Offshoring vs outsourcing: how to choose the right strategy for your business

Key takeaways

• • Offshoring means hiring talent abroad or moving employees to a different country to develop an app. It’s typically done in a country with lower labor costs.
  • Outsourcing is a management strategy that involves transferring tasks or projects to a third-party company. This is the case when a company doesn’t have the people, time, or skills to complete a project and pays another company to do it for them.
  • The revenue of the IT outsourcing market worldwide has been steadily growing ever since 2020. This means that more and more companies and startups are willing to entrust software development to outsourcing providers.

What is offshoring?

When a company offshores, it either hires talent abroad or moves its employees to a different country to develop an app.

The biggest reasons businesses choose offshoring outsourcing all boil down to overhead costs. Offshoring is typically done in a country with lower labor costs. After all, hiring an expert developer at an affordable price is tough, especially when you operate in a place with a higher cost of living.

Building a team of local developers in-house can be very expensive.

Benefits of offshoring

Here are a couple of reasons why offshoring can be a good thing:

✅ Reduce development costs. Skilled labor costs less in countries like Vietnam, Pakistan, and Brazil. Signing a contract with a developer overseas is cheaper than finding vendors locally. And if the startup decides to move its entire business operations abroad, it can enjoy tax breaks and save even more money.

✅ Get access to a wider talent pool. If you source talent only from a pool of local candidates — you’re limiting your options. Many onshore developers, who could be perfect for your startup, may be working with other companies. There are a ton of developers ready to help if you decide on offshoring. You could choose an engineer with a specific skill set: Flutter developers, Framer website designers, etc.

Offshoring expands your reach and improves the chances of finding great developers.

Disadvantages of offshoring

Offshore outsourcing can pose some challenges for startups:

❌ Communication issues. Offshoring development can be a breeding ground for all sorts of misunderstandings. If you’re planning to move development overseas, accept that your developers won’t speak English on a native level. Many technical details and jargon won’t translate well. To reduce risks, try being explicit about the features you want to develop or bugs you need to fix.

❌ Time zone difference. With offshoring, you must keep track of two separate time zones before setting deadlines for tasks and deliverables. The same goes for scheduling calls to discuss new target goals for upcoming sprints.

For example, you have to set up an urgent meeting with your developers. You’ve just discovered a major bug that needs to be fixed, and you’re mere hours away from releasing an MVP. How do you quickly contact your developers, who are fast asleep halfway across the world? The answer is simple — you should prepare for it from the start. Read how our project managers manage to work with a client from 4 different timezones in our article.

❌ Difficulty managing work processes. Measuring results and estimating the quality of work becomes tough, especially if you’re trying to do it in real time. Beginner startups can find offshoring even more strenuous because they don’t have these business processes nailed down. It’s much harder to understand whether overseas employees stick to the plan until the deadline inevitably arrives, and it’s too late.

What is outsourcing?

Outsourcing is a management strategy that involves transferring tasks or projects to a third-party company. This is the case when a company doesn’t have the people, time, or skills to complete a project and pays another company to do it for them.

For example, let’s take hotel management and MVP development. When Jake, a hotel owner, invites housekeepers from a cleaning agency, he outsources. The same story applies to a startup owner who wants to create an MVP. When they search for a software development company instead of hiring their own team, they also stick to an outsourcing model.

Benefits of outsourcing

Ninety-two percent of G2000 companies use outsourcing. So there has to be a reason why so many cream-of-the-crop companies outsource development. Turns out, there are plenty:

✅ Spend less time hiring developers and designers. With outsourcing, you get to skip the tedious process of finding a perfect dev candidate. There’s no need to score potential applicants’ portfolios and conduct long interviews, wasting the time of your HR specialists and chief technical officers.

✅ Gain access to insights from experts in the field. Outsourcing allows companies to better understand a niche they’re trying to get into. Experts from an outsourcing agency can share their expertise — and you can use it to improve the way your business functions.

✅ Save money in the long run. Outsourcing relieves you of some hidden costs: insurance, fees, taxes, and bonuses. In the case of in-house teams, you’d have to pay that and more, investing in training programs, decent office space, supplies, and more.

Outsourcing agencies manage their teams on their own end. If you’re a startup that wants to host an in-house team, you must consider hidden costs yourself. They can rack up quickly.

Disadvantages of outsourcing

Outsourcing has risks, but they can all be mitigated if you know what to do.

❌ You could get stuck with a poor service provider. Some vendors love to make promises they can’t keep. It may turn out that they have never had any experience with apps similar to your idea, so they leave behind a half-baked app that’s not good enough to show to investors or publish in the stores.

