Advantages of Outsourcing, Offshoring and Offshore Outsourcing

TL;DR

Outsourcing, offshoring, and offshore outsourcing enable businesses to save money and remain competitive, but each does so in a different way.

• Outsourcing helps you free bandwidth for core tasks.
• Offshoring can help you scale operations abroad for long-term gains.
• Offshore outsourcing combines the best of both, providing maximum flexibility and cost efficiency.

Key Takeaways

• Outsourcing reduces the costs and diverts concentration on strategy.
• Offshoring builds scale and enjoys government incentives.
• Offshore outsourcing provides expertise sans infrastructure investment.

In part one of this introductory series we discussed about what outsourcing, offshoring and offshore outsourcing are and defined the processes. In this second part of the series, we will take a look at the advantages of these three functions and see how they are similar or different to each other.

Let us start with outsourcing.

The advantage of outsourcing is that you are free of that work and in short don’t have to think about it really anymore. Besides, you get to enjoy tangible benefits like:

1. Reduced cost of operations: When you outsource, you are essentially handing over the work to an external agency. This means unlike hiring in-house you don’t have to invest in training, research and development. The external agency already has its own experienced set of people and infrastructure.

2. Better focus on core business: Outsourcing can help you to focus on your core strengths or competencies while you hand over the non-core tasks to an external agency. This means you can focus on brand building, research and development and other core areas.

3. Access to better resources: You no longer need to invest in recruiting and training expensive resources for your business. Outsourcing widens your pool of resources and gives you access to a better quality for less.

4. Advantage of time zone differences: If the place you outsource to has a different time zone, you could actually get work done 24×7 because while you close for the day, work starts in another time zone. It means that when you are back the next morning in your place, you find your work delivered to you.

Advantages of Offshoring

1. Economies of Scale – When a company sets up office abroad, it gets comparative cost advantages on labor but also on other things like cost of land, infrastructure, rent, internet connectivity etc.

2. Favorable Government Policies – Many governments across the globe grant exemptions and incentives to companies that set up businesses in their country thereby investing in their economy. Tax exemptions and access to cheap credit could improve the bottom-line of the business.

Advantages of Offshore Outsourcing

As pointed out in the previous article of this series, offshore outsourcing is simply outsourcing done outside your country.

The advantages of this are as follows:

1. Lower Costs – Since there is no cost of investment in infrastructure and they get the same or even better qualified professionals in the same price.

2. Take advantage of vendor’s expertise – They get access to vendors who are specialized in their fields and take care of the fields outsourced to them. So for example if the core competency of your business isn’t HR or accounts , offshore outsourcing it to a vendor whose core competency is HR and accounts will help you to focus on your core strengths instead of wasting time and resources on it.

3. Scalability – Because you are not in rigid contracts with a vendor, you can scale your resources up and down as per your requirements which again means reduced savings and better efficiency for your business.

“According to The Hackett Group’s 2023 report on Bridging the Outsourcing Value Gap, companies that align vendor models with long-term business goals achieve significantly higher efficiency gains compared to those driven purely by cost,”

Comparison Table

Behavioral Insight

VE client performance data (2009 – 2025) reveals that SMEs that use offshore outsourcing have achieved 42% faster project turnaround and 28% lower attrition compared to those who outsource locally.

[Source: Virtual Employee Performance Benchmark, 2025]

Quick Decision Checklist

Which Model Fits You?

Need specialized expertise quickly: Outsource

Long-term control and scale: Offshore

Need cost + expertise without infrastructure: Offshore Outsource

If you ticked the last box, then you are the right candidate for Virtual Employee’s branch-office model.

VE Perspective

At Virtual Employee, we see clients combining the three models in hybrid form. A US SME may outsource finance domestically, development to India, and use offshore outsourcing for support to create a 24×7 delivery model without losing control.

As highlighted by Outsourcing Center’s 2024 study on the Cost vs. Value of Using an Outsourcing Consultant, businesses guided by outsourcing specialists achieve faster onboarding, stronger vendor alignment, and higher ROI.

These, in a nutshell, are the advantages of outsourcing, offshoring and offshore outsourcing. Choose the one that suits your business best. In the third part of this series, we will look at the history of the difference between how SMEs and MNCs offshore, outsource and offshore outsource.

FAQs (Quick Answers)

Q: Which model gives maximum control?

A: Offshoring gives the highest control since you will have complete ownership of a team, process, and infrastructure. It serves as a direct extension of your local office, enabling you to have end-to-end visibility into recruitment, workflows, tools, and compliance. This model is particularly well-suited for companies intent on maintaining strategic oversight while scaling globally.

Q: Which model has the fastest start-up and lowest set-up cost?

A: Offshore outsourcing provides the quickest start-up with minimum setup costs. The vendor is responsible for recruitment, workstations, tools, and IT infrastructure. You can concentrate on operations right from day one. It’s a good fit for companies requiring speed, flexibility, and specialized talent without long set-up times or large capital investments.

Q: Which model helps reduce business risk the most?

A: Offshore outsourcing decreases risk because you work with a vendor who has the setup, team, and systems for compliance already in place. You avoid the cost and risk of creating new infrastructure at another country location, but you get reliable delivery and support round the clock.

Q: How does each model impact data security and compliance?

A: Offshoring allows full control over data and security policies because the team works for you. Outsourcing and offshore outsourcing depend on the systems of the vendor; so it’s important to choose certified partners who are working according to GDPR, ISO, or other similar standards to protect your business data.

Q: Can a company use more than one model together?

A: Yes, many SMEs and MNCs adopt a hybrid model to balance cost, control, and scalability. For instance, the company may offshore its development center for long-term projects while outsourcing customer support or payroll to a third-party provider. This blended approach maximizes agility and makes sure that the right model fits each business function.

The real advantage lies not in where you work from but in how you combine these models to build speed, resilience, and trust in a global market.

Reviewed & Updated: November 2025