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What is Offshoring and how is it different to Outsourcing?

Offshoring is a business strategy where companies relocate their business operations to another country, and has become increasingly popular in recent years as businesses seek to cut costs and increase efficiency. This has become even more attractive post-pandemic in an environment where most businesses are now familiar with remote work and the need to used distributed teams to keep operations going.

people working in an office

Offshoring involves the transfer of business activities, such as manufacturing, IT, front office, and back office functions, to a country where the cost of labor is lower or there is access to a larger talent pool. This allows the company to scale its resource requirements without a direct increase in operating costs, and can often allow them to hire twice the headcount for the same cost as hiring locally.

The Philippines is one of the most popular offshoring destinations, particularly for Australian and New Zealand businesses. The country has a large pool of skilled labor, excellent infrastructure, minimal time-zone difference, and cultural overlap that minimizes assimilation and integration with existing in-house teams.

Offshoring to the Philippines can provide many benefits for SME businesses. These include access to a large pool of talented and skilled workers who are fluent in English, lower labor costs, and increased efficiency due to the 24-hour work cycle.

Offshoring can provide many benefits for SME businesses looking to cut costs and increase efficiency. By taking advantage of lower labor costs, access to skilled labor, and a supportive government, businesses can offshoring to the Philippines with confidence. However, it's important to carefully consider the challenges of offshoring and develop a solid plan to ensure success.


How is offshoring different to outsourcing?

Offshoring and outsourcing are often used interchangeably, but they are not the same thing. While both involve the transfer of business activities to another country, there are some significant differences between the two.

Outsourcing is the practice of contracting out specific business activities to a third-party provider. The third-party provider is usually located in the same country as the business and provides services such as customer support, payroll processing, or IT support. The key difference between outsourcing and offshoring is that outsourcing is usually limited to specific functions, while offshoring involves relocating entire business operations to another country.

Offshoring, on the other hand, involves the relocation of entire business operations to another country. This may include functions such as manufacturing, IT, front office, and back office functions. Offshoring is done to take advantage of lower labor costs, tax incentives, and other benefits offered by the host country.

Offshoring to the Philippines is a popular option for SME businesses, as the country offers a large pool of skilled labor, lower labor costs, and a supportive government. Outsourcing, on the other hand, may be a more suitable option for businesses that require specific services but do not want to relocate their entire operations.

It's essential for businesses to understand the differences between offshoring and outsourcing and choose the right option for their needs. Businesses that require complete control over their operations may prefer offshoring, while those that need to outsource specific services may opt for outsourcing.


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