Which Outsourcing Model is Best for Your Business?

When businesses want to grow their employee headcount, it’s typical to hire locally — post job ads, work with recruiters, and conduct interviews with the top applicants. But it’s simpler said than done.  

Today’s severe labor crisis has forced an increasing number of businesses to rethink their hiring choices. As a result, business strategies including “offshoring,” “nearshoring,” and “outsourcing” are becoming more and more prevalent.  

In this article, we’ll discuss the definitions, benefits, and drawbacks of four prominent models: outsourcing, onshoring, nearshoring, and offshore. 

 

Outsourcing 

Outsourcing is the business practice of hiring a party outside a company to perform services or create goods that were traditionally performed in-house.   

Typically, the goal of outsourcing is to reduce expenses. Costs for development, production, and fixed expenses can all be greatly reduced. 

As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office. 

 

Offshoring 

The most cost-effective method of outsourcing is offshoring.  

Companies outsource their processes to vendors with operations in far-off nations, such a as India, China, the Philippines, and Kenya, where the labor market is highly capable, and the costs are low. The fact that there is a time zone difference here is important for keeping your business open 24/7.  

Offshoring is often employed to reduce the personnel costs of a company. However, its success is subject to several requirements – one of which regards communication.  

 

Nearshoring 

Outsourcing to a nearby nation, particularly one that is bordering or at least on the same continent, is known as nearshoring.  

This makes it possible to travel and attend in-person meetings more regularly and affordably. By inviting the team to your headquarters and making frequent visits, you may maintain a positive work environment and gain more influence over your company.  

The cultural compatibility reduces any chances of misunderstanding and facilitates work coordination. 

 

Onshoring 

Onshoring refers to outsourcing to a local vendor in your country. 

Onshoring allows companies to outsource functions where the vendor has either economies of scale or expertise that provides a competitive advantage compared to keeping the function in-house.   

Onshoring improves the cost structure considerably and allows great flexibility within organizations. Furthermore, the coordination and communication of production are more effective and efficient. 

 

Merits and Downsides 

 

Outsourcing:  a cost-driven model 

Low cost is typically what distinguishes outsourcing as a business model. It is generally employed by companies that want to significantly save money. 

Flexibility and a lack of commitment are two advantages of outsourcing. You only pay the team for the work they complete for you because they are not a permanent part of your workforce. No resources are used to pay idle workers if demand declines. Businesses with less predictable capacity may benefit from this.  

 

What is the drawback?  

Some outsourcing firms offer contractors for as little as 30% of what you would typically spend, but such discounts don’t always come without trade-offs. 

The contractors aren’t your employees, to start. They are not beholden to your business, and you won’t typically deal with contractors themselves, but rather with individuals in charge of organizing them. These workers are usually juggling multiple projects for clients all around the world and have limited knowledge about your company or your brand’s mission.  

Low-cost outsourcing frequently results in subpar delivery. It can be risky to entrust these contractors with important or pressing work because they aren’t permanent employees. After all, if they go, you won’t have someone to turn to. 

Mitigate these risks by partnering with a US based vendor that has operations globally.   

 

Will outsourcing work for your business? 

The answer is, as always, it depends. If you need a job completed now and you don’t have the in-house capacity to deal with it, outsourcing can be a life-saver.  

Do you have the right process and the right partner – then you should definitely outsource. 

Having an ongoing relationship with a trusted partner.  This tends to work best when there’s a strong, ongoing relationship with specific developers you can trust. 

When it comes to sustainability or scaling up your development team, outsourcing is the wrong route. The main issue is a lack of control: you don’t manage the developers directly, communication can be difficult, and they could leave halfway through a project. 

 

Offshoring: a more sustainable solution 

An offshore team is a handpicked team of workers, based in another country, who are full-time employees of your business. 

That is the core difference between outsourcing and offshoring. The ideal situation would always be having everyone in the same office – but that is often expensive and difficult. The only difference between offshoring and in-house hiring is that the office space is quite far away. 

 

Will offshoring work for your business? 

There are many benefits to offshoring versus recruiting at home. You get top-quality people with the specialist skills you need, on a permanent basis, usually at about 50% of the at-home cost. 

With the right offshoring partner, you can scale up quickly and sustainably, which is a potent combination. For companies looking for growth or to engage engineers with rare or niche specialties, offshoring is a proven and powerful approach. 

 

Onshoring and nearshoring 

Nearshoring is actually just offshoring with more limitations.  

Being in the same time zone is a good perk. It implies that most logistical difficulties are avoided. Additionally, it’s less probable that there will be a significant cultural divide among your staff. What firms gain from proximity, however, they frequently forfeit in terms of skills shortage.  

Onshoring, however, is only used in very expensive cities. For instance, a company in central London might locate its development staff in a different, less expensive city. While there may be cheaper rent and wages in this “secondary” region, it will still be difficult for businesses to discover and hire qualified engineers. 

 

How can SALIX help?  

For over 20 years, SALIX Data has helped more than 2,500 customers streamline their business operations. Our customers gain the benefit of creative solutions that leverage both cutting-edge technology and dedicated people to deliver exceptional results at a fraction of the cost.   

 

SALIX is a regional leader in BPO based in Cincinnati, working with hundreds of companies to save them time and money by managing and maintaining the operations and responsibilities of specific business functions and processes.  

 

Learn more about our outsourcing capabilities here.  

 

Give your business the savings and flexibility it needs to succeed in today’s competitive business environment by utilizing SALIX’s Business Process Solutions. Contact us today to set up an introductory appointment with a Business Process Expert.