Offshoring vs. Outsourcing: Which is Better for Software Development?

What is offshoring?

Offshoring is the practice of moving specific jobs or tasks to foreign countries. Meaning, you have your company in country A, and also have functions in country B. Some of the most commonly offshored jobs include production and development. Microsoft, Boeing, and General Electric are just a few of the mega-corporations who have had major success with offshoring their software development.

What is outsourcing?

Outsourcing is when you hire a third-party company to do work for you. It can be on a contract basis, or more permanent. All sorts of jobs can be outsourced, and oftentimes companies outsource jobs that are less critical to their core business objectives. Outsourcing is a great way to save on costs, and many of the benefits you gain from offshoring are also ones you can get from outsourcing. Some companies who have reaped the benefits of outsourcing include Apple, IBM, and Viber.

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What’s the difference?

Outsourcing and offshoring sound quite similar, and in many ways they are. There is an overlap of advantages and disadvantages, but, there are a few key differences you must be aware of.

Offshoring is always in a foreign country

Like the name suggests, you are moving jobs, projects, or tasks ‘offshore’ from your home country to another. Whereas with outsourcing, you can hire within the same country, or in a foreign one.

Outsourcing involves a third-party

When outsourcing, you are hiring another company to do the work for you. When offshoring, the foreign operation is an extension of your company.

It is possible to offshore without outsourcing. That would be your company opening a new branch in another country, and hiring your own employees, or moving some of your in-house staff to the new area.

Outsourcing without offshoring is when you hire another company to create your software, but you hire locally, or at least within the same country.

Is it possible to do both? Yes! Many companies use a combination of outsourcing and offshoring. Finding your own perfect process takes a lot of care and consideration.

Shared advantages and disadvantages

Lower costs

Though the ways of cutting costs differ between offshoring and outsourcing, the bottom line is that you will save money. Other countries have lower labor costs and different tax laws, which could help your budget if you choose to offshore for your software needs. Outsourcing to a software development company will help you save, as you are not hiring full time employees. The prices will likely be lower, because the developers want to remain relevant in the market.

Access to the best developers

There are many talented software developers all around the world. If you limit your search to your immediate area, you might miss out on better opportunities from across the pond. Some places have a larger talent pool than others, so expanding your search to where the experts are is important.

Communication problems

There are several types of communication problems you could encounter, such at bandwidth issues, time zone differences, or a language barrier. Thankfully, many of these issues can be avoided through consistent and clear communication.

Political controversy

There are some criticisms of these practices, the main one being that offshoring or outsourcing from other countries takes away jobs. While this is true, it also helps boost the global economy, and lowers the price of products back home. There are also a lot of companies who have done unethical things, like avoiding taxes or abusing the workforce. These incidents have given offshoring and outsourcing questionable reputations.

Benefits of offshoring

More control

There’s no reliance on anyone except your trusted employees, and no negotiations over contract terms, or expectations. You keep full control of development operations, and the project trajectory. Any changes you need to make do not have to go through a chain of command between two companies.

Keep proprietary information

All your trade secrets remain in-house when you offshore. Instead of trusting an outside source with your practices, you can keep them within the company. There is little to no risk of your information making its way into the public sphere, or your competitor’s hands.

Downfalls of offshoring

Too much to handle

The bigger you make your business, the more things you’ll have to oversee. Add the fact that you are now in charge of an operation across the border and it becomes even more complicated. Distance may cause problems when trying to monitor progress, as well.

Different infrastructures

Be it physical or societal, the way things are set up in your offshore country may have an effect on the speed and quality of your software development. Things like poor Internet availability and regulations from governing bodies might slow you down.

Benefits of outsourcing

Focus on core objectives

By hiring an outside team of software developers, you can free up more time and resources to devote to the main goals of your business. It may also be that your in-house staff does not have the specific talents for the software you need. Outsourcing ensures that you don’t have to replace your staff, or hire new staff.

Contract-based work

Do you already have a team of software developers? Or, do you even have the need for a software sector? If your team is busy with other projects, or if your business doesn’t have permanent staff for software development, outsourcing is ideal. Hiring on a contract basis is perfect for delegating overflow tasks or for one-time product creation.

Fast and efficient

Software development companies already have a cohesive team, ready to begin as soon as you say ‘go’. There’s no waiting around for new hires to get acclimated, and their vast array of experience also gives them an edge when making custom software.

Downfalls of outsourcing

Reliance on outside sources

Whenever you give over control to an outside team, you are trusting them to complete the job as per your requests. You might also be giving them sensitive information, and that is always a risk.

Can’t control quality

As with any sort of contract work, it may be hard to ensure that your expectations are met. There’s also the possibility that you choose a less-than-stellar company, and they could cut corners in order to move on to the next client. Like with any contract or purchase, there is a possibility that you will not get what you pay for. Research is critical to avoiding getting a bad deal.

Which is better for software development?

Some processes are better offshored, and some outsourced. In terms of software development, it depends on your needs. If your company wants custom software, but you don’t need to hire a permanent team of developers for your project, then outsourcing is the way to go.

However, if you have the need for ongoing development, and wish to keep your proprietary information within the company, then offshoring might be best for you.

Blocshop has been remotely providing custom software for companies around the globe since 2012. If you would like to know more about the types of jobs you can outsource to companies like us, please contact us here.

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