Outsourcing Vs Offshoring

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Perfect. Awesome. So we have, we are live. It says that we are live, but let's wait for a few. Yes. We have people joining in. So we are definitely live. Let's begin. Hello and welcome to Momentum Office Hours. My name is Yash and I'm joined by my co-founders Jay and Koushik to discuss topic of the week, which solving problems that are not outsourced.

and we'll talk about that a little bit as well. Our goal is to provide you with actionable insights and practical strategies that you can apply to your own business. Throughout the session, we encourage you to engage with us by asking questions and sharing your thoughts. This is a fantastic opportunity to learn from each other and gain new insights that can help drive your digital initiatives forward. Let's get started. Jay, Koushik, how are we doing today?

Good, nice. I was working little late, so yeah.

Koushik, it was so late that it qualifies as early morning. But awesome. we just rebranded Momentum 91 and we have a new identity, we have a new purpose that you'll be able to find by visiting our website on Momentum91.com. that's besides the point.

Today we want to talk about what is the primary difference between outsourcing and offshoring and how you should, how should you think about it as a business leader. So what do you guys think?

It's an interesting topic of course. just want to get started with one very basic question Yash. What sort of, is there any difference with respect to stages or size of the team where they prefer outsourcing or offshoring? Because largely what happens is what people have been writing about and talking about is that if it's a piece where it's just for a smaller amount of time you just outsource it and

if it is something as an extension of 13 which is going to be permanent you might want to think about if there are other factors impacting the cost or any other ease of operations and things like that then you might want to look into option so just want to have a bigger clarity first of all and along with that want to also understand what sort of companies prefer each of these options

Got it. So, it's not necessarily a function of the size of the company or the amount of team or anything like that. It's largely sort of related to how important is that piece, whatever it is that you're outsourcing or offshoring, how important is that piece for your own business. So, as an example, I could be a two people team.

building a tech product. But given that I'm a tech company and I'm building a tech product, tech is extremely important for how it works and how it functions. So in that case, my choice would be different versus as an example, if I'm a, if as an example, I'm a recruitment agency with a thousand team members. So like really big scale. So a thousand people are recruiters that are working in my company.

And I want to do my, like I want to outsource my social media as an example. So what amount of role does that play into the, you know, my, the journey of my business or the smooth functioning of my business. That basically whatever that the challenges or problem is or initiative is depending on its complexity and depending on

how big of a role it plays within our organization is how I would choose whether I want to outsource or offshore. The bigger the role it plays, I'd want to do it offshore. The smaller the role it plays, I'd want to outsource and get done and then move on. Does that answer your question?

Yeah it does.

So Yash, so what all elements come into place into this? because there is both technology and people involved and people need a lot of stuff that is along with it that is involved to make sure the job is done. So in both the cases, how does it differentiate? If I am someone who somewhere, if I'm a company who is in somewhere out of India, what advantage am I getting it bringing to India?

of and so on.

Hmm. So largely the first advantage. So do you mean outsourcing or do you mean offshoring?

In both the cases. I want to just understand comparative perspective.

Got it. So as an example, I'm, if let's say we take an example where I'm building some software, some small piece of software and I'm outsourcing it. If that doesn't play a large role in my business at its core, and it's a small piece of technology that is just making some process a little more efficient or something like that, then I would choose to outsource. If I'm outsourcing, the benefits are largely

It's significantly more cost effective. I don't have any employment liabilities. I don't have to integrate the people who are working on this as a part of my mission, vision. I don't have to onboard them. I don't have to get all of them aligned to my culture. I have flexible payment terms and stuff like that and I can do it in a fixed cost way or whatever. And so then I would outsource. So those are the benefits of

of outsourcing. However, if I'm looking to build something that is going to be my core of the business, so let's say I'm a manufacturing or company that is looking for digital transformation and you don't want to, let's say, doing $5 million or $10 million in annual run rate and complete digital stack I want to build. Outsourcing is not great for that sort of play, largely because

you will not have the ability to control the process. You will be working with a vendor whose priority is not you, whose priority is running their own company and then you are priority for the calls like during the calls that are happening you are their topmost priority but whenever the call is not happening they're running their own company is their priority. There's lesser people continuity as well in case of outsourcing.

