What is the difference between Outsourcing and Offshoring?

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Outsourcing and offshoring are often used interchangeably, but they are actually two distinct concepts that can have significant implications for UK-based accountancy and bookkeeping firms.

In this post we explain the main differences between outsourcing and offshoring:

Outsourcing

Outsourcing refers to the practice of hiring a third-party to perform tasks or functions that are normally carried out in-house. For example, a UK-based accountancy firm might outsource its accounts preparation or bookkeeping tasks to an external team of professionals, either locally or in another country. The Outsourcing Partner will deliver the agreed services to the Client Firm as per the service level agreement between the two.

Offshoring

Offshoring, on the other hand, refers to the practice of hiring individuals or teams to perform tasks or functions from a different country whilst working within the organisation. For example, a UK-based accountancy or bookkeeping firm might hire professionally qualified individuals or teams to prepare accounts/tax returns or undertake bookkeeping tasks in Pakistan or another country.

Key Differences

The key difference between Outsourcing and Offshoring is the nature of the engagement between the Client Firm and the Outsourcing or Offshoring Partner. Outsourcing involves engaging with a Partner to deliver the agreed services to the Client Firm. The Partner will be responsible for employing their own dedicated team that will complete the work and deliver the assignments to the Client Firm.

With Offshoring, the Partner will act as an agent on behalf of the company and recruit and employ individuals or teams specifically to work for the Client Firm. The resources will work directly with the Client Firm and as part of their team working on assignments as decided by the Client Firm. The Partner will employ the resources and provide them with relevant equipment and office space to work from whilst the Client Firm will take responsibility for the utilisation of the resources time, just like it will do so with its own inhouse team.

Other key differences are flexibility and potential cost savings. Whilst both Outsourcing and Offshoring can often result in significant cost savings due to differences in labour costs between countries. However, Outsourcing is often a more flexible arrangement compared to Offshoring where there may be longer-term agreements with minimum contract periods, termination clauses and other stipulations within the contract terms.

Summary

In summary, Outsourcing involves buying in services from a third-party provider to perform tasks or functions that are normally carried out in-house, while Offshoring involves hiring individuals or teams based in a different country to perform these tasks or functions as an extension of the Client Firm’s existing team. Both strategies can offer potential benefits for UK-based accountancy and bookkeeping firms, but it’s important to carefully consider the costs and potential challenges before making a decision.

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