Offshoring vs. Outsourcing

Offshoring and outsourcing are two significant terms that seem hard to understand globally. All because they work hand in hand yet have a different approach. Offshoring revolves around doing business transactions across the world. It is all about moving the business or getting services for the business from another country. Among the benefits of offshoring to a company include the following.

Reduced cost

If the operational expenses of the business remained constant, there would be no reason at all for a company to enter into offshoring activities. The unit of cost to reduce could be the daily rate of an application tester, the total cost of supporting a global application, the cost of delivering a turn-key new application or cost reduction for the whole of the global IT department. Cost reduction is among the top benefits of offshoring. The most obvious cost reduction will be in the arbitrage of staff costs between countries, that is to say, that staff will be cheaper in the offshore location. The use of best practices, process-driven methods and technological strengths have also led to cost reductions compared to the IT department onshore.

Of course, your target may not be in simply reducing costs; this could be an oversimplification. You may be looking to make use of the lower offshore costs to deliver more IT services for the same money. In which case you are not aiming for a simple cost reduction.

Process standardization

Conducting the analysis to consolidate activities offshore will highlight the differences that exist between the way work is conducted in different offices, in different countries or between different business lines within the same global corporation. Therefore consolidating these activities in one offshore centre becomes the catalyst to standardize the processes and tools being used.

This standardization could lead to cost reduction, operational risk reduction and reduced time to add new activities.

Transfer of risk

An IT department can use managed services to transfer delivery risk or operational risk to a 3rd party organization.

Access to skilled IT resources

Once cost reduction has been established in principle, it is common for organizations to have as their second offshoring goal to gain access to resources (the people who will do the IT work). 

In the context of IT, we regularly read in the press that there is an IT skills shortage. IT work simply can’t go ahead if an organization can’t find enough people with the right skills. So the principle of cost-saving is often not enough; an organization wants to know that offshoring will also give access to the IT skills that match the current and future skills profiles. Many offshore locations have huge numbers of experienced IT resources.

Access to resources in another time zone

Your local application support staff may not cover all the time zones necessary for your users today. One solution would be to use staff in an offshore location to close the support gap. This could be achieved either because their normal working hours overlap with the required time zone or you ask them to work in shifts.

Similarly, you may want to execute application tests during the night time in order for developers to be ready to fix any identified bugs when they come in the morning. This could be achieved by making use of offshore staff whose daytime overlaps with your night time.

Follow the client

Global service providers often have long term partnerships with their global clients. When the client expands its activities into a new part of the world, then the service provider may set up a new office in that part of the world with the specific intention of ensuring that their client is well supported in their new endeavour.

Therefore when the client decides to offshore its activities, the global service provider may well follow them and create a new office in the offshore location from which it can provide the necessary services. This is most likely to be part of an agreed strategy with the client and not just an opportunistic move.

Access to better processes, methodologies and best practices

An organization may know that its IT department doesn’t have the skills needed to deliver something new or to do something differently. 

To engage the people in those organizations that already know how to use these tools and for them to deliver your new services.

Staff ramp-up and ramp-down

Perhaps your organization can see ahead of them a year of increased IT staffing needs, but once that period is over, then there will be no requirement for keeping these staff. You could locate these additional staff offshore. They could be supplied as part of an engagement with an outsourcing vendor or maybe within your own Captive Centre.

In the past, the requirement to quickly increase staff numbers and then to reduce staff numbers was achieved through engaging contractors or consultants in your existing offices. With the offshoring of activities being more accessible than before, these staffing requirements could be met completely with offshore resources, thus avoiding any pressure on seating in your existing premises.

Outsourcing, on the other hand, involves delegating duties or work to a professional 3rd party within an establishment. The aim of doing this is to raise the standards of the establishment and to bring out the best results to make a company grow bigger and better.

Author: Brandon Park