Outsourcing, Offshoring and Onshoring. What’s the difference?

Amid such uncertainty, an increasing number of businesses will turn to the power of outsourcing to reduce costs while increasing efficiencies. For several decades, countless companies have enjoyed the benefits of assigning tasks to third-party providers and that number will continue to rise in 2023, with Deloitte predicting global spending on outsourcing will reach $731 billion¹.

While many businesses are already huge advocates for outsourcing (92% of G2000 companies use IT outsourcing alone²), there are still many wanting to learn more about the inherent benefits. This includes the difference between onshoring and offshoring, not to mention what various outsourcing destinations bring to the table. If this is the information you’re searching for, you’ve come to the right place.

Outsourcing vs Onshoring vs Offshoring

Outsourcing is not a case of one size fits all. What might be perfect for one company may not work for another and that starts with the location of one’s provider.

Onshoring is basically outsourcing tasks to an individual or team based in the same country and is popular with businesses that do not want to deal with cultural differences, time zone challenges or foreign tax or compliance. On the downside, partnering with a local provider means missing out on the significant labour cost savings that come from looking beyond one’s own shores.

Offshoring sees companies outsource their tasks and processes to foreign countries that have large talent pools and where a lower cost of living can reduce labour expenses by up to 70%. If those benefits are not enough, many businesses relish the chance to keep their operations working around the clock by offshoring to a nation in a different time zone.

What are the best countries for outsourcing?

This is a very subjective question, with different businesses drawn to different countries for different reasons. That said, there are several nations that are renowned for delivering outsourcing excellence.

• China is an outsourcing giant. On the back of companies such as Apple, Amazon and Pfizer, the US outsources to China more than any other country and the nation’s outsourcing market is growing by 30% each year³. It is especially strong in the field of software development but language barriers can be an issue, with only 10 million of China’s 1.3 billion residents speaking English⁴.
• The Philippines consistently appears at the top of outsourcing destination rankings and for good reason. It has a huge proportion of English speakers, a commercially attractive currency and significant government investment in the outsourcing industry; while many western companies appreciate that, as a former US colony, its workers are a great cultural fit. Little wonder the highly respected Tholons Globalization Index has ranked the capital Manila as the second-best city for outsourcing in the world⁵.
• India is known as one of the cheapest outsourcing countries and is backed by a government that offers education funding, land grants and tax concessions that appeal to onshore companies. With a population of 1.2 billion people and millions of graduates joining the workforce each year, India has built a veritable army of offshore providers and employees that take pride in working with onshore colleagues.

Does outsourcing benefit developing countries?

Outsourcing is a great resourcing strategy for local businesses but many rightly ponder the impact at the other end of the partnership. The good news is developing nations have pursued outsourcing as an industry because it changes lives. It creates job opportunities that would have otherwise not existed, provides locals with better wages that raise their standard of living and encourages foreign and government investment that boosts economic growth.

Outsourcing is a great way to reduce costs but not just because of a lower wage bill. Learn the various cost savings on offer and the hidden costs to watch out for.

Reference
1 Outsourcing and Shared Services 2019-2023 (outsourcing-outlook.com)
2 SG Research - View (isg-one.com)
3 40+ Vital Outsourcing Statistics [2022]: How Many Jobs Lost To Outsourcing? – Zippia
4 Mapped: The world by English-speaking population (telegraph.co.uk)
5 Manila Ranks Top 2 Outsourcing Destination in the World (infinit-o.com)