Types of IT Outsourcing

Knowing what kind of jobs and responsibilities can be outsourced to third-party contractors/vendors can save significant time and money, while giving you access to specialised expertise.

In this blog post, we'll discuss some common types of IT outsourcing that are available to assist organisations in meeting their technology goals and solve critical challenges.

So, let's dive in and explore all the IT outsourcing types and services which can help increase efficiency within your business with examples and benefits.

What is IT outsourcing?

IT outsourcing refers to the process of contracting out IT services or tasks to an external company or agency. This can range from outsourcing entire departments or functions to outsourcing specific projects or tasks.

The goal of outsourcing IT services is typically to improve efficiency or to reduce costs, as outsourcing can provide access to specialised expertise and technology resources without the need for significant investment in-house.

While outsourcing can offer many benefits, it's important for companies to carefully consider the risks and challenges involved in outsourcing and to choose a reliable and trustworthy outsourcing partner.

Different Types of IT Outsourcing

Here are the different types of IT outsourcing you should know about with examples of each type:

1. Onshore Outsourcing

Onshore outsourcing refers to the practice of contracting with a third-party provider located in the same country as the company that is outsourcing its services.

These types of IT outsourcing model is ideal for businesses that prefer to keep their operations within the same country while still reaping the benefits of outsourcing, such as cost savings, increased speed to market, and access to specialised expertise.

Benefits of Onshore Outsourcing

This type of outsourcing can provide several advantages, such as reduced costs due to lower labour rates and more direct control over operations due to proximity.

Additionally, onshore outsourcing allows companies to benefit from local expertise and resources that may not be available in other countries.

Examples of Onshore Outsourcing

Example 1: India is one of the most popular destinations for onshore outsourcing, as it offers a wide range of services and cost advantages.

India has a large pool of highly skilled workers and a well-developed infrastructure that makes it an attractive destination for companies looking to outsource their operations.

Additionally, the Indian government provides incentives such as tax breaks and subsidies to encourage companies to invest in the country.

Example 2: The Philippines is another popular destination for onshore outsourcing, due to its competitive labour costs and highly educated workforce.

The country has a large pool of English-speaking professionals who are experienced in various fields such as software development, IT support, customer service, and business process outsourcing (BPO).

Additionally, the Philippine government offers incentives such as tax holidays and low-interest loans to attract foreign investment.

2. Offshore Outsourcing

Offshore outsourcing refers to the practice of contracting with a third-party provider located in a different country than the company that is outsourcing its services.

Benefits of Offshore Outsourcing

This type of IT outsourcing model can provide several advantages, such as lower labour costs due to differences in wages between countries and access to specialised skills or technologies that may not be available locally.

In addition, offshore outsourcing can help companies reduce overhead costs by taking advantage of tax incentives offered by certain countries.

Examples of Offshore Outsourcing

Example 1: Offshore outsourcing is often used for manufacturing processes. Companies may outsource the production of certain components or products to another country to reduce costs, such as labour and materials.

This type of outsourcing is especially popular in industries such as automotive, electronics, and apparel. By outsourcing their manufacturing processes, companies can benefit from lower labour costs and access to specialised expertise that they may not have in-house.

Example 2: Information technology (IT) is another area where offshore outsourcing is common. Companies may outsource IT services such as software development, web design, data processing, and customer service to countries with lower labour costs.

This type of outsourcing allows companies to access a larger pool of talent than they would be able to find locally, while also reducing their overhead costs.

Additionally, many companies can take advantage of the time zone differences between countries by having work completed overnight or over the weekend while their local staff are off duty.

3. Nearshore Outsourcing

Nearshore outsourcing refers to the practice of contracting with a third-party provider located in a neighbouring country rather than one farther away from home.

Benefits of Nearshore Outsourcing

This type of IT outsourcing model can provide several advantages, such as reduced language barriers due to similar cultures and languages between countries, easier access for management visits and meetings, and shorter lead times for projects due to closer proximity.

In addition, nearshore outsourcing can help companies take advantage of regional market opportunities without having to invest heavily in setting up operations abroad.

Examples of Nearshore Outsourcing

Example 1: Mexico is one of the most popular nearshore outsourcing destinations due to its proximity to the United States and its relatively low labour costs.

