Outsourcing is very profitable for a business, but certain risks and difficulties may arise with using this service. Besides, the digitalization pressure on companies in all industries has increased tremendously in recent years, and at the same time, the demands on modern software systems have also increased.
In this article, we will talk about the benefits of outsourcing, compare nearshore vs offshore outsourcing, and more.
What Is Outsourcing?
Outsourcing is a method of doing business in which certain services or tasks are performed by a third party. In the field of information technology, outsourcing can be used in the widest range of meanings, from the management of an entire IT infrastructure to individual services, for example, network services, system recovery, computer maintenance, and software development.
Companies can choose IT services within the country of their operation (onshore outsourcing), use the services of companies located in neighboring countries or states that are in the same time zone, or even do business from more distant countries. To reduce costs, the latter two options are usually used.
So why do companies use outsourcing? The specifics of services depend on a particular company, but the following factors are usually attributed to the benefits of outsourcing:
- Reduced costs;
- Improved efficiency of the company;
- Flexibility due to the possibility of using various outsourcing services;
- Increased attention to the strategy of the company and its main features;
- By using outsourced services, the company gains access to more modern services and professional workforce;
- Compliance with changing business conditions;
- Faster entry of the company to the market;
- Reduced costs of internal infrastructure;
- Enhanced access to technological innovation and intellectual property;
- Increased possibility of cash flow by transferring company assets to a third-party provider.
Nearshore vs Offshore Outsourcing
Offshore outsourcing is a smart way of hiring outsourced skilled workers for a short or long-term project. The contract employees come from other countries. Business owners can save a lot on offshore IT outsourcing companies compared to hiring an in-house team.
In turn, nearshore outsourcing is similar to offshoring, with one difference. Software development and other areas of the business are outsourced to a location no more than an hour or two away.
Nearshoring outsourcing provides a better exchange of information compared to offshoring. Usually, greater cultural affinity also facilitates communication between the client and the service provider.
Nevertheless, offshoring is still popular among many companies. And in the past few years, it has become a development factor for economically insolvent countries, as it increases infrastructure development and gross domestic product, and lowers the unemployment rates.
Outsourcing vs Offshoring
Outsourcing is an agreement whereby a business process is outsourced to third-party contractors. It can be performed for specific manufacturing operations, administrative activities, worker training, and more. Most often, outsourcing is carried out to reduce costs.
Offshoring refers to the process of carrying out a business process in some other country. This can occur in the context of offshoring production or services. The obvious question is, why would a company want to do business overseas? The answer to this question is that the benefits are similar to outsourcing. Especially the advantage of lower costs.
Companies are primarily looking at profit-making scenarios, and a suitable offshore solution can have several benefits for the company in addition to making a profit - for example, being on the international market.
Pros and Cons of Outsourcing
Some consider outsourcing necessary to keep the company afloat and extremely cost-effective for doing business. It's true: one of the benefits of outsourcing software development is that a lot of money can be saved with this method. Especially in the case of production situations that allow the manufacturing of goods at lower prices due to less stringent regulations and taxes in some countries. At the same time, this process allows you to benefit from a lower ability to waive benefits that are necessary for a domestic production environment and labor costs.
There are also advantages to using it for other functions. For example, customer support and service can be easily provided with the help of specialists located in another country. IT outsourcing is also an opportunity to enable businesses to leverage information technology knowledge at a lower cost. Other important tasks in a business operation can also be outsourced and accessed remotely, saving the company a lot of money.
However, there are some disadvantages. This is especially important when language or cultural barriers make communication difficult. For example, clients who seek support and service through the customer service line and cannot understand the responses from the support staff are likely to become dissatisfied and stop doing business with the company. Concerns about the impact of this type of outsourcing on a country's ability to efficiently produce its goods domestically have also led to backlash in some industries.
While the concepts of outsourcing and offshoring can coexist in the same company, they differ from each other. But both are usually done to save money.
Before choosing one or both, we recommend consulting specialists who will explain in detail the specifics of supply management, the intricacies of taxation in your country and offshore zones, and help you calculate profits for various business strategies.
If you have any questions or are looking for an offshore outsourcing software development company, contact us at any time. Our development company will gladly help you with outsourcing business processes.