers and Cultural Differences
Another problem you may face with offshore outsourcing is language and cultural barriers. Although the country of the offshore provider may be using English for diplomatic and political reasons, their level of understanding of English might be different compared to the US. Also, there might be some cultural differences in tackling projects and decision-making styles.
Things To Consider When Outsourcing Offshore
Should you decide to proceed with offshore outsourcing, there are certain things to consider when choosing an offshore outsourcing partner:
Geographical location is important in your choice of an outsourcing partner. However, it will be the service provider’s infrastructure that will be the deciding factor. A good working environment will ensure the safety of your offshore staff and will encourage productivity.
2. Size of Business
If you own just a small business, make sure to check if the service provider has experience working with businesses the size of your organization. They should be ready to anticipate changing business needs and scale up your services as needed.
3. Cultural Alignment
When looking for an offshore outsourcing company, you should outsource to an offshore location that has a similar corporate culture as yours. Ensuring cultural alignment, breaking language barriers, and optimum performance can impact your productivity. Even if you can operate with reduced operational costs, it won’t make a difference if the outsourcing provider cannot meet the service requirements.
4. Local Talent Pool
In addition, when outsourcing offshore you should also consider the local environment in the country of your offshore partner. Does the talent pool of the provider have the technical and communication skills that you need? You need to keep in mind that the quality of offshore skills will depend on local education and experience.
5. Industry Standards
Also, when choosing an offshore outsourcing provider, you should look for one with solid BPO industry experience and a good track record. See if they have an active organization dedicated to regulating and sustaining the local outsourcing industry. These organizations help foreign investors, maintain global competitiveness of the local industry, and ensure the viability of the business market. The most important thing about these organizations is they avoid the negative generalizations associated with offshore outsourcing.
As mentioned earlier, onshore outsourcing is the simplest and most convenient approach. One obvious advantage of onshore outsourcing is that you can always keep in touch with the outsourcing provider.
Pros of Onshore Outsourcing
Now, let’s check out the advantages of onshore outsourcing:
1. Easy Collaboration
Perhaps one of the biggest benefits of onshore outsourcing is that it allows physical collaboration with the outsourced team as and when required. Since you will be partnering with a local provider, you won’t have to worry about language or communication barriers which are quite common in offshore outsourcing providers.
2. Easy Hiring and Onboarding
This is another key benefit of onshore outsourcing. You can easily have a face-to-face discussion with the outsourcing firm and then hire them based on their industry knowledge. No need for Google reviews or checking of online reputation.
3. No Time Zone Difference
When urgent tasks need immediate resolution, you don’t have to worry about the time difference since both you and the provider have the same business hours. This is a common problem with offshore outsourcing because the outsourcing firm has a different time zone.
Cons of Onshore Outsourcing
Considering onshore outsourcing? Here are the cons you need to look into to help you decide whether onshore outsourcing is right for you.
1. Higher Overhead Costs
With onshore outsourcing, there is the problem of high overhead costs. You will invest time, money, and effort in sourcing, interviewing, hiring, training, and onboarding. Also, the local currency is applied, making onshore outsourcing more expensive than offshore outsourcing.
2. Risks of Data Security and Exposure
Like offshore outsourcing, partnering with an onshore provider also carries with it the risk of confidential data being shared. This is dangerous because it may expose confidential data like your financial position and/or customers.
3. Loss of Full Control Over Processes
Similarly, this is another issue that you have to deal with when outsourcing onshore. You won’t have control over the work done by the outsourcing firm. But you can still conduct an audit of their work.
Things To Consider When Outsourcing Onshore
When outsourcing onshore, it is not enough that you sign with the first outsourcing company you find. There are certain factors you need to take into consideration when looking for an onshore outsourcing provider. Here are 5 things you need to consider when outsourcing onshore:
1. Business Culture & Values
When searching for an onshore outsourcing provider, you want to make sure that the country you are planning to work with has a similar culture to yours. You should see the onshore outsourcing provider as a business partner. Hence, they should share the same values as you have.
2. Expanded Talent Pool
You won’t always find the best person for a certain job in your own team. At the same time, you don’t want to overwhelm them with additional tasks. With onshore outsourcing, you have ready access to the right professional to work on certain jobs that you may have.
3. Price Point
Different onshore outsourcing providers have different price points. When comparing the costs of the onshore outsourcing provider, you should consider the accepted currency and the cost of living. You can leverage reduced staffing costs yet keep your standards high and remain an ethical employer as well.
4. Time Zone
When looking for an onshore outsourcing provider, you want the team to be working at a similar hour as you have. This will make exchanges of feedback and communication with the provider much easier. Working with an onshore outsourcing provider allows you to resolve issues immediately. This is an important thing to consider especially for time-sensitive issues that need to be addressed as soon as possible.
Outsourcing companies employ workers with expertise in different fields. You want to make sure that the provider you will work with has expertise in the role you want to fill. Whether it’s in IT, call center, customer service, accounting, or other back-office positions, onshore outsourcing allows you to leverage expertise in specific fields.
Which Way Should You Go: Offshore or Onshore?
Now that you know the pros and cons of both offshore and onshore outsourcing, the question that now comes to mind is will you outsource offshore or onshore? Here are a few more things you need to take into consideration:
1. Understand Your Requirements
Before deciding whether to outsource onshore or offshore, it is important to understand your requirements first. Do you have the technology, skillset, or manpower for the project? Once you have analyzed your project requirements, it will be easier for you to make a choice between offshore or onshore outsourcing.
2. Level of Experience
Once you have identified the requirements, you will already know what to look for. Next, check the provider’s experience level you are considering working with. Work with companies with better project completion rates and experience handling similar projects.
3. Portfolio and Client Testimonials
When hiring an onshore outsourcing company, do not believe what the company claims to be. Check their website and see what kind of projects they have completed. Ask for their portfolio and look for any client testimonials. These are some of the ways you can scrutinize the capabilities of the outsourcing provider.
4. Level of Transparency
When choosing between offshore and onshore outsourcing, you need to investigate the outsourcing provider’s transparency practices and communication channels. Check about their work collaboration tools or how they ensure seamless collaboration.
One benefit of outsourcing is that you can avail of their services for a very low cost. But this may vary from one outsourcing company to another. When looking at the pricing, you should consider the overall development duration, type of project, and level of expertise to identify the best model with cost-saving opportunities for you.
6. Resources & Technology
When considering onshore outsourcing, you need to know the value of resources and technological infrastructure available. This will help save you time in setting up the environment and training resources.
7. Governance and Contract Laws
Whether outsourcing onshore or offshore, you need to know the laws in the country and how they can impact your project.
Whether it’s onshore or offshore, your business can fully benefit from outsourcing. Not only does it save you time, money, and effort, but you can also count on getting quality work done.
Why Outsource with airisX?
Outsourcing allows your business to focus on your main competencies and operations and forget the hassle of sharp learning curves when the task falls outside your company’s core area of business.
By outsourcing to a leader like airisX, you will be able to scale up quickly by getting the right resources, processes and technological infrastructure. No matter what your scaling requirements are, airisX will give you the best optimized solution and you will be able to focus on satisfying your customers and grow your business.