Tech companies today strive to access new talent pools – even if it requires going overseas. Outsourcing and offshoring are two widespread models that provide this opportunity. By comparing them, one can get answers to the question of how to choose the best option when searching for talented IT specialists abroad.
Outsourcing
In its literal meaning, outsourcing means to look for resources outside. Outsourcing involves moving some internal functions to a third party, usually a highly expert service provider. IT companies, for example, outsource software development or a restaurant business exploits outsourcing of marketing.
Among some benefits that outsourcing provides, it’s possible to distinguish the following:
- cost reduction;
- access to the global labor pool;
- faster product development.
On the one hand, delegation of non-core business processes relieves tech companies from unimportant tasks and gives more room to focus on primary functions. Outsourcing also tends to reduce operating costs due to a flexible pricing model. It can enable companies to speed up some internal processes and get the work done faster.
On the other hand, outsourcing has a bunch of pitfalls and top managers associate outsourcing with many risks like:
- vague pricing;
- less control over the team;
- crooked interests of vendors;
- extreme reliance on third parties;
- insufficiency of in-house expertise etc.
The reliance on external providers implies trust and close relations with the vendor, which is challenging in far-away countries. In addition, for IT companies continuous outsourcing may result in the lack of in-house professionals. These are critical things that may prevent tech companies from evolving into an IT corporation with a competitive product.
Offshoring
Generally, offshoring means moving a part of business operations abroad for economic reasons. Some tech companies go offshore in order to cut down on labor costs, while others prefer offshoring for its access to the dedicated resources. However, some risks are still present, so it’s advisable that you reach out to a local partner to secure your operations.
Offshoring preserves all the pros of outsourcing, but at the same time offers even more opportunities for a tech business:
- cost reduction;
- access to the global talent pool;
- faster product development;
- “product mindset”;
- own branding;
- own corporate policy;
- transparent pricing;
- secured Intellectual Property etc.
Offshoring resembles the process of creating a corporate subsidiary. If done in a developing country like Ukraine, it requires minimal efforts and small up-front investments. Moreover, the offshoring model sustains effective recruitment. Offshoring subsidiaries attract software engineers with a “product mindset” who are more dedicated to your product than the development team of an outsourcing provider. Furthermore, it ensures that the intellectual property rights on your IT product and its development are safe because all core business operations are done inside the corporation.
However, offshoring has its weak points which include:
- taxation;
- legal compliance;
- payroll management.
Taxation differs from country to country, so you need to do some serious research before opening an offshore development center. There is also some risk of legal compliance with both local and home legislation. Although these issues can be resolved onsite, the best way to mitigate risks is to partner up with the local provider.
In Ukraine, you can get full operational support of your offshore development center by Alcor. They will help you with the recruitment of software engineers, appropriate taxation model, payroll and accounting management, as well as full legal support on a daily basis. You can reach them here https://alcor-bpo.com/ to learn more about their operational services.
Which is right for your business?
By comparing outsourcing with offshoring, it becomes clear that the most winning solution for IT businesses is offshoring. By contacting the right local partner, you’ll be able to get some strong leverage from offshoring, run your business smoothly, and keep all processes under control. With Alcor, you can open your own development center in a month – and hire 20 engineers within just 3 months!
To summarize, it’s necessary to mention that offshoring contributes to the bottom line since it requires small up-front investments. When your IT product is of utmost importance, offshoring can become your competitive force on the global market.
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Related article you might like: “What is offshore outsourcing?”