So in those cases where I know that this is something that I'm going to use for long term, this is going to play an important role in my business. The key advantage of offshoring is that it will be significantly cost effective than wherever my business is and the access to talent is also significantly higher. So I can get niche skill sets. So if I want, as an example, someone with

8 to 10 years of work experience in manufacturing in SAP who has worked on the problem for configure price and code before. a very specific profile, I'll be able to get that in off-shoring, which is difficult to get locally. And I will be able to get that talent at a significantly lower

cost which will lead to still lead to a living like lifestyle for the talent. So they'd still be able to have a better lifestyle than the local talent. that's primarily the advantages of offshoring. So long term mission critical technology pieces that need to be built, offshoring is the way to

So even in this cases, Yash, at times companies don't align or maybe think twice or thrice or maybe don't take the right step of offshoring and still think about outsourcing so that just to solve a problem for a time being most likely because the key decision makers could be the one amongst the co-founders or directors but then the one who is supposed to execute are going to be the other management people. At times,

the responsibility that comes with offshoring and setting things up seem little larger compared to what it would be in outsourcing. So could you tell little bit of challenges that companies might be facing in terms of managing these two? I'm trying to understand here is more about are there any possibilities where companies are planning to they want certain execution to be done. It's already planned for a particular year but then

for that execution to happen the mid management is most likely going to take some decisions because they are going to run the show right and in that cases they might be choosing outsourcing versus offshoring but for a company's actual benefit offshoring could be little bit more beneficial just as the pointers that we discussed upon how can companies or the directors or the top management solve these sort of challenges is there a way out to move ahead in that

So here's a good question to ask. And so I'll give you a list of questions that you can ask. And depending on their answers, you can basically figure out whether it is outsourcing or offshoring. So do you need to maintain full control over the software development process? If it is a no, then go for outsourcing. Do you prioritize?

high quality talent over cost savings? If it's a no, then you can go for outsourcing. Are you scaling tech operations and are you looking for long-term team members? Again, if the answer is no, then you can go for outsourcing. Is adding engineers with niche skill sets to your tech team sort of a critical factor for your business success? If the answer is no, go for outsourcing.

Is hiring engineers who are fully integrated with your company a must? And when I mean fully integrated, I mean they are mission aligned, they believe in the vision, this is what they want to do, that aligns with their purpose. If the answer to that is no, then you can go for outsourcing as well. Are you concerned about data privacy, security, when someone is working on your product or platform? There's a good probability that you're...

the scale at which you are, there's already some data that exists. You're not going from zero to one. You're going from sort of one to 10 or 10 to 100. So is data privacy or security important? And if the answer is no, then you can go for outsourcing. So these are some few questions, right? So is long-term value for money important to you? All of these questions, I would recommend the directors or senior leadership team to ask.

themselves when they are making a decision of outsourcing versus offshoring. And that can help them make the decision as to which one to sort of go for. So again, business critical long-term niche skills, offshoring is significantly better. Not as critical, small piece of work. There's a start date and an end date, sort of an assisting

sort of a role, outsourcing is significantly better. Because then you don't have any of the liability and stuff like that in outsourcing.

Great. Yep.

So Yash, while you were talking, you mentioned about the factor of, you know, how, you know, the company culture could be maintained and could be, could be carried forward here in the offshoring process. Could you brief on that part, how it could be done? How could come, how could offshoring teams be part of a, you know, the company culture that has been set up somewhere in the West over there? So how does Sync work?

So firstly, I'll tell you the, so we take the word culture a little lightly. So, and we take the word alignment also a little, like not as seriously. So I'll give you an example of what I mean, So let's take an example that I'm a managed office company. So let's say I'm VWork or something like that based in the US. And I have the option of,

Outsourcing our ops platform to an agency versus creating an offshoring team for myself. Both of them, let's say, can happen within India. When we say alignment, what that means is that the team members, so in case of outsourcing, it's more of the questions are more of what do you want? We'll make that happen. Do you want this button to be green? Yes.

we'll make that happen. So you will tell us, so like you will tell me as we work, you will tell me what you want and I'll make that happen. Versus when we talk about alignment, what that means is that the team members would read industry technology reports and figure out what next. They'd come back to you with recommendations. So it's not a meeting where you are asking a report on the work that is being done.

