Is Offshoring Cheaper than Outsourcing Locally?

Updated April 24, 2024

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As a business leader, optimizing costs and efficiency are always top priorities. Offshoring and local outsourcing can help achieve these goals, but which is better for your company? Let's explore the key factors.

In our experience as a software development outsourcing company, we've seen firsthand how offshoring drives growth and competitiveness for our clients. The urge to outsource while moving to cloud-based delivery is stronger than ever , making it crucial for businesses to weigh their options carefully.

The Basics: Offshoring vs Local Outsourcing

Map of offshoring destinations like India, China, and the Philippines, known for skilled workers and cost-effectiveness.

Offshoring moves specific business processes or operations to another country, usually for lower labor costs and favorable economic conditions. Popular offshoring destinations like India, China, and the Philippines boast skilled workers and cost-effectiveness.

Local outsourcing partners with an external provider in the same country as your business. It offers proximity, collaboration, and reduced cultural and communication barriers. The thriving IT-BPM industry in the Philippines reached $35.5 billion in revenues in 2023 , showcasing the growing importance of outsourcing destinations globally.

At Cambria, we've completed over 2,565 projects tailored to our clients' needs. One example is PHR CLUB, a membership ecosystem for hotels, clubs, and partner establishments. Using C#, ASP.NET Core MVC, Xamarin, and MySQL, we developed a multi-platform solution that improved member services, streamlined operations, and drove membership growth year-over-year.

Comprehensive Cost Analysis

Chart comparison between offshoring and local outsourcing costs, including labor, operations, and savings.

To determine which option is more cost-effective for your business, a thorough cost analysis considering various factors is crucial.

Offshoring Cost Savings for Selecting and Outsourcing Provider

Offshoring can significantly reduce costs by leveraging lower labor costs abroad. You can access skilled talent at a fraction of the cost compared to hiring locally. Offshoring destinations can also offer tax benefits and financial incentives, cutting expenses further.

Local Outsourcing Expenses

While local outsourcing may have higher labor costs, improved communication, faster response times, and better quality control can offset the initial investment. Interestingly, 74% of logistics leaders expect their logistics outsourcing budget to increase over the next two years, indicating growing demand for outsourced services. Carefully assess your business needs and requirements to determine if local outsourcing is financially viable.

Factors Influencing Cost-Effectiveness

Beyond direct costs, several key factors impact the cost-effectiveness of offshoring and local outsourcing:

Infographic of key factors influencing offshoring and local outsourcing costs, like labor, operations, and location.

Labor Costs and Productivity

While offshore locations often have lower wages, consider productivity, skills, and labor market conditions. Local outsourcing may cost more but can improve quality control and turnaround times.

Operational Expenses and Infrastructure

While offshore locations often have lower wages, consider productivity, skills, and labor market conditions. Local outsourcing may cost more but can improve quality control and turnaround times.

Location and Time Zones

Your outsourcing partner's location can greatly impact cost-effectiveness. Offshoring time zone differences can extend project timelines and raise communication costs. But certain regions may offer tax incentives or access to specialized talent, boosting financial benefits. In fact, nine Philippine cities ranked in Tholons' 2016 top global IT-BPM destinations, highlighting the country's outsourcing competitiveness.

Hidden Costs to Watch For

Iceberg graphic of offshoring and local outsourcing costs, like cultural differences, legal compliance, & coordination.

While offshoring and local outsourcing may seem attractive initially, be aware of potential hidden costs that can impact your bottom line.

Cultural Differences and Legal Compliance

Offshoring involves navigating cultural differences and complying with foreign legal requirements. Cultural training, translation services, and legal guidance can add to overall expenses.

Training and Coordination

Even with local outsourcing, unexpected costs may arise from training your outsourced team and ensuring smooth coordination. Effective project management and regular communication are vital to control your budget.

Prioritizing Quality in Your Decision

While cost is a critical factor in outsourcing decisions, don't overlook quality.

Offshoring Quality Control Challenges

Maintaining consistent quality standards can be harder when offshoring due to differences in work culture, language, and customer expectations. Implement robust quality control processes, establish clear communication channels, and provide ongoing training and support to mitigate risks.

Local Outsourcing Quality Advantages

Scale balancing cost savings and quality for businesses deciding on offshoring and local outsourcing.

Local outsourcing often allows closer collaboration and real-time feedback, facilitating better quality control. Face-to-face interactions and a shared cultural context can improve customer satisfaction. But carefully weigh the costs and benefits for your specific business needs.

When working with Equistaff/FastTrack, a website with a vast equine industry database for equestrian job seekers, we prioritized quality control. Using C#.NET and SQL Server, we built a secure platform for efficient job listing management, candidate matching, and direct employer-job seeker communication. This boosted employer signups, cut time-to-hire, and increased user satisfaction.

This article is part of the Outsourcing series. Read more on how we craft tailored Outsourcing solutions - driving efficient growth, hassle-free:

Frequently Ask Questions (FAQ)

Is offshoring always cheapest?

Not always. While offshoring can save on labor costs, hidden expenses like cultural training, legal compliance, and coordination add up. Local outsourcing may cost more upfront but offer better quality control and collaboration.

Research thoroughly, implement strong quality control measures, maintain open communication, and provide cultural training and support. Also, carefully review the offshoring location's legal landscape for compliance.

Consider costs, quality control, communication, cultural fit, legal issues, and your specific business requirements. By 2030, automation is expected to impact around 60% of all jobs, so factor in the long-term implications of your outsourcing decisions. Analyze the full cost picture, including hidden expenses, and weigh the cost-quality trade-offs.

Absolutely. Adopt a hybrid approach, offshoring non-core tasks to save costs while keeping critical or customer-facing functions local for better quality and responsiveness. Find the right balance that aligns with your business objectives.

Set clear goals and expectations, implement regular communication and feedback, and provide the necessary tools and infrastructure for seamless collaboration. Continuously monitor progress and promptly address issues to keep everyone aligned.

Partner with Cambria for Your Outsourcing Needs

As the outsourcing landscape evolves, Cambria guides you through the complexities of software development outsourcing. With 40 years of experience, we offer tailored solutions, including end-to-end project management, custom software development, and staff augmentation, to enhance your team's capabilities.

The Philippines ranks 1st with a 7.95 score on the 2013 Business English Index , highlighting the country's advantage in English proficiency over other IT-BPM destinations. If you're a decision maker of a company looking to drive growth, boost efficiency, and stay ahead, let us help you save 60-80% on development costs. Request a Free Quote today to hire expert software developers dedicated to your project's success.

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About Cambria Software

We have been providing custom software development services since 1984, offering expert programming in multiple languages to build high-performance websites and applications for our clients.

Leading software outsourcing authority

Our experts in various programming languages and tools enable us to provide custom programming services that create tailored software solutions for our clients, ensuring the highest quality of service.

Our engagement models guarantee excellent service, and our history of success makes us the go-to choice for all software development needs. We are a leading authority in software outsourcing, providing unparalleled customer service.

Cambria Staff Augmentation

Our tailored staff augmentation service enables teams to benefit from offshore talent. Our flexible hiring pool offers a cost-effective solution and the augmented team is committed to our clients, integrating seamlessly into existing company development projects.