Outsourcing Vs. Offshoring: Which Software Development Model does your Business Require?

Offshoring and outsourcing have become overused buzzwords that are frequently misapplied. Outsourcing and offshore software development both aim to improve business processes and operations. Both concepts prove to be beneficial in a variety of ways, including increased productivity, lower costs for solutions, more qualified specialists, and access to advanced technological outcomes.

Whether it’s software or payroll processing, a company is more likely to outsource non-core competencies or seek the services of a professional offshore development company. Organizations will save money by not having to invest in developing them internally.

Outsourcing is now an essential component of any organization’s growth strategy. Experts predict an 8.5% CAGR from 2021 to 2028. The market value of this engagement model is expected to reach $435.89 billion by 2028.

The following blog, as the title suggests, focuses on the key differences between the two, namely offshore vs outsourcing. So, let’s figure out which model will work best for your company.

Key Differentiating Factors of Outsourcing and Offshoring Software Development

Despite their popularity, business owners still struggle to define and distinguish these two business practices from other engagement models. As a result, the terms outsourcing and offshoring are frequently used interchangeably.

So, what exactly is the distinction between outsourcing and offshoring? Today, we’ll take a closer look at these two so you can make an informed decision for your next project.

1. Resources

Outsourcing Model: Every company has a plethora of business functions, many of which are non-core activities that provide no distinct advantage over competitors. Outsourcing to a third party allows you to concentrate entirely on your core competencies and achieve short-term objectives. The outsourcing model also addresses the company’s lack of specialized expertise and solves the problem of high in-house employee costs.

Offshoring Model: One significant advantage of moving a business offshore is access to a vast pool of talent. In developed countries, there is enormous pressure to find and hire people with the right skill set, particularly in software development and production.

2. Cost-effectiveness

Outsourcing Model: Outsourcing is a business model that typically has low costs and thus significant savings. The cost of maintaining infrastructure and administration, for example, is almost entirely eliminated, making it a very cost-effective approach. According to a Deloitte study, outsourcing functions to a third party reduces total costs by nearly 45%.

Offshoring Model: Cost-cutting is undoubtedly the most important factor driving companies to consider offshoring. Offshore teams in countries such as India are extremely talented and enthusiastic about their work. Offshoring allows companies to access this exceptional talent without incurring the same high costs as in the West due to the lower cost of living.

3. Flexibility

Outsourcing Model: Outsourcing can be managed in increments of a few hours or days; it only works when you need it. This level of adaptability is especially important for businesses with sporadic work.

Offshoring Model: Assume that a company establishes an offshore finance team. That team is on a permanent basis, so even if there is no real work to be done, you are still paying them to just sit around.

4. Ownership

Outsourcing Model: When a company outsources work to an outside team, it inevitably loses some, if not complete, control over how the work is completed.

Offshoring Model: The company retains complete control over its core business in the offshore business model. They are solely responsible for recruiting a stellar offshore team, as well as directing and training them.

5. Communication

Outsourcing model: Outsourcing is usually better for tasks that are well-defined and can be completed without requiring too much interaction from your team or company.

Offshoring model: Offshoring is better suited when the tasks require more communication and collaboration.

6. Cultural Specifics

Outsourcing model: Because cultural differences are such an important part of communication, tech companies pay close attention to them. While outsourcing occurs in your country, you should not experience significant cultural differences.

Offshoring model: Because not every startup is prepared to deal with extreme differences in time zones or work ethics, this point may have an impact on your company’s productivity. When you outsource to a different culture, your values may clash.

Outsourcing vs Offshoring: The Takeaway

Finding the right balance between distributing a company’s core and non-core competencies is not always easy. Both outsourcing and offshoring have advantages and disadvantages.

High-quality outsourcing is usually the best option for short-term projects that don’t last more than a couple of months.

Offshoring, on the other hand, is the way to go if you’re a company looking to improve your operations by partnering with a competent software development company team, hand-picked from a deep pool of talent – while still maintaining complete control of the process.

Outsourcing Vs. Offshoring: Which Software Development Model does your Business Require? was last updated January 31st, 2023 by Jagdish Chandra Bhatt