Fortunately, outsourcing some business processes presents a part of the solution to more and more companies who cannot afford to retain full time employees. To understand how it works, we need to first understand the four models of outsourcing:
- Insourcing – Using a team of experts in the related field within your company to handle the specific tasks
- Outsourcing – Delegating the specific tasks to a third-party company and/or consulting firm
- Onshoring – Using local or in-country companies to fulfill your outsourcing needs
- Offshoring – Turning toward the foreign or overseas-based companies to fulfill your outsourcing needs
These four models are categorized as onshore insourcing, onshore outsourcing, offshore insourcing, and offshore outsourcing. Any of these models are simpler to execute if we understand the differences in each concept.
Insourcing
This model mainly refers to hiring employees to do certain jobs. Having regular in-company employees has its own advantages and disadvantages. They key advantages include being able to supervise and closely monitor the tasks, their performances, personal interactions, the communication gaps and response times to specific issues. Meanwhile, the disadvantages include the need to hire specialist managers to supervise and run the team; even multiple teams run by team leaders, for bigger projects. This usually leads to higher overhead costs such as additional costs in office space, equipment, and benefits, among others.
Outsourcing
Basically, this model means employing an external company to do the work. Outsourcing can come in many forms, performing specific business processes such as administration, finance, and marketing. Outsourcing is particularly useful especially if you are a small company or startup, when you are unable to manage or perform a process due to a lack of expertise in that field or the time. Delegating the task to a service means that company is now responsible for the managing and hiring the required workforce, saving you the time, trouble, and expense.
Onshoring.
In its simplest form, onshoring is hiring a local company to do the task for you. Onshore insourcing means your company has hired regular employees within your home country to do the job. This applies to hiring a local workforce at the different branches of your office, as long as these branches are in the same country. In contrast, onshore outsourcing means outsourcing your task to a third party that is also in the same country as your company.
Offshoring
This model refers to the delegation of tasks to establishments outside of the country. In offshore insourcing, you are employing an inhouse workforce, that is, regular-status employees situated at a different country. With offshore outsourcing, the tasks are delegated to a third party located overseas.
Which is the Best Model for Your Business?
The predominant workforce model implemented by businesses is typically insourcing. However, in the current context of lockdown measures necessitating remote work, insourcing loses some of its advantages, such as direct communication and supervision. Consequently, exploring outsourcing options becomes worthwhile. Numerous outsourcing companies in emerging economies, such as the Philippines, offer cost-effective labor services, resulting in substantial cost savings for businesses. Additionally, outsourcing can generate new opportunities for both outsourcing and increased employment. The trade-off, however, lies in potential delays in service delivery due to time zone differences, with offshore outsourcing causing a half-day delay compared to the immediate response of an insourced team. Despite this, during a lockdown period characterized by limited or no service delivery, offshore outsourcing can prove to be an excellent alternative.
It is crucial to thoroughly evaluate the optimal workforce model for your business since transitioning from an onshore insourced workforce to an offshore outsourced workforce necessitates training and familiarizing the team with their responsibilities. If the time and effort invested justify the cost savings, productivity gains, efficiency improvements, and overall peace of mind, offshore outsourcing can be the determining factor in the success or failure of your business.
Factors for Choosing an Outsourcing Model
Several considerations should be taken into account when deciding on the most suitable outsourcing model for your business:
- Costs: Prioritize outsourcing if it can accomplish the task at a lower cost. If taxes in one country negate the cost savings, explore alternative locations offering government and tax incentives, such as the Philippines, which is conducive to outsourcing companies.
- Workforce: Assess whether the outsourced workforce possesses the necessary skills to perform the required tasks. While lower costs do not necessarily equate to a lower-quality workforce, it is essential to conduct due diligence and interviews among multiple service providers to identify the most qualified employees. Many outsourcing service providers offer affordable and flexible solutions, combining expertise with a proven track record.
- Time: If prompt response times are crucial to your business, prioritize insourcing. However, if time flexibility and delivery within a reasonable timeframe suffice, opt for outsourcing, whether onshore or offshore. Many outsourcing companies capitalize on time zone advantages by ensuring their workers are available in three eight-hour shifts, enabling 24-hour service provision worldwide.
- Quality: Onshore insourcing offers the benefit of quality control under close supervision. Nonetheless, by identifying a reliable, experienced, and trustworthy outsourcing company, you can ensure the successful completion of tasks. In instances where doubts exist regarding a specific provider’s quality, it is advisable to explore other options.
By carefully considering these factors, businesses can determine the most suitable outsourcing model that aligns with their specific needs and requirements.