The country has a well-developed infrastructure, making it easy for companies to outsource their operations there.

Additionally, Mexico has a large pool of skilled workers and offers numerous incentives for foreign companies that choose to invest in the country.

Example 2: Costa Rica is another popular nearshore outsourcing destination due to its proximity to the United States and its highly educated workforce.

The country has a well-developed telecommunications infrastructure, making it an ideal location for companies looking to outsource their operations.

Additionally, Costa Rica offers numerous tax incentives for foreign companies that choose to set up shop in the country.

4. Hybrid Outsourcing

Hybrid outsourcing combines aspects of both onshore and offshore/nearshore models into one integrated model for maximum flexibility and cost savings.

Benefits of Hybrid Outsourcing

These types of IT outsourcing model provides access to global talent while allowing for more localised control over operations through onsite presence or remote management capabilities within an organisation’s own country or region.

Hybrid models also allow organisations to tap into specialised skillsets or technologies from multiple countries at once while reducing overhead costs associated with setting up operations abroad or managing multiple vendors across different time zones.

Examples of Hybrid Outsourcing

Example 1: On-site/Off-site Hybrid Outsourcing

On-site/off-site hybrid outsourcing is a model in which some of the work is done by an external provider on their own premises, while other tasks are carried out by in-house staff.

This type of hybrid outsourcing can be beneficial for companies who need to access specialised skills or services that may not be available within the organisation.

It also allows organisations to take advantage of cost savings associated with offshoring, while still retaining control over certain aspects of the project.

Example 2: Nearshore/Offshore Hybrid Outsourcing

Nearshore/offshore hybrid outsourcing is a model in which some of the work is done by an external provider located in a nearby country, while other tasks are carried out by offshore providers located further away.

This type of outsourcing can be beneficial for companies looking to reduce costs while still having access to high quality talent and services.

It also allows organisations to take advantage of local resources and expertise, while still benefiting from cost savings associated with offshoring.

5. Reshoring

Reshoring is the process of bringing back previously outsourced business functions to the home country. There are different types of IT outsourcing models depending on the location and the level of activity outsourced.

These include offshoring, nearshoring and onshoring. Offshoring involves outsourcing to a faraway country, nearshoring to a closer country, and onshoring to a domestic location.

Benefits of Reshoring

Despite the advantages of outsourcing, reshoring presents a compelling case for companies looking to improve their supply chain resiliency, geographic proximity to consumers, product quality, and agility.

Examples of Reshoring

Example 1: Motorola

Motorola is a prime example of a company that has successfully re shored its manufacturing operations. The company began its reshoring efforts in 2011, when it announced plans to open a new plant in Fort Worth, Texas.

This new plant would be used to manufacture the company’s popular Moto X smartphone. Since then, Motorola has opened several other plants in the U.S., including one in Chicago and another in Libertyville, Illinois.

The company now produces many of its products within the United States, creating jobs for American workers and boosting the local economy.

Example 2: Nike

Nike is another company that has successfully re shored its manufacturing operations. In 2012, the company announced plans to open a new factory in Oregon that would be used to produce footwear for the North American market.

This new plant created hundreds of jobs for local workers and helped to revitalise the local economy. In addition to bringing production back to the United States, Nike also implemented several sustainability initiatives at their Oregon facility, such as using recycled materials for packaging and reducing energy consumption by 25%.

6. Project Outsourcing

Project outsourcing has become an increasingly popular option for businesses looking to complete specific tasks or projects without having to allocate internal resources or hire additional staff.

There are several types of IT outsourcing to choose from, each with its own unique benefits. For example, onshore outsourcing involves hiring a company or individual within the same country as the business, while offshore outsourcing involves working with a company or individual in a different country.

Nearshore outsourcing is another option, which involves working with companies or professionals in neighbouring countries. By understanding the various IT outsourcing types available, businesses can make a more informed decision about which option is best for their specific needs.

Examples of Project Outsourcing

Example 1: Web Development Outsourcing

Web development outsourcing is a popular form of project outsourcing that involves hiring an external company or individual to develop a website or web application.

This type of outsourcing can be beneficial for companies who do not have the necessary in-house skillset or resources available to complete the project. It also allows companies to take advantage of cost savings, as they can often hire remote developers at lower rates than local ones.