✅ How we mitigate it. We always advise looking at vendors’ portfolios to see if they’ve worked on projects in your field or type and see if you even like what they’ve made.

At Purrweb, we’ve had a hand in 400+projects, ranging from MVPs in healthcare to IoT apps and more. You can check out our portfolio — it’s living proof that we deliver results.

On our website, we have a separate page that lists almost every project we had a hand in.

❌ Your trade secrets could be leaked by a shady vendor. Some outsourcing agencies don’t take any precautions regarding data security. They share key details with other startups, either unwittingly or intentionally.

✅ How we mitigate it. In our case, one of the first things we do with our clients is sign an NDA. We keep your data secure even before that, when you contact us using the form below, your info gets encrypted the moment you hit “send.”

❌ Your outsourcing agency keeps you in the dark about work processes. Once you’ve agreed upon the final deadline, the agency becomes radio silent. When you try contacting them for details, they reassure you that “they’re working on it.”

✅ How we mitigate it. At Purrweb, we utilize the Agile methodology and develop new features in sprints lasting 2 weeks. Also, we provide you with a progress report at the end of each one. We also give you access to our task trackers, so you can see how the work’s going in real time.

Agile methodology allows us to be transparent with our clients. It lets them focus on key metrics without constantly worrying about development.

What are some key differences between offshoring and outsourcing

Essentially, when you offshore, you employ developers from a foreign country. Whether you send your own team there or hire foreign contractors overseas — it doesn’t matter.

When you outsource development, you’re delegating the task of working on your project to a different team. You lend them for an X amount of time to do the work for you. Their place of residence is of no consequence.

Let’s take a look at an example of outsourcing and offshoring. We have John, an entrepreneur who wants to create his own app. He’s trying to choose between outsourcing and offshoring.

• • Offshoring would let him save money and get access to talented developers across the globe, but that’s pretty much it. He’ll still have to be the one hiring them, making sure they work as a team, and thinking about all of their salaries and benefits.
  • Outsourcing would grant the same rewards. On top of this, he gets flexible developers that stay on-call and always meet deadlines. And the best part is — he doesn’t even need to know them. All John has to do is talk to the manager, who will always be ready to answer his questions.

What development model is best for your business?

Each startup is different. Some companies are just starting out with a business idea and a dream, while others are already well established. In any case, you have three options.

Select offshoring if you’re struggling to find developers up to the job in your country. Reasons can vary: maybe there are no local developers with expertise in a tech stack you’re using, or they’re too expensive to work with.

Choose outsourcing if you want to keep your private data secure, don’t want to have to oversee software development personally, and reduce costs. In this case, you don’t have to possess expertise in hiring, managing, and maintaining an IT team.

Try combining both outsourcing and offshoring to get the best of both worlds, price- and quality-wise. Some foreign agencies can help you outsource software development and save money without any headaches related to time zones or cultural differences.

Outsourcing vs offshoring examples

At Purrweb, we’ve had plenty of experience helping businesses from many different countries outsource their software development. Here are some of our cases.

Dosis: an outsourcing case from Spain

Dosis is a streaming platform with a plethora of video content. Independent artists can upload their experimental works to the app, and fans can send donations in cryptocurrency and even buy merch. Essentially, creators get to fund their endeavors in one convenient place.

The founder wanted us to redesign the app. His company is based in Spain, and he already looked for Spanish designers, but our approach appealed to him better. It was challenging to communicate at first because we were not fluent in Spanish. Still, we’ve managed to resolve these communication challenges and create the finalized design concept in time.

Our client came to us with nothing but a business idea. We had to calculate unit economics and map out designs ourselves. In the end, we turned their abstract vision into a clear app concept.

My Therapy Assistant: an outsourcing case from the UK

My Therapy Assistant is a remote psychotherapy app based in the UK. It lets users chat with therapists, schedule calls, take notes, and track therapy progress.

We don’t operate in the UK. We had to delve deep into legal healthcare technicalities unique to the UK. Despite working aboard, we managed to quickly grasp the intricacies of foreign law and insurance policies, and deliver the app within the agreed time.

The clients over at My Therapy Assistant wanted to provide insurance coverage for patients. We made it happen by integrating the app with HealthCode, the largest British health-tech service.

Conclusion

In this article, we outlined the best model for startups and some key benefits and disadvantages to keep in mind when choosing offshoring vs outsourcing.

➡️If you have a project you’d like to outsource, don’t hesitate to contact us using the form below. Our project manager will contact you within 24 hours with an approximate timeframe and the costs of your future software.