It's a meeting where brainstorming and collaboration is happening, where the team is also sharing this with you. They are understanding the company's priority. They know what are the objectives of the company, what are the goals of the company. And they're able to help you make an informed decision as far as engineering and technology is concerned. So that is what we mean by alignment. Second thing, what we mean by culture is every company has like it or not, whether they have a document or they don't have

They do have a culture, there is some culture. Wherever there are more than two people involved, there is some culture. Even in this room where the three of us are talking, there is some culture that we already have. So that is always going to be there. And when you want to, when new people are joining in, to maintain culture, offshoring, there is

There are a few things that happens. So one is that there are Chief Happiness Officers whose job it is to help the people who are... So one of the disadvantages of offshoring is that the team is far away. So they are in a completely different location. And so there are people whose job it is just to make sure that these two teams that are working in different locations, they are aligned. Are they a sports team? Are they a family?

like whatever the culture of the organization is, that they make sure. At the time of onboarding, at the time of interview, the process, all of those things are happening exactly how the company does it. So if WeWork is recruiting in the US, as an example, versus WeWork recruiting an engineer over here in India, in case of offshoring, the process is exactly the same. Everything that

that they have is being followed. So that is largely how the culture and the alignment is sort of kept intact. I'm so sorry, there's another, there's a question that we have. If someone is unable to connect with team members located in a different country in an offshoring setup, it's usually easier to do so in a typical outsourcing arrangement. So how do you manage the challenge of

not being able to connect with team members in a different country. So generally what we've seen is in case of offshoring when there are multiple locations where the teams could be working out of, what they do is a few things. So one is that they have specific channels or groups, so like Slack channels or groups, which is where there are conversations that happen, much like how we have momentum officers.

The companies also do office hours, do town halls. companies also like within that team there are of course engagement activities going for movies together, going for events and concerts and stuff like that. But then also like the annual trip or the quarterly trip, all of those things also continue to happen to ensure that everyone's sort of aligned and working on the same thing. That's largely how.

how they manage the culture as well as make sure that the team members are aligned. Does that answer your question, Kashi?

Yeah, yeah. Because I was thinking from the perspective that we mostly talk about the tech and all the things around the tech. So a critical aspect of offshoring is the culture and the DNA of the company part. Yeah. Wanted to get that idea on that. Yeah.

Yeah.

So from another perspective of, I mean, from the completely different side, from the perspective of like team members and the employees who are going to be in the part of the setup, either outsourcing or offshoring, obviously in case of outsourcing, it will be from other entity. But how does these expectations from employee side vary in both the setups? Could you share a little bit more in that area?

So like if I'm a team member, in case of outsourcing, I'm applying to become part of a services firm, which is where, so as an example, as an employee, if I want to largely solve very different problems over the next five years of my career, then I would join an outsourcing company. Because I will get to...

do surface level work on very different problems. So two months ago, was solving for, as an example, how do I ensure that we have the optimum amount of inventory in our warehouse? And today I'm solving for how do we ensure that our AWS invoices are as little as possible?

So the nature of the challenges are very different from an employee standpoint when they join an outsourcing firm or when they join a services company and I solve all of those problems at surface level. However, when I join an offshoring entity, I'm actually not joining that entity. I'm joining the brand, right? Whoever's needing it. in the example that we are talking about, let's say it's WeWork. So if for the next five years,

In my career, I want to solve just one problem and then go in depth, like vertically into it. So if I want to work for five years on how do we ensure that our inventory is at the optimum levels in our warehouse, if that is what I want to solve for the next five years, I would join a brand, generally, let's say a retail company or retail company in consumables.

That would be a really good company that I would join where for five years I just figure out how do we stock just the right amount of oranges or how do we stock just the right amount of mint leaves or how do we stock the right amount of cakes as an example in our outlets as well as our warehouse or manufacturing center or whatever the case may be. So that would be largely the difference in mindset.

Lots of different surface level problems over the next five years I want to solve. I join a service or an outsourcing company. One problem I want to solve in depth for the next five years, like a niche problem, I join an offshoring company.

Does that answer your question?

Yeah, yeah, it does definitely. I had one more question with respect to the strategic roles, right? if we talk about so like would offshoring, let's say some companies preferring offshoring for their complete setup, but they are still not having a complete creative or strategic role fixed that is going to lead that particular motion. Should offshoring be also considered or outsourcing? I mean, this is not completely from outsourcing versus offshoring standpoint, but

should creative or strategic roles be also opted for in offshoring cases or like offshoring is just for the execution part where the strategy and processes are already well aligned with the headquarters let's say and this is just going to execute and obviously the checking part is going to happen through the headquarters someone in headquarters I'm saying that wood checker also can also be considered over the offshoring center

So everyone can be at the, so every, that does not need a physical presence near the customers can be done in the offshoring set up, right? I've seen cases where, where founders of SaaS companies have moved closer to the, to the offshoring team because, because they were founders and CTOs or co-founders and CTOs.

