Understanding the Different Types of Staff Offshoring
It might be safe to assume we are all familiar with outsourcing or even offshore outsourcing, a business process that has been around even before call centers were a thing. As a business strategy, it officially became a term in the ’80s. It was finally considered an attractive cost-saving solution when taking a picture in New York City’s Times Square was still considered original. It now has a reputation in the information technology industry as a low-cost option primarily done in India or the Philippines.
It is when the different types of staff offshoring walk in that everyone in the room goes silent, as one of the most misunderstood concepts of the staffing industry along with its types and subtypes, an impressive proportion of business owners or even human resource specialists still confuse these terms. To be fair, the confusion might be because both business models share the same twofold essence: lower cost in wages and allow the company to focus significantly on its core business while leaving other business functions to be handled by service providers outside of the company.
If outsourcing is done inside the home country of the hiring company, it is then considered onshore outsourcing. When this is done outside, then it becomes offshore outsourcing or nearshore outsourcing, only referring to the geographical location.
To avoid confusion, for this article we are merging both terms into just “outsourcing”, since “offshoring” alone has a different meaning in the service context: (Outsourcing: A process done somewhere else + offshore locations: a geographical location outside the country = offshore outsourcing ≠ staff offshoring: Hiring employees from foreign countries to do specific roles) Now we are left with outsourcing versus offshoring: They are similar in the most basic sense, but in practice, they are entirely different depending on what is required and more importantly, the expected result.
First: Know The Basics
For business activities and work assignments, outsourcing will be about hiring a third-party service from a provider in a different country with no relationship or delegation toward the staff, while staff offshoring will have these completed by an offshore team for your company only, working basically as an extension of your company’s in-house team and that you can directly manage.
However, if we talk about functions and business operations, outsourcing will focus on specific tasks within a process. Customer support and IT services are among the most popular business process outsourcing services. Staff offshoring, on the other hand, involves complete roles performed by highly experienced specialists handpicked from a personalized talent pool.
Regarding involvement, with outsourcing there is little to no interaction with talent acquisition or performance management, thus resulting in a fluctuating quality of work depending on who is working on the project and what other projects from their various clients may hold more priority over yours. As a quick solution for quick projects, this is a great short-term option that we often see in software development when there are peaks in the workload during heavier times of the year, for example.
However, long-term solutions and scalability are among the most relevant benefits of offshoring for the most part, as offshore team members are considered part of your company, following your policies, protocols, and business processes as a whole; the level of involvement depends on the type of staff offshoring that we will talk about up next.
Types of Offshore Remote Teams
By Geographic Location (Where)
If this service is offered within the home country, then it is considered onshore. In this case, labor costs are virtually the same, serving mainly as a process optimization strategy.
If this service is offered outside the country near similar time zones, then this is considered nearshore. For the United States, a nearshore location would be Mexico, where lower labor costs can be expected while offering a wide talent pool with the same level of education and/or experience as most U.S. candidates, especially in information technology and other service-related industries.
If this service is offered outside the country in far-away countries with considerable time zone differences, then it is considered offshore. There are multiple vendors from developing countries that could offer a staffing option primarily focused on cost reduction, at the expense of experiencing cultural differences among the employees as a result of the distance between the two countries. For the U.S., the offshore locations would be India or the Philippines; while higher in costs, Eastern Europe has also become a popular offshoring destination mainly for the software development industry.
From this point on, and for this article, we are merging both offshoring and nearshoring since the only difference in their definition lies in geographic location, thus the following types encompass the reach for both terms.
By Business Activity (What)
With lower labor costs and resources, manufacturers may find this to be a cost-effective solution consisting in setting up a manufacturing unit in a different country. The costs related to building, renting, and sustaining properties are also lower in developing countries in addition to less restrictive regulations and norms attached to business operations. The final products are then shipped to the home country or the international market.
Service-related operations performed from units set up in other countries pursue the same competitive advantage as production offshoring, although with much less traveling between locations or shipping items as the key differences. Related services such as customer support, marketing, and sales are common examples that mainly startups and medium businesses might implement, to focus on their core business.
Innovation and Software Offshoring
Similar to service offshoring, although prioritizing quality on high-tech production cycles, seeking to make them shorter and/or much more cost-effective, obtaining talented human resources for a fraction of the cost. The growing demand for stronger innovation and R&D departments requires access to a global talent pool.
By Business Strategy (How)
This option enables companies to obtain immediate support from specialists without engaging in a recruitment process. Augmented staff is hired from a third party on a contractual basis for a specific project or portfolio. This business model is particularly great to cover peaks in workload and meet project objectives by bringing in temporary workers. Internal and augmented staff may work together over the length of a chosen project, either if it is an ongoing project or a new one.
