Outsourcing vs offshoring: what does your business actually need?

As uncertain tides continue to rock organisations’ revenues, offshoring has resurfaced as a viable cost optimisation strategy. The previously simple value proposition – hire equivalent talent elsewhere for cheaper - is now far more complex, not least due to the advent of skills-based hiring. Talent now thrives in regions previously deemed unsuitable, and first movers could attain upsides beyond a reduced bottom line.

However, these selling points ring true for its older cousin, outsourcing. Both offshoring and outsourcing can bring very different outcomes to your business goals, and selecting the right one can make or break your near- to medium-term growth objectives. Here, we explain these two prevalent terms, how they differ, and which one to choose when deciding on a relevant recruitment strategy for your organisation.

What is outsourcing? 

Outsourcing is the process of paying to have part of a company's work done by another company. Transferring tasks to an external third-party provider is prevalent for support functions, like IT services or customer support.

While outsourcing can bring about quick, affordable support solutions at scale that allows greater focus on core business functions, these come with trade-offs including a lesser degree of control over said functions, and risks around quality assurance and security that require a firm implementation process to mitigate.

What is offshoring? 

In a similar vein, offshoring is defined as the practice of a company having work done in another country – for example, instead of having your call centre based in another town in your home country, you could have the service delivered from the Philippines.

Offshoring has become a more viable option in recent years as it provides access to a far larger global talent pool with 24/7 capabilities, all with potential reductions in labour costs. Of course, these also come with potential pitfalls – time zone differences could impede coordination and control, while legal and quality compliance issues may cause further setbacks in operations.

What is the difference between outsourcing and offshoring?

Based off these definitions, one is technically a subset of the other. For example, a move to outsource your recruitment process can be done locally or internationally, and going the overseas route would make it an offshoring process. Within these definitions also lie several key differences:

Ownership and Control: the sustainment of an outsourced function often sits outside company walls, with the external third-party provider running the day-to-day. For offshoring, both inhouse and third-party solutions are available - some organisations opt to bring management inhouse by building a specialised team based in the offshored location.

Talent Pool & Expertise: offshoring gives organisations access to the world’s talent pools. This may not always be a good thing – certain specialised skillsets need local nuance and context to be fully effective, and a local outsourced solution may be your best bet in that regard.

Scalability & Speed: outsourcing can be faster to implement than setting up an offshore facility. However, this difference could potentially be bridged with a partner with existing offshored expertise in other regions.

Outsourcing vs offshoring: which one is better for my business?

When done right, both offshoring and outsourcing can bring about access to untapped talent pools and unique skill offerings, at potentially cut-price rates. But some variables need to be defined before an educated choice can be made – we touch on some of these below.

1. Are you familiar with offshore hiring regulations?
   
   Do you remember the last time you applied for a travel visa? Imagine the bureaucracy multiplied a hundredfold, potentially in a completely different language, and you get the average foray into establishing a business presence in a foreign land.
   
   Every territory brings its own set of rules which all corporations must abide by – think data protection laws, employment regulations, or other industry-specific restrictions. Getting compliant in a new locality can slow down deployment speed or drive up costs, and poor maintenance of post-setup operations could leave you saddled with a substandard offshored solution that brings about more pain than promise.
   
   
2. How confident are you with the offshoring or outsourcing setup?
   
   It is no secret that moving capabilities overseas is a challenge to establish, having to integrate the incumbent culture with the newly created functions’ staff members. Building this up involves cross-functional support, and knowledge transfer that flows to all relevant stakeholders – things that any offshoring or outsourcing partner should account for in any proposed plans.
   
   Nina Hendriks, Senior Manager Implementation APAC, discusses what to seek within such a plan: “During service delivery, typical risks and issues such as scope creep, limited resource availability, and stakeholder resistance to change can cause project delays. A well-defined implementation scope during the planning phase and ensure that everyone is onboard. Additionally, having a strong change management plan in place can facilitate service adoption from all parties involved.”
   
   Building this up involves cross-functional support, and knowledge transfer that flows both ways. Besides extensive training to firmly entrench offshored teams as reliable advocates of the brand, hiring manager sessions focused on bilateral collaboration must also be prioritised. 
   
   
3. How would the offshoring or outsourcing solution be deployed and integrated with your overall hiring strategy?
   
   Aside from cultural integration, process integration is also key to a successful outsourced recruitment strategy. Offshoring from a territory unfamiliar with your country or industry’s hiring processes or standards could lead to a mismatch in hire quality and delivery time.
   
   Nina weighs in on the questions you should be asking potential partners: “As integral extensions of the in-house HR department, their proficiency with your HR and recruiting tools, like Applicant Tracking Systems (ATS), are key to optimise operations.  It is also advisable for clients to request concise reporting systems, enabling both parties to effectively track agreed-upon outcomes.” 

The role of RPO (Recruitment Process Outsourcing) in outsourcing and offshoring

With so many variables to consider, it can be a challenge determining whether offshoring or outsourcing makes more sense for your organisation. Having an expert on hand here may be the perfect solution – powered by recruitment analytics derived from an in-depth knowledge of talent analytics, a good RPO provider can weigh the options on your behalf before proposing the best balance of both solutions.

After an educated decision is made, more benefits of an RPO begin to kick in – a trusted RPO provider can then give you access to the best of both worlds, allowing your organisation to attract the best talent with reduced cost-per-hire and agency spend, while conveniently meeting compliance and regulatory requirements that surround an offshored talent strategy.

Incorporating SOW spend into your contingent workforce programmes enhances cost management, boosts compliance, increases agility, mitigates risks, and supports informed decision-making.

Outsourcing and offshoring: future trends and industry insights

We’ve covered at length the pros and cons of outsourcing and offshoring. If you’re thinking about how to marry the best parts of both, you’re on the right track – many organisations rely on a customised mix of both.

While making your decision about which aspects to offshore or outsource, do keep in mind the talent trends that shape your current hiring landscape – the state of remote or hybrid working in your prospective offshoring location, their degree of digital readiness, or the potential of AI and automation enhancing the potential of said talent.

Conclusion: which model is right for your business?

Every outsourcing or offshoring project brings unique challenges, defined by variables including your talent needs, the regions you intend to offshore to, and the extent of oversight your organisation wishes to establish over these newly externalised functions. Regardless of your geography of choice, your choice of RPO solution needs to not only understand and cater to your specific needs, but also be frank about the cultural challenges and limitations involved in balancing them. With a complete frame of relevant information, you’ll be best placed to make an offshoring decision that truly benefits your overarching talent acquisition strategy.

Robert Walters has curated, cultivated, and entrenched high-performance offshored presence for clients since the inception of its Outsourcing arm in 1997. Want to learn more about how our experiences can help your business growth? Talk to us about your unique talent challenges today.

Alternatively, read more about how we’ve applied our offshoring expertise to our latest partnership, helping our client establish a 150-strong specialist offshored solution in the Philippines within 5 months.