In today’s world there exists a dire shortage of tech talent, so IT businesses look for models that benefit companies – many by providing access to specialists overseas. The two major variants are outsourcing and offshoring and although they are quite different, people often use them interchangeably. Therefore, let’s dive deeper and see what each term means.
Outsourcing refers to the practice of transferring tasks to external vendors. Offshoring is about launching facilities abroad and employing local people. Let’s get an overview of the benefits and drawbacks of these models in more detail.
Once organized properly, this business model opens new opportunities; among its benefits, one can identify:
- Cost savings and expert knowledge for temporary projects. If you delegate some tasks to a vendor, they handle all operational aspects and do everything (i.e. you get the short-term assistance and support you need);
- Access to a wider talent pool. For some tasks, hiring a full-time worker may be too expensive. In such a case, outsourcing providers can contribute the necessary talent and knowledge at fairly reasonable rates;
- Focusing on central business tasks. Companies usually outsource non-critical activities and routine tasks that can be performed without much guidance. This allows your in-house team to concentrate on more essential tasks.
However, outsourcing comes together with some risks and drawbacks.
- Lower quality. The golden rule is “You get what you pay for”, meaning cheaper may equate to lower quality. It may also imply that in the end, you will pay the same due to hidden fees and numerous corrections;
- Missing corporate culture and loyalty of software developers. Software developers working on your project are employed by the vendor; thus they are often less engaged and motivated by your project than you would hope;
- Confidentiality issues. If you work with a third-party and transfer information, there is always a risk that some data may leak out, which could cause tougher competition.
Offshoring also has both benefits and drawbacks, as seen below.
Below are several ways by which companies benefit from engaging foreign employees.
- Decreased costs. Outsourcing is mostly beneficial over the short term, yet due to lower rates, cheaper power, office facilities, or living costs, offshoring offers more cost-saving opportunities for the long run;
- Tax advantages. It is often the case that offshore destinations offer better tax conditions and various incentives for businesses — another reason why a company might embrace offshoring;
- Time differences. IT companies often need round-the-clock support; therefore, offshoring tasks to one or even to a few destinations in various time zones can come in handy.
However, as with anything else, offshoring has two sides. Find some of its drawbacks below.
- Cultural and social barriers. Offshoring is always accompanied by differing cultural and social norms. While some norms may be universal, sometimes gestures or behaviors can be viewed opposingly;
- Language barrier. Although people in offshore destinations usually speak some English, at too low a level this can become an immense problem. The inability to clearly understand each other can result in less efficient work;
- Security risks. As with outsourcing, you risk facing data leakage when transferring information. There may also arise some security risks associated with a foreign location, like local IP laws or political conflicts.
You can also move offshore and hire software developers there with a “unique” business model developed for product companies by the Alcor Group of experts in Ukraine. It provides access to the largest pool of technical experts in Eastern Europe. As well, one should mention that it allows integrating local engineers into your “corporate culture” to follow your business processes in your own company office.
Outsourcing and offshoring often salvage businesses yet they can also create a disservice. Therefore, if you keep an eye on the processes and results when engaging external assistance, both business models can perform well.
The key thing is that when choosing, thoroughly consider all arguments: both for and against. First and foremost, pay attention to the needs and goals of your business, as only after going through them will you be able to make an informed decision.