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Outsourcing vs insourcing: Is there a difference?

Sometimes, companies tend to lack the right resources, skills, infrastructure, or workforce in their daily operations. This is especially true to startups and small businesses, sometimes it can stem from insufficiencies when it comes to funds.  

These challenges may also arise to medium and large sized corporations across the globe. In countries like Germany, companies experience gaps in terms of IT manpower as the country does not have enough IT professionals within the region. 

As a solution to these organization dilemmas, companies turn to outsourcing and insourcing practices. 

In this article, we’ll help you understand the concepts of outsourcing vs insourcing. More specifically, which of these two business practices is more suitable to your type of needs. 

Outsourcing vs insourcing: Defining both terms

Through the years, companies have performed various ways of farming out parts of their work to aid with their development. Outsourcing vs insourcing are two resulting business practices of the ever changing landscapes of the entire market industry. 

Both outsourcing and insourcing serve as viable solutions for organizations in terms of sourcing out third parties to help with their daily operations.

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Outsourcing vs. insourcing Defining both terms

What is outsourcing?

Outsourcing is when a company farms out a part or several parts of their daily tasks or projects to a third party. 

Outsourcing services have continuously evolved over the years – from manufacturing services, customer service, IT services, marketing and finance. 

Types of outsourcing

There are three classifications of outsourcing. These three are according to the geographic locations where the outsourced tasks will be transferred.

Offshoring

Offshore outsourcing is when outsourcing providers are based in another country that is far away from the company’s geographical location. One example for this is when a US company offshores IT services in India or in the Philippines per se. 

Nearshoring

Nearshoring is when companies contract out services to outsourcing vendors that are also in another. But unlike offshoring, an outsourcing provider is normally located in a country within the same continent.

In most cases, locations may only have a few hours of time zone differences. Due to the proximity, traveling in between locations is less of a hassle.

Onshoring

Onshore outsourcing is also known as domestic outsourcing. This outsourcing process refers to companies that outsource to third parties within the same country. 

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What is insourcing?

Insourcing is the opposite of outsourcing. This practice refers to when a company delegates a task or a project within the in-house staff rather than having it outsourced.

Employees that are given the opportunity to partake in the task or project may also have the chance to be deployed on other projects. 

Outsourcing vs insourcing: Advantages of outsourcing

The outsourcing industry has been one of the fastest-growing industries around the world. It has always been a strategic practice for companies in all types of industries and sizes.

Part of the numerous benefits of outsourcing include the following: 

  • Cost effectiveness. A lot of organizations mainly outsource as they are able to save much on their overall costs compared to hiring in-house staff. 
  • Wider talent pool. Outsourcing providers usually have a range of talent pools of well skilled and experienced professionals. 
  • Access to technologies. Outsourcing companies invest in the tools and technologies they utilize to perform their offered services effectively. They always make sure that they are up-to-date with the latest technological advancements. 
  • Working hours. Offshoring to a country with hours of time zone difference allows organizations to fully function over extended hours. 
Outsourcing vs. insourcing Advantages of outsourcing

Outsourcing vs insourcing: Advantages of insourcing

Insourcing also grants businesses a competitive advantage in the market industry. Some of the benefits of insourcing are as follows: 

  • In-house employees have an in-depth understanding about all the ins and outs of the company. One example is in terms of marketing, there’s no better team who can market a certain brand, products or services than a company’s own employees. 
  • Business leaders retain control over their employees and tasks. They also have the freedom to make certain decisions or implement certain processes. 
  • Both employees and leaders share the same vision, work values and standards that are within the company’s culture and environment. 
Outsourcing vs. insourcing Advantages of insourcing

Outsourcing vs insourcing: Which is a better option for you? 

Both outsourcing vs insourcing have its pros and cons. Consider the following to help you decide which is the right option for your type of business requirements: 

1. Priority

If companies prefer to have control over the project then insourcing is the right option. While if the priority is to save costs, outsourcing is a viable option. 

2. The kind of project or task

Critical functions of the organization are most likely to be kept in-house. However, if a certain task or project isn’t within a business expertise, then it is best to outsource. 

3. Willingness to adjust organizational setup

Outsourcing companies have their own way of doing things. Compared to insourcing where it is much easier to augment or modify certain practices without having to entirely remodel a business structure. 

For some businesses, it may be hard to weigh in whether to outsource or insource a certain project or task.

However, everyone should also always take into consideration the costs, skills, expertise and flexibility required for the project or task. 

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About Derek Gallimore

Derek Gallimore has been in business for 20 years, outsourcing for over eight years, and has been living in Manila (the heart of global outsourcing) since 2014. Derek is the founder and CEO of Outsource Accelerator, and is regarded as a leading expert on all things outsourcing.