and they moved to the place where the offshoring team was sitting because they were not required to be near the customers. Only the person who working on GTM or sales or investor conversations was the person who was required. So it's not like only execution can happen from an offshoring team, strategy cannot happen. are niche talent is available everywhere.

in case of offshoring and so the idea is what is the amount of long-term partnership or critical role that this plays. We've also seen examples where head of product, head of technology, head of design have also been part of the offshoring team and they are the final checks for everything. They set the vision, they set the

objectives, they set the goals and they are also part of the the option. So it's a remote world where more and more people, where companies can leverage working out of different locations and working, having multiple offices actually gives you a cost advantage. And so this actually is, it's no bar in terms of they'll obviously be more

In any organization, there will obviously be more people who execute than people who work on strategy. Because if everyone's working on strategy, then who's doing the work? So for any organization, there will always be more people who are executing things. There will always be more people who are putting the phone together than there are people who are designing the phone. But there's no reason why both of them cannot be together in the offshoring setup.

makes sense completely,

So, you know, India as a country has both of this at a very large extent, right? And especially in this particular time of tech where, you know, the build and ship a product or is becoming significantly faster. So where mostly it feels like a quality game than the volume game that is happening. So what do you think is the future or

ability to.

where it is going towards in both outsourcing and offshoring with current improvements in AI as well as the technology that's happening.

So I'd say, I mean, in this age of AI, I would say that your people are even more important. let's, I mean, there could be certain challenges with AI today, but we've all seen what's been happening for the last 18 months or so, or 24 months or so. And we know that these talent, like AI is here to stay, and it is changing the way that we work. And it is...

only going to get better faster. So let's assume that over the next few years we'll get to a point where AI knows everything, that's out there in the world. You will still need people who will give AI context of your company. And so what I mean when I say is that, what I mean when I say in age of AI, people become even more important and they are your competitive advantage.

is that continuity of these people who know the organization, who know the priority, who know the mission, vision, values, culture, who know the goals and objectives. Continuity of these people leveraging the knowledge that AI has, which knows everything there is to know about rest of the world is essentially your competitive advantage as a company. You don't have to train, retrain, re-onboard.

you know, not every new person who joins the team and that's why like this is and this is like age-old wisdom, right? It's not something new. It's significantly more expensive to replace a team member than to retain one. That's, this is management 101, right? So MBA, HR, this is the first chapter. Now it becomes even more important because that

that much productivity gains is being offered by a retained team member than a churned one, versus a churned So I'd say that, which is something that outsourcing will definitely not be able to offer. So this is something that only offshoring, only long-term thinking, only partner-driven thinking is what can drive this.

I also have, and this could be maybe our last question for today, but I also have another question on our LinkedIn which says, what level of authority or control will I have over the remote team in an offshoring setup? Will I be able to lead them directly or will I need to follow the leadership structure at that location? Great question. This is a very, I say this is a great question because this is not a long answer. It's a very specific question. You have your own structures. You, I mean,

Imagine you having a remote team member. That's what this is. So instead of having a remote team member, you have a remote team. But they follow, like they get the same welcome kit. They log into the same HRMS system or whatever it is that you have. They get your email addresses. They are able to, like if you give, if you

are one of those visiting card companies, then they also get your visiting cards. So you have complete level of authority or control in terms of recruitment process as well. We recommend you what are some of the processes that we follow that you may want to consider. But ultimately, the Offshoring Center also follows the same recruitment process. So the same recruitment process, then they join, they get onboarded, and then it's

Essentially from the employee standpoint and your standpoint, both of you are working for the same organization. We'd just be the facilitator. We'd just be the company that makes it happen. That is this bridge that helps in making sure that it feels significantly more glued than the geographical distances would imply. And with that answer,

We come to the end of the conversation for today. I hope this has been valuable. This, by the way, whatever I've shared, Koushik, Jay and I, when we started Momentum, we ourselves were confused. We ourselves were researching as to what is the difference between outsourcing and offshoring. And it is over the last few years that we've been able to, like working with other companies and looking at what their priorities are and how they think about it.

how they treat their team members and what the processes that we follow. Doing all of those things is how we've learned and is how we've understood what are the key differences between outsourcing and offshoring and this was our attempt to share that with all of you as well. So thank you everyone for joining in. Hope this has been valuable. I would just, before I go, I would just mention

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