The Difference Between Outsourcing and Offshoring

In this article, we will help you to understand the difference between outsourcing and offshoring.


A software development company is obligated to provide an efficient, and complete product to their clients in order to maintain a good reputation. By outsourcing work, this company is able to save money by using a third party for their development projects. For example, testing or design can both be outsourced.

By offshoring work, this company is able to save money by moving the work outside of the local area they are in so that it will be cheaper for them. For example, software development may take place in India instead of San Francisco because it’s cheaper and there are qualified developers capable of completing the task faster than someone here locally.

In this article, we will help you to understand the difference between outsourcing and offshoring.

What Is Outsourcing?

Outsourcing is typically using third parties to perform one’s own work. This may involve having the work completed in your office, but your company still does not necessarily do the developing.

For example, most software development companies outsource their customer service work to a call center in India where workers use computers instead of telephones to answer calls. In such cases, there are two separate parties involved: one that provides the service and another that provides the resources. It is important to note that while outsourcing a project may save time, it does not necessarily save money since you are paying for both services.

Outsourcing software development companies

An example of outsourcing is when a nurse uses a doctor to assist with the surgery or the doctor uses a nurse to complete some other task that needs to be done. There are two separate entities involved: one that provides the service (the nurse, in this case) and one that provides the resources (the doctor).

What Is Offshoring?

Offshoring occurs when there is no third party involved. You, as the software development company, provide your own service and provide your own resources. The work takes place in your location regardless of whether you have employees or other companies doing it for you.

offshoring software development companies

An example of offshoring is when your company moves work to India because it is cheaper and more qualified workers are available to do the work.

What Is the Difference?

Outsourcing is done with a third party to complete an assigned task, offshoring is performed by you, as the company, for your own projects. There are two types of contractors that can be used: internal contractors and external contractors.

Internal contractors are employees who do not have their own business. These people may have set hours or be paid a set salary/wage rate but they do not work for anyone else and they do not provide their own resources nor perform any services other than those of their employer. External contractors are independent contractors who do work for someone else.External contractors may work for a company and work on projects that are not entirely theirs, or they may be completely independent and do their own thing.

An example of an internal contractor is the nurse mentioned earlier who works for the doctor. In this case, the nurse has her own business but is still considered to be part of the doctor’s company. Internal contractors typically have set hours and paid by the hour, but they don’t have any other clients so it is not completely their own business. An external contractor would be an example of a programmer or designer working outside of their job at one company to complete a project for another software development company.

Pros and Cons of Offshoring and Outsourcing

Pros and Cons of Offshoring and Outsourcing

The benefits of offshoring and outsourcing are already mentioned above. The advantages include: cost savings (you pay less for the product), increased efficiency (you can have multiple products completed faster), and quality assurance (you maintain a reputation). The disadvantages associated with offshoring and outsourcing are: you cannot control the quality of the work, it is difficult to get help because of time difference, work can be lost in translation, and communication is difficult. It is also worth noting that some companies have not had good experiences with offshoring as they have been unable to get the desired results. Also, some employees consider this unethical so there may be conflict amongst co-workers.

Outsourcing is not always better than offshoring. Some situations may call for more effective and easier communications, and some organizations prefer to keep control of the work in-house.


The key differences between outsourcing and offshoring are as follows: outsourcing is when a third party works with another company while an external contractor works on their own. Offshoring is when the company performs the work themselves. Outsourcing involves a third party while offshoring involves employees working for an organization entirely on their own time. Outsourcing has many advantages to it, including cost savings, faster progress, and providing quality assurance, while offshoring has fewer advantages but still benefits in some ways.

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