- August 19, 2022
- Posted by: principlegroup
- Category: Uncategorized
The outsourcing industry has undergone a significant transformation. Even the reasons why businesses outsource have evolved in such a short period. But one thing remains the same, outsourcing—whether in the form of offshoring or onshoring—is still a viable staffing solution for businesses of all sizes.
To help ensure that you get the best out of the solution, we’ll take a look at offshoring and onshoring—what each outsourcing solution means, their advantages and disadvantages, and more considerations when deciding between the two.
Read on to gain valuable information and tips from an industry leader.
Offshoring and Onshoring: Which Outsourcing Structure Is Ideal for Your Business?
What Is Offshoring?
Offshoring or offshore outsourcing is when companies delegate all or a part of their operations to a BPO provider located overseas, typically a country far away from the organization’s location. U.S. businesses outsource various functions to offshore BPOs, including customer service, software development, back-office support, etc.
Many American companies have found success through offshoring. Even big players like Google, Facebook, and American Express owe a lot of their growth to offshore outsourcing.
Advantages of Offshoring
- Flexible and Scalable – One of the most significant benefits of offshoring is that it allows businesses to rapidly expand their workforce and workload capacity without increasing overhead costs. Offshore outsourcing enables companies to take on more work or downsize, depending on fluctuating consumer demand, without disrupting their core operations.
- Massive Talent Pool – As economies grow globally, talents today are not being won but transferred. This is why offshoring is a “real win-win for everybody” involved.
Unlike onshoring, which limits your hiring search to your own country, offshore outsourcing allows access to a larger global talent pool, whether for blue-collar work, back-office support roles, or more specialized functions like data science.
- Cost-Effective – The most significant advantage offshoring has over other outsourcing solutions is its most cost-effective option. For instance, U.S. companies that opt for outsourcing services in the Philippines save on labor and operating costs by up to 40 to 60%!
What Is Onshoring?
Also known as domestic outsourcing, onshoring is outsourcing all or a part of your company’s operations to a business process outsourcing (BPO) provider within your own country.
While onshoring still helps businesses curb expenses, the cost savings are not as significant as offshore outsourcing. Still, firms with the actual need to be located close to their outsourcing solutions provider, whether for legal, logistical, or any other reasons, can benefit from outsourcing onshore.
Advantages of Onshoring
- Ease of Communication – Shared language is one of the most significant advantages of onshoring. Due to language differences, communicating with offshore BPOs is more of a challenge and prone to possible misinterpretations.
- Cultural Similarities – Another benefit of nearshore outsourcing is that nearby countries are more likely to have cultural similarities than countries farther away. It may be easier for nearshore BPOs to understand their target market’s cultural nuances and preferences.
- Timezone Synchronization – Many U.S. businesses outsource functions onshore because they have the same or similar time zones. This advantage allows for easier collaboration and communication, especially for time-sensitive projects and tasks.
5 Factors To Consider When Choosing an Outsourcing Solution
Onshoring or offshoring—or even both—can be viable solutions for your company. Whatever is holding your business back, you can leverage outsourcing. The key is to identify which structure best suits your business’s needs and goals. Here are some key things to consider when weighing your options:
1. Legal and Regulatory Constraints
Some businesses and industries have actual needs to be located close to their outsourcing providers. Financial services or biopharma industries, for instance, are heavily regulated and require localized security measures. Some cities and states also require businesses to have local staff.
If your company is among these, offshoring may not be an option. You can outsource to another state or area that could allow you to scale rapidly while still reducing costs.
For instance, some of the security engineer positions in the Seattle market start at $300,000 to $400,000. The tough talent competition forces companies to increase salary offers even for entry-level positions, driving wage escalation in the area.
Instead of keeping up with the costly competition for talent within that market, you can tap into emerging tech markets in the south or the midwest. It’s a similar concept to offshoring but more localized.
2. Logistics
Logistical concerns are another significant factors to consider when choosing between onshoring or offshoring. Although today’s technology allows the remote delivery of all professional services, some businesses, particularly startups, may only be capable of sourcing services within their country or locality. If this applies to your business, onshoring may be the more viable staffing option.
3. Collaboration and Control
If your business requires heavy collaboration and communication between teams, onshoring may be more appropriate. The challenge with offshoring is scheduling meetings despite different time zones, making it more difficult to manage projects and ensure that every team member is on the same page.
Onshore outsourcing eliminates these challenges because the organization and BPO provider will be in similar time zones.
However, if your business model allows for a more hands-off approach, offshoring can be excellent for getting work done swiftly and efficiently. For instance, an e-commerce business may hire offshore providers to handle customer support, ensuring 24/7 coverage no matter the time zone.
4. Staffing Volume
If your business needs to scale up quickly, offshoring is the ideal route to take. Offshore outsourcing has long been utilized by large organizations, such as IBM, to solve volume hiring needs. But amid the ongoing pandemic and subsequent global talent shortage, more businesses of all sizes outsource offshore.
Offshoring expands the areas where you can source candidates, making it easier and faster to fill a high number of job openings. This is why many companies prefer to outsource to the Philippines.
5. Required Expertise
Outsourcing is no longer simply a means to cut costs. Nowadays, many businesses outsource primarily to gain access to specialized talent pools, especially in niche industries. Take Boeing, for example.
The multinational aerospace company outsources some engineering functions for the 787 Dreamliner to Japan and Germany. Boeing did not pick those countries to save on costs. These nations have some of the best engineers in the world.
So, if your business requires specific skill sets, your first step is to research where you can find an abundance of talents who can meet your requirements. Considering the limited number of people who possess niche skills, offshoring still has an advantage over onshoring.
Turn to The Principle Group for Offshoring or Onshoring Solutions
There is no right or wrong answer when choosing between different outsourcing solutions. The ideal structure depends on your company’s specific needs and goals. So, whether you’re leaning towards onshoring or offshoring, The Principle Group is here to guide you.
Trust us to help you capture your target markets with our highly trained and culturally adept team of professionals from around the globe. Contact us, and let’s talk about how our nearshoring and offshoring services can empower your business!