Outsourcing vs Offshoring: Understand the differences

Outsourcing and offshoring are two strategies gaining immense popularity in today’s business world. While being similar in many ways, they are also quite different. Understanding the critical differences between outsourcing and offshoring is essential for any company wanting to take advantage of these strategies.

What is Outsourcing?

Outsourcing is the process of hiring a third-party organization or individual to handle specific tasks or services for your business, including customer service, accounting, or software development. It is becoming increasingly popular for companies to outsource these tasks as the expenditure on outsourcing worldwide is expected to reach $731 billion by 2023.

Outsourcing has three models, which are nearshoring, offshoring and onshoring.

Advantages of outsourcing

The reasons why companies, especially small businesses, favor outsourcing nowadays are because of their significant advantages. Cost savings: Outsourcing specific tasks can minimize the cost more effectively for a company than hiring the whole in-house team. Increased productivity: By outsourcing non-core business functions, companies can focus on their main competencies and improve efficiency. Quality workforce: Companies can access specialized skills and expertise that may not be available to in-house teams. Flexibility: Outsourcing allows a company to quickly scale up or down its operations in response to changing business needs. Improved quality: Businesses can expect higher quality outcomes as specialized service providers perform the work with a focus on delivering high-quality work. Reduced risk: Thanks to outsourcing services, organizations can now mitigate certain risks associated with a particular function or activity, such as legal or compliance risks.

What is Offshoring?

The definition of offshoring might sound the same as outsourcing because it is an outsourcing type. However, one key difference involves transferring a particular process or service to another country by building dedicated teams abroad. This might include developing a product or service based on your requests and management control.

Advantages of offshoring

Here are some highlights of why you should consider offshoring for your business. Cost efficiency: One of the primary reasons for offshoring is to reduce hiring costs. Many third-world countries have lower labor costs due to lower living expenses than developed countries. This is especially ideal for small companies with limited budgets. Diverse talent pool: Organizations can access a larger pool of talented workers with specialized skills. This can be particularly beneficial for businesses that operate in industries with a shortage of skilled workers in their home countries. Time zone advantages: Offshoring to countries in different time zones can provide around-the-clock support to customers and clients. It’s more convenient for businesses that operate in industries that require 24/7 support. Access to new markets: It’s easier to expand into new markets by establishing a presence in a foreign country. Offshoring can provide access to new customers and help businesses diversify their revenue streams.

Differences between Outsourcing vs Offshoring

There are a few critical differences between outsourcing and offshoring that businesses should be aware of; one of them is the location. With outsourcing, an external company or individual handles the services or processes, usually in the same country as the business. Meanwhile, with offshoring, a company in another country holds the project or services.

Another key difference is the cost. Outsourcing is usually more expensive than offshoring, as labor costs in other countries are much lower than in your own country. Additionally, there might be some hidden or extra fees that may arise during a long-term project.

Besides this, offshoring provides access to a more extensive and diverse talent pool, and it will be easier to scale up the team as your businesses grow.

Finally, there are differences in terms of communication and control. With outsourcing, businesses have little to no control over the process. Meanwhile, with offshoring, you’ll have full access to the management of the project.

Why Off-Shoring your IT is a starting point for a scalable business

Whether you are a small, medium-sized or large business – most of us aim to grow our businesses in a sustainable and profitable way. Let’s be honest, ideally keeping the costs of this as low as possible.

Off-shoring is the practice when companies delegate certain tasks of their day-to-day business to a third party vendor that specialises in this task. Minimising time and money on costly recruitment might just give you that space that you need to focus on growing your business and developing new products. All this while your software development and IT is being taken care of by pro’s.

In order to flourish, most businesses have to find ways to cut costs and save money for future investments. Labor costs are usually one of the highest costs, ranging between 40% and 80% of the total business revenue, depending on the size of the business. Especially in the field of technology, the demand for IT professionals is increasing and so are their salaries. The most common reason for outsourcing IT is to save this money and let the vendor take care of high labor costs, training, and not to forget the whole IT infrastructure. As a bonus, the tax system in the off-shoring location can be advantageous for you as well. The vendor takes care of skillful people, which might be more difficult to find normally. Through vendors, you have easier access to talent that can give your company what you need. With this, you also outsource the responsibility of finishing tasks and related risks.

If you are ready to focus on what really matters, then off-shoring might be something to consider. By working with a professional vendor and delegating the mundane tasks that you have been spending so much time on, you can start using your resources to grow the business. Your existing employees will get the opportunity to stop fixing bugs and focus on innovation. Let alone all the time you will have to acquire new customers.

How North-Macedonia is becoming Europe’s next offshoring hub

Once you’ve decided that you want to offshore your tech department to a specialized vendor abroad, you might ask yourself where you want your team to be. There are 7 reasons why North Macedonia is becoming a main location for offshoring software development:

• As a country in the Balkans, North Macedonia has the advantage of being geographically closer with no time difference to countries in the European Union (EU).
• Skopje, the capital of North Macedonia, is a vibrant, modern, and friendly place with a rich cultural and natural heritage.
• The tech and start-up communities making great efforts to create a promising tech and IT start-up climate in the capital city.
• The ICT sector in North Macedonia is the fastest growing industry. The continuous growth in the ICT market is supported by a decrease in the price of IT equipment, and a decrease in VAT for the equipment.
• North Macedonia has an excellent supply of well-educated and young IT experts, working for the lowest labor costs in the region.
• Additionally, these IT experts have a strong knowledge of foreign languages. English is taught from middle school in most Macedonian schools. On top of that, many Macedonians take extracurricular English classes to improve their skills and have more opportunities. Especially tech companies invest in language courses for their employees.
• That being said, the work habits are much more familiar to what Western companies are used to working with.
• Outsourcing in North Macedonia comes with the known offshoring advantages of lower labor costs and more efficiency, whilst minimizing the disadvantages of outsourcing far away.