What is the difference between outsourcing and offshoring?

What is the difference between outsourcing and offshoring?

When it comes to our modern, digitally-enabled world, breaking down borders when it comes to manufacturing goods and products are no longer bound to just our own areas of operation. Even industrial designers can work remotely to provide designs for clients across the globe!

Of the typical business models available, many businesses are tapping into opportunities such as outsourcing and offshoring that provide cost-effective solutions for their businesses and, where relevant, allow them to get a foot in the door of the countries or areas where they have chosen their remote team partners.

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But, what exactly is the difference between outsourcing and offshoring? Although these two concepts are often used interchangeably, they do have significant differences that need to be considered – especially when it comes to business decisions, budgets and timelines.

In today’s blog, we will be taking a closer look at what both business considerations entail, how entrusting services via both ways can benefit a business, and which companies typically use the different service models.

First up, let’s take a look at outsourcing.

What exactly is outsourcing?

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There is no denying that outsourcing has firm support across the world – in fact, the global market for outsourcing was worth an estimated $85.6 billion in 2018!

Outsourcing is an incredible cost-saving venture for many companies. The reason for this is that high overhead costs are reduced and because there is no need to hired additional talent in-house there is a big cost saving there too.

Described simply, outsourcing happens when a company hires a third-party contractor to complete a specific job or project for them, within an agreed-upon timeline and contract in place that details expectations and the scope of the project.

A big benefit of outsourcing is that, despite the big cost saving that a business can benefit from, quality will still be retained thanks to skilled talent that are familiar with specific tasks and understand the finer details of the task at hand.

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Typically, companies can choose to outsource a variety of project tasks, including manufacturing, shipping and logistics, and even industrial design for when they need an effective solution for creating product prototypes through rapid prototyping and getting final designs ready for production.

Outsourcing can be performed either inland or by a foreign country partner, but it isn’t necessarily a process that is limited to overseas partners. Another business consideration that is closely aligned with outsourcing, is that of nearshoring, where a service provider can be inland or in the proximity of a business’s area of operation, which makes it easier to bridge communication and time zone gaps.

Now, let’s take a close look at offshoring.

Understanding the benefits of offshoring

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Where nearshoring and outsourcing are usually in the proximity of a business, offshoring can be done across the globe. This means that production and manufacturing can happen in any country via a chosen, skilled partner.

Although some might consider offshoring to be an exercise that takes away local jobs opportunities, the fact is that partnering with an overseas partner can benefit both economies. Offshoring also comes with a high level of control over the full scope of a project, which means results are more than likely to be favourable and will allow a business to stay up to date with market demand as they can be more agile and easier bring products and services to market.

Typically, offshoring can include physical products as well as technical capabilities, and thanks to technology, it can be easy for teams to keep in touch through the various stages of project development and final phases.

So, which should you choose when it comes to outsourcing versus offshoring?

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Both outsourcing and offshoring come with cost-saving incentives for businesses, and depending on the projects that you have in mind, your process can significantly improve your bottom line.

Outsourcing is usually a perfect consideration for short-term projects, such as marketing or industrial design where a single product design is required instead of a sequence of products. It is important that your agreement between yourself and your vendor clearly stipulates expectations and when all tasks need to be fulfilled.

Outsourcing is also a good consideration when you need specialised skills and providers that quickly get on task. It is usually very cost-effective and outsourced partners, more often than not, provide that flexibility to easily adapt to change.

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Offshoring, on the other hand, might involve needing to train employees for certain tasks, but overall, it is a great consideration when you need a solution for exceptional productivity and turnover. Also providing a low-cost solution and skilled partners, offshoring gives you access to a global talent pool – which is a fantastic consideration when you think about specialist areas such as digital services that often call for being on top of the latest technologies and the best practices.

Ultimately, two of the big drivers of choosing between outsourcing and offshoring are preferences for location as well as proximity. If you are comfortable working with a partner or service provider that is not located in the proximity of your business, offshoring would not be a problem. However, if you feel that proximity would give you better control, outsourcing would then be ideal.

Both outsourcing and offshoring have been used with great success by some of the biggest companies in the world, so, investigate your options. Both can make your next project successful when you choose the right provider to partner with!

If you are a potential client and you are ready to experience an exceptional journey of design for your next project with amazing results, contact us today. We would love to hear from you and to provide the personal touch that we have become known and respected for as one of Melbourne’s leading industrial design teams!