Onshore vs. offshore outsourcing–the debate has been on for ages, but many still struggle to tell the difference. Are these mere buzzwords? We’re here to help you find out and understand the meaning, advantages and disadvantages of both.
Imagine this. You run a handloom garment business in the US. You are looking for artisans to weave intricate patterns and designs into the textile. Unfortunately, costs in the US are very high and there are very few skilled weavers. A friend suggests outsourcing work to artisans in India as labor costs are low, and the talent pool is also diverse—this is called ‘offshore outsourcing’.
Business picks up and you expand into natural skincare products: body butters, handmade soaps, makeup removal balms and so on. It’s best to produce these from locally sourced ingredients so you contact an organic farming contractor. They procure the ingredients locally, empowering the community and providing employment—this is an example of ‘onshore outsourcing’.
Pros and Cons of Onshore Vs. Offshore Outsourcing
Now that we’ve demystified onshoring and offshoring, let’s look at some of the pros and cons of each.
Offshore Outsourcing Advantages
Offshoring brings you closer to global consumers. It also provides employment opportunities to people in developing countries; you benefit from low labor costs.
In fact, well-known corporates run offshore businesses to cast a wider net. Some examples are Google, Facebook, Unilever and Nestlé
Special exemptions usually include local government sanctioned tax relief, especially in Southeast Asian countries such as the Philippines—it helps pull in foreign investment and boost the economy.
Offshoring service providers offer cost-effective services. The outsourced workforce is always on standby, so you don’t have to worry about fixed costs like hiring, training and retention.
Offshore Outsourcing Disadvantages
Disrupting Local Economies
Global outreach is a double-edged sword—it can disrupt local economies as people give more importance to multinationals brands and their services and products.
According to a report by Afrik 21, the penetration of agro-industrial multinationals has disrupted the biodiversity in several African countries.
However, as times are advancing, corporates are mindful of creating sustainable opportunities for local stakeholders.
Other than time-zone differences, you may also experience a cultural and language barrier while working with an offshore company. No doubt that offshoring lets you access a diverse workforce, but such barriers might be a setback with regards to your organizational goals.
Most providers acknowledge this issue and allocate big budgets to train their staff and mitigate gaps.
Onshore Outsourcing Advantages
It is easier to collaborate with an onshore outsourcing team as the workforce operates in the same time zone as you; there are no language or culture barriers. Onshoring companies require fewer iterations to deliver quality outcomes—queries and information are relayed faster.
Operating in the country of origin implies that you and onshore service providers are bound by similar intellectual property compliances—it means less work for you with regards to safeguarding information.
The provider must follow the regulatory compliances set by the state and federal government and assume full responsibility for protecting your data.
Onshore Outsourcing Disadvantages
Less Global Outreach
Unless your company has an extensive consumer base outside the country of origin, onshore outsourcing may limit your outreach.
Your access to a diverse talent pool will also be limited.
Onshoring companies aren’t the most cost-effective option when it comes to outsourcing—services include the costs of sourcing, hiring, training and onboarding talent.
Add to it the overhead costs of production floor setup and expansion. Onshore and offshore providers offer the same services; however, the latter is more reasonable.
That being said, we have laid out the advantages and disadvantages of onshore vs. offshore outsourcing to help you make an informed choice. Hopefully, you will now be able to make an informed choice for your business.
At HelioNext, we provide outsourcing services to healthcare professionals and mortgage lenders. Our comprehensive suite of back office support services and process automation solutions are designed to streamline your daily business functions—achieve scale, improve customer experience, increase cash flow and expand your business. Get in touch!