Offshoring vs Outsourcing

Offshoring and outsourcing are two basically different, yet interrelated concepts that are currently very often interchanged by common users and even people who deal with these practices, especially when it comes to software development services. However originally there is a significant difference between these two notions, even though they сan still be used together to define a certain type of business involving cooperations with other companies or other countries. Let’s try to determine and understand the difference in order to clearly imagine what offshoring vs outsourcing really is and to avoid further misunderstandings.

First of all, before coming to definitions themselves, let’s determine why a company would decide to appeal to the idea of using the services of an external provider. The main reason is obvious and largely discussed, and that is cost saving. However, this is not the only reason, and sometimes even not the main point defining the decision of a company. Each enterprise, big or small, sometimes comes to a point in its activities where it should define whether it would be more reasonable to produce a certain product internally, or to order its production elsewhere, and here is where offshoring and outsourcing become needed. It’s not only a matter of saving money, it’s a matter of work efficiency – quite often the company does not possess the resources required to produce a particular product or to provide certain services, for example, software development services or judicial consultation – whatever, and hiring new staff, or acquiring new knowledge, or purchasing new technologies are not the items in the list of the nearest plans. When the company does not possess the necessary resources, the decision to seek them elsewhere comes naturally. It’s more difficult to determine whether it’s reasonable from the point of view of security, economy and efficiency to turn to someone else when the company does possess the basic resources needed for the implementation of a particular idea. The trivial common sense prompts that it’s sensible to leave the basic functions and the core projects for the home developers to tackle in order not to lose valuable knowledge and to have the chance to closely monitor and manage the development, while less important or side functions can be easily transfered to other developers through offshoring or outsourcing in order to reduce the costs and to optimize the work of home developers.

Here we come to the definitions.

Outsourcing is the name for a practice where a certain company “hires” another company to do a part of its work. Outsourcing does not necessarily imply turning to a company abroad, the third party company which undertakes to do the part of the job required by the customer might as well be situated in the same country, however it can also be found in another coutry in which case the work will be offshored. In-sourcing could be the opposite concept to outsourcing, implying performing the same part of the work within the same company.

Offshoring, unlike outsourcing , is the name for a practice where a certain company moves the production or a particular function outside of its country in order to reduce the costs of the production or of performing the function. Again, interrelated with outsourcing, offshoring can be transfered to another company thus becoming outsourced, or stay within the same company in the form of opening a branch or an affiliate or a provider.

Let’s try to see how offshoring and outsourcing work in practice.
For example, take a bank with the main office in the USA. The bank has a developed and complex computer network as well as information infrastructure which needs to be maintained by professional IT specialists. This can be done remotely, and therefore the bank contacts the specialists from a reputable IT firm offering outsourcing IT services either in the States or abroad, who will undertake to perform the mentioned funtion. This is outsourcing.

In case the same bank opens a subsidiary in another country, say, in Russia, to perform it’s work, which is banking, or the mentioned IT firm engages the staff in another country to perform the ordered function at a lower cost, that will be offshoring. In the example with the IT company which later used the personnel from a third country both offshoring and outsourcing take place.

We hope that this article helped you understand the difference between offshoring and outsourcing and welcome you to contact Millennium Rise for a number of software development services our company provides on the basis of outsourcing.