Outsourcing vs Offshoring
Although outsourcing and offshoring are similar, they have two different meanings. When a company chooses to subcontract its business processes to another company, this is known as outsourcing. Therefore, instead of hiring employees to do the processes, the company (outsourcee) makes arrangement with another company (outsourcer) to gain these services under contract for a set price and time. Offshoring, on the other hand, is when a company (outsourcer) sends its operations to an outsourcing partner (outsourcee) from another country. Most of the time, partners in offshoring are selected from developing countries to lower the labour costs. In the end, both outsourcing and offshoring will reduce cost and save money for companies that perform it.
For some time, companies all across the world have been successfully using outsourcing in the ERP area. The majority of IT outsourcing began in back-office services like technical assistance, software development, and maintenance. Later on, it spread to other IT operations within the company, where executives of many companies found out that outsourcing was both cost-effective and flexible. Therefore, many companies slowly begun to shift their focus to front-office services like customer support, call centre functions, sales force automation, and customer relationship management.
When a company uses outsourcing as a business strategy, there are numerous benefits beyond cost reductions. These are some of the key benefits of outsourcing:
- Economics: Outsourcing saves a company anywhere from 30 to 50 percent, depending on the task, method, location, and how the connections are formed.
- Market agility: Outsourcing reduces the time it takes to find a solution and eliminates distractions from a company’s primary focus.
- Breadth of skills: Outsourcing enables a company to gain access to advanced skill areas quickly, so the company don’t have to hire or train new employees.
- Technical expertise: Outsourcing allows a company to provide modern IT solutions to its employees, which keeps them up to date on the newest changes in the systems.
- Multiple feedback points: Outsourcing offers a company with many different outside or external perspectives during implementation and maintenance.
- Best practices: Outsourcing helps companies to gain access to best practices in planning, implementation, and maintenance.
- Solution centric: Outsourcing enables a company to use both third-party components and custom-developed code to meet the requirements at the lowest cost possible.
Offshoring is frequently criticized for sending jobs to another country, even though it can become very beneficial to companies and improve both countries’ economy. Offshoring has the potential to be very beneficial to companies. These are some of the benefits or offshoring:
- Cost savings: Offshoring enables a company to save a large amount of money on labour cost. This is the main reason why companies often perform offshoring to countries where the hourly labour rate is significantly lower.
- Training opportunities: Offshoring creates more skilled employment opportunities in operational and administrative jobs.
- Risk reduction: Offshoring reduces risk for a company, allowing it to provide greater support to their customers when they need it.
- Control: Offshoring helps a company to keep complete control over their operations and manufacturing. Offshoring, unlike outsourcing, relies on another company to execute tasks. Offshoring, rather than outsourcing, allows a company to be clearer and focus to complete its main goals.
- Janica. (2019, September 24). An outsourcing success story: The fighter that is WhatsApp. Retrieved from https://ascalex.com/blog/2019/09/24/outsourcing-success-story-whatsapp/
- Motiwalla, L. F. & Thompson, J. (2014). Enterprise systems for management (2nd ed.). England: Pearson Education Limited
- PowerPoint of BINUS University, Enterprise Systems course resource, session 19-20: Global, ethics, and security management
- Richford, M. (2016, December 19). What are outsourcing and offshoring?. Retrieved from https://napsintl.com/mexico-manufacturing-news/what-are-outsourcing-and-offshoring/