Understanding the Differences Between Outsourcing Practices

Understanding the Differences Between Outsourcing Practices

5 minute read
Oriana Escalante
Mar 08, 2021
Oriana Escalante
Mar 08, 2021

When business owners wish to increase their staff, some may think that the best way is the traditional way, which is to hire in the country where the company’s based, however, it’s not as simple as it looks. In recent years, the U.S. has suffered a talent shortage and a constant increase of salaries, which has led several entrepreneurs to analyze and innovate human resources practices (especially recruitment options).

This is when insourcing, offshoring and nearshoring come into play. Heard about them before, but can't tell the difference? Well, they are all ways of managing activities and operations in a company. Despite the fact that these practices have differences in their procedures, they share the same objective: increase efficiency and optimize costs. One of the most notable differences is the location where the processes are to be developed, be it at the country of residence, a nearby country or even in another continent. Keep reading to learn more about each practice!

Insourcing

Insourcing is the process by which collaborators of an organization assume tasks that were being executed by a third party. The objective of this is to find and further develop internal competitive advantages to enhance the performance and effectiveness of the company's processes. Insourcing is not based only on saving costs, but on delegating activities that can be completed more efficiently by and for the organization. Some of the advantages of insourcing are: 

  • Cost optimization.
  • Improvement of capabilities and abilities of employees.
  • Greater motivation for employees, for new activities and possible promotions.

Offshoring

This occurs when a company relocates activities, processes, or services, through subcontracting, in other geographical areas, with the aim of reducing costs. In most cases, it's carried out in countries where production tends to be less expensive. Some of the advantages of offshoring are:

  • Costs reduction.
  • Qualified talent.
  • Increase in productivity.
  • International expansion.
  • Diversifying the company.

Nearshoring

The practice of Nearshoring derives from Offshoring. It's the outsourcing of one of the company's services to a nearby or border country. This practice became the new bet of companies seeking efficiency and cost reduction. Like all these practices, Nearshoring has advantages such as:

  • Cost optimization.
  • Access to a wider pool of talent.
  • Higher control: the proximity allows closeness and ease in communication, significantly improving the quality of the service offered.
  • Few cultural differences: due to the proximity of the countries, everything can be handled in the same language, time zone, and with similar customs.

What are the differences between Insourcing, Nearshoring and Offshoring?

The difference between Nearshoring and Offshoring lies mainly in the location of the outsourcing. In the case of Insourcing, it's the opposite, since it's about evaluating the skills and abilities of the employee in order to delegate activities that were being carried out by external agents of the organization. Offshoring is based on the outsourcing of processes that were part of the company's operations in a different country, generally in a low-cost one. Nearshoring is essentially the same as Offshoring, what changes is the location, as the third party is close to the headquarters, which can bring many advantages.

To opt for one of these options, several aspects must be considered, like: the advantages and disadvantages, the needs, characteristics and objectives of the company, the processes to be carried out and more. Making the right decision can mean considerable revenue for the business or expose yourself to cost risks.

Delegate or continue drowning in work?

This is a great question to ask yourself every time you want to outsource, since you have to take into account the activities that you want to delegate. A company needs to analyze and study where to relocate the process, it is not only about looking for countries with low cost in labor, but about seeking the greatest benefit for the company. The key to outsourcing services is to have a stable relationship with outsourced services, whether in the same country or in other countries, to have a solid team for the long term.

Now that you know a variety of outsourcing practices, it's time for you to take the next step. If you’re completely new into this, simply get help from the experts, like Cápita Works, a company that offers a variety of solutions that will elevate your game.

From outsourcing to nearshoring, Cápita Works will guide you along the way to increase efficiency and optimize costs with qualified virtual assistants from LATAM… go for it!

Oriana Escalante
Mar 08, 2021

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