This third-party service is essentially an on-demand extension of the current team and has subtypes of its own depending on the skillset required from the augmented staff or the service model it will have. Staff augmentation usually has hourly rates, as it is a short-term solution that eliminates most of the formalities between the worker and the augmented company, an equivalent to mercenaries for businesses.
Business Process Outsourcing (BPO)
Similar to staff augmentation, although BPO is about hiring third-party services to carry out certain parts of business operations, destined for back-office or front-office operations that, although necessary, are not directly part of the core business functions. Regardless of the number of projects handled, BPO will be in charge of specific support tasks, the most common being payroll, accounting, and human resources as back office BPO; while front office BPO commonly includes more customer-related services such as sales, marketing, and customer support.
Naturally, back-office and front-office business functions are great for startups given the limitations of their in-house resources; while established companies might determine this as a viable cost-reduction alternative. BPO contracts generally fall into either a time and material contract, in which the business pays the service provider for the time and materials used, or a fixed-price contract which is an upfront price assigned to specified work.
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Offshore Remote Team
Also known as nearshore/offshore dedicated teams, the global pandemic encouraged offshoring to evolve into adopting a stronger remote presence. Throwing remote work into the equation made all of the offshoring services even stronger in popularity, particularly offshore and nearshore staffing companies dedicated to building virtual teams as it benefits the most from remote technologies.
Indeed, a more specialized market requires more specialized solutions. Newer business models synergize the advantages of remote work technology into coworking spaces, committed to balancing out the benefits of full-time employment and independent contractors while eliminating the most inconveniences from both.
An offshore remote team helps a company expand its staffing by building a remote team, which can be composed of one employee to a whole department. So, is an offshore remote team the same or different from a BPO, staff augmentation, or the rest of the offshoring models? The answer is YES.
On a serious note, though. As we mentioned above, staff augmentation, in short, is about temporarily expanding a department filling it with specialists hired through a third party to cover workload peaks for specific projects. Imagine mercenaries in a business context. BPO (Business Process Outsourcing) as the name suggests, is about hiring a third party to perform specific business operations regardless of the number of projects, usually handling activities that are not directly involved with the core business.
So, the offshore/nearshore remote team is taking the benefits of the aforementioned offshoring models, plus the convenience that contractors offer from an administrative perspective since the offshoring service provider will be responsible for every aspect of virtual employee management, recruiting, and human resource functions to help the company start, scale, and run a remote team in every step of the way.
From here, we find two sub-types of offshore remote teams depending on how the offshore remote teams’ service provider hires its employees: As independent contractors or full-time employees. As for the latter, workers acquired through this model will be under full control of the hiring company and will report directly to them following its policies and protocols, basically, an extension of the in-house team operatively speaking, although they are locally registered as full-time employees for the offshore remote teams’ service provider.
This way every worker is not a contractor but a full-time employee with all benefits by law, therefore keeping all of the benefits of in-house employment from the employee’s perspective if they also choose to utilize a coworking space (access which is usually provided along with the service) while maintaining the convenience for the hiring company of not having to deal with any time-consuming HR functions and paperwork as an international employer neither signing binding contracts since this kind of service main competitive advantage is how it minimizes risk through an all-inclusive service that only requires a single monthly payment.
Needless to say, this convenient model may definitely not be the cheaper option but as a long-term, one-size-fits-all remote team solution, it can turn out to be the most cost-efficient since acquiring specialists through Offshore Remote Teams can still result in savings from wage costs by up to 60% in return of all-inclusive staffing service.
As we can see, versatility comes in different ways, so it does not stop here. Offshoring services on their own are evolving as fast as technology does; therefore, companies with specific requirements might even adopt two or more of the offshoring models mentioned above as they are not mutually exclusive from one another, thus implementing a hybrid model.
Often, multinational companies with more complex logistic or production requirements adopt hybrid models composed of a combination of offshore, onshore, and nearshore human resources to obtain an optimal solution with a lower cost outlay with a better return on investments. Naturally, as a more global approach, this model gives access to the different time zones but mainly diverse talent pools where cultural differences from foreign countries might be a helpful addition without giving up the local presence and access to communication that an onshore model can provide.
There are several ways that a company can grow. Depending on the industry and requirements, the potential for offshoring evolves as technologies develop. In the past, cost savings was the highest priority. Today, the most successful offshoring service providers prioritize high quality and innovation, thus turning it into a cost-effective solution. Although a significantly bigger administrative challenge, a hybrid model could benefit from all of the offshoring advantages while eliminating most if not all inconveniences. Although the best option when the budget is a limitation will always be to seek a purely offshore model.