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March 30, 2023
What are the types of outsourcing?
The modern business world benefits greatly from technology and globalization. These factors allow modern companies to access working styles that just 30 years ago were out of the question. One of the main benefits for organizations today is the spread of outsourcing as a modern standard for growing businesses. You definitely have heard about this concept. However, are you familiar with the different types of outsourcing there are?
At T2W we have extensive experience in talent outsourcing services and human resources, so we are familiar with this concept. In this article, we delve into the main types of outsourcing you will find in the market and their differences. Let’s start!
Types of outsourcing
There are many different types of outsourcing, and these can be classified by different criteria. However, the most relevant parameter when it comes to outsourcing is location. With this criterion, we can distinguish 3 specific outsourcing modalities: onshore outsourcing, nearshore outsourcing and offshore outsourcing. Let’s take a closer look at these.
1. What is onshore outsourcing?
When we refer to onshore outsourcing, the company that receives the outsourcing service is located in the same country as the one providing the service. In other words, this is outsourcing done in the domestic market. In general, companies choose this alternative when they need to optimize their processes but, due to the time and budget, they can’t handle these internally.
Onshore outsourcing allows you to delegate tasks or whole business areas to specialists in their respective fields. The most common example is recruitment outsourcing. In this case, all the responsibilities related to finding and evaluating new personnel are done by an external company. This helps companies to gain more time, which can be invested in other important business processes. There are two ways to provide onshore outsourcing:
This is a sub modality where the outsourced processes are kept inside the work facilities of the company receiving the outsourcing services.
In this case, the outsourced processes are done in the work facilities of the company providing the outsourcing services. This is the most common sub-modality in the market.
2. What is nearshore outsourcing?
For the next alternative, we need to extend the reach of our business a little farther. With nearshore outsourcing, also known as nearshoring, businesses work with an outsourcing company located in another country, but in the same region. It could be a neighboring country, or a country located on the outskirts of the region.
In general, the company that receives the service and the one providing it share the same time zone. Sometimes, there might be a little time difference, but since both are I the same region, it won’t be a significant one. That is a great advantage when companies need to work on projects that require frequent and quick changes.
Another aspect to consider is the language barrier. Since both businesses are located in the same region, the culture clash won’t be significant. That is perfect when you need close collaboration. Likewise, with nearshoring you won’t find language-related problems. In most cases, the proficiency in the language is high due to its close location.
For example, today many companies in America look for IT talent in Latin America to optimize their internal processes. This is a market that offers high quality professionals, proficiency in English and close interaction since both share the same time zones.
3. What is offshore outsourcing?
Finally, offshoring is the outsourcing alternative that is geographically more distant than the rest. Offshoring refers to the outsourcing process that takes place abroad. However, this is different from nearshoring because in this case both companies are located in different regions. In general, offshoring businesses are located in distant countries or other continents.
One of the main reasons why businesses choose this outsourcing modality is its cost-benefit. Most offshoring companies are located in countries with more flexible work laws. Additionally, these usually offer tax criteria that are friendlier with companies.
For example, many manufacturing companies outsource some of its internal processes to Asian countries. This is usually a cost-efficient strategy for their operations. Countries such as China and the Philippines are markets many businesses go to in order to reduce their costs.
Now you know the main outsourcing types and their differences. Each modality offers a particular series of benefits. Understanding each alternative allows you to choose the option that fits best with your company.
At Talent2Win, we strive to align your company’s business objectives with the best Talent Acquisition strategies available. If you want to learn more about the services we offer, do not hesitate to contact us.