Believe it or not – the first application of outsourcing, which was not called like that at the time, is considered a business move from the 14th century. Traders from all over Europe hired warehouses for their goods in Venice. The term outsourcing has appeared in the late 1990s, mainly as a result of the high growth of IT companies. More and more companies have begun to deal with this particular branch of business.
Management guru Tom Peters once said: “Do what you do best and outsource the rest”. Every company should do what it is best at, and everything else should be delegated to companies specializing in these businesses.
The whole point of IT outsourcing is to get the best possible technology and service at the lowest possible cost. Small to medium-sized businesses will need the help of outsourcing providers to push their margins higher and broader.
Outsourcing may be the answer if your company:
- Needs temporary help
- Can’t afford to hire skilled IT staff on full time
- Doesn’t have money to hire developers in your country, or
- Would benefit from the latest technology but doesn’t have the expertise to deploy it, etc.
Cost reduction is overwhelmingly the most compelling reason that companies choose to relocate jobs overseas. More than 60% of the total outsourcing market is composed of IT workers, according to Credit Donkey. It is a strategy by which an organization contracts out major functions to specialized and efficient service providers, who ultimately become valued business partners.
If you are planning to outsource, it’s crucial to understand each term and the implications of choosing between them. We wrote about advantages and disadvantages in outsourcing industry so you can find more info there.
Outsourcing means passing some part of the work or even complete project to the external third party organization, while offshoring is just outsourcing but to a remote country. So, offshoring is a kind of outsourcing with the notion of the distance between the client and the contractor organization.
Onshoring – outsourcing of some of the business process to the contractor located in the same country as the client. Companies outsource their processes in the same state they are operating.
Nearshoring – it is outsourcing to a neighboring country or not to a very distant location or within the same region with the time difference not more than two hours. For example, when organization located in England passes some work to the third party contractor located in France it’s a nearshore outsourcing.
Offshoring – it’s and outsourcing to the very distant location with the significant difference in time and all the related pros and cons of such choice like lower price and culture difference. A very standard example is an outsourcing from US to India.
Onshoring refers to the relocation of business processes to a lower-cost location inside national borders. Nearshoring refers to a company subcontracting a part of its work to an external company located across national borders within its region. It includes the neighboring countries that are often bound by similar financial and legal constraints that provide social and economic stability within a region. Offshoring refers to outsourcing which is done across national borders (preferably to a distant location). The term refers to the relocation of business processes in another country, typically to a cheaper location. It includes both setting up a subsidiary abroad and the offshore outsourcing activities of a company.
Activities which can be precisely specified can be offshored effectively. This is why software coding is often done in an offshore location. On the other side, activities that require direct customer interaction, deep domain knowledge, or deep cultural knowledge should be onshored. Finally, activities can be nearshored, when there are little cultural differences but have the privilege to lower the cost of the work done. So, all three options are prospective depending on the nature of the project. The most important part is to choose the right option for your needs.
After you have made the decision to outsource some of your business processes, the next step is to ensure you find the right outsourcing partner, who will look after your interests for you and thus guarantee your success in the future. Choose a provider that can provide concrete case studies and real client references. Check those references, and don’t be afraid to ask the “hard questions.” Subcontracting with an outsourcing partner should be the start of a long, productive business relationship. Don’t shoot the relationship in the foot by picking the wrong team. Treat the selection process with the care and respect it deserves.
The RIGHT SHORING means making decisions that are based on quantifiable criteria, omitting any subjective or political bias from the process. Making the right decision about the location for your outsourcing manufacturer could generate significant financial gains for your company. But on the other side, get it wrong and you could be exposing your business to significant risk.