Additionally, web development outsourcing provides access to a larger talent pool, allowing businesses to find developers with specialised skillsets that may not be available locally.

Example 2: Software Development Outsourcing

Software development outsourcing is another popular form of project outsourcing that involves hiring an external company or individual to develop software applications and programs.

This type of outsourcing can be beneficial for companies who do not have the necessary in-house skillset or resources available to complete the project. It also allows companies to take advantage of cost savings, as they can often hire remote developers at lower rates than local ones.

Additionally, software development outsourcing provides access to a larger talent pool, allowing businesses to find developers with specialised skillsets that may not be available locally.

7. Operational Outsourcing

Operational outsourcing can be a beneficial option for companies looking to streamline their operations and cut costs.

There are several different types of IT outsourcing that businesses can utilise, each with their own unique advantages.

One type is IT outsourcing, which involves contracting out technology-related tasks such as software development or technical support.

Another type is business process outsourcing (BPO), which involves outsourcing non-core business processes like human resources or accounting.

Similarly, manufacturing outsourcing involves contracting out the production of goods to an external company. By understanding the different types of IT outsourcing models available, companies can make informed decisions and optimise their operations for greater efficiency and profitability.

Examples of Operational Outsourcing

Example 1: IT Services

Operational outsourcing is the practice of contracting out certain business activities to a third-party provider. One of the most common types of operational outsourcing is the outsourcing of IT services.

This includes activities such as software development, system maintenance, and data storage. By outsourcing IT services, businesses can reduce costs and access more advanced technology than they would be able to afford on their own.

Example 2: Human Resources Management

Another common type of operational outsourcing is human resources management. This includes activities such as payroll processing, employee recruitment, and benefits administration.

By outsourcing these tasks, businesses can save time and money by not having to hire additional staff to manage them in-house. Additionally, many third-party providers have expertise in areas such as compliance with labour laws that may be difficult for businesses to manage on their own.

8. Business Process Outsourcing

Business process outsourcing (BPO) has become a popular practice in recent years, as companies look for ways to cut costs while maintaining efficiency. Most known as simply "outsourcing", BPO involves contracting out certain business operations to external companies.

The types of IT outsourcing models vary depending on the needs of the company. Some types of BPO include IT outsourcing, data entry outsourcing, and customer support outsourcing.

Each of these types of IT outsourcing provides businesses with unique benefits, such as improved financial management, reduced labour costs, and enhanced customer experience, allowing them to focus on core competencies and ultimately improve their bottom line.

Understanding the different types of IT outsourcing available to a company is key to developing a successful outsourcing strategy.

Examples of Business Process Outsourcing

Example 1: Accounting and Bookkeeping

Business process outsourcing (BPO) is the practice of contracting with an outside service provider to manage certain business functions, such as accounting and bookkeeping.

This type of outsourcing allows businesses to focus on their core competencies while relying on experts to handle tasks such as payroll processing, accounts payable and receivable, financial reporting, budgeting, and tax preparation.

By outsourcing these services, businesses can reduce their overhead costs, improve efficiency, and gain access to the latest technology and best practices in the industry.

Example 2: Customer Service

Customer service is another example of a business process that can be outsourced. By outsourcing customer service operations, businesses can free up their internal resources so they can focus on developing new products or services.

Additionally, by partnering with a BPO provider that specialises in customer service operations, businesses can benefit from improved customer satisfaction rates and increased loyalty due to better response times and more personalised customer service experiences.

9. Cloud Computing Outsourcing

When it comes to cloud computing outsourcing, there are several different types to consider. First and foremost, there is Infrastructure as a Service (IaaS) outsourcing, where a third-party provider manages and maintains the hardware and infrastructure needed for organisations to run their applications.

Next, there is Platform as a Service (PaaS) outsourcing, which provides a complete platform for application development and deployment, from hardware and operating systems to middleware and development tools.

Finally, there is Software as a Service (SaaS) outsourcing, which allows organisations to access software applications over the internet without needing to purchase and maintain their own hardware, software, and infrastructure.

By understanding these different types of IT outsourcing, organisations can make informed decisions about which outsourcing solutions best meet their needs and budget.

10. Web Development Outsourcing

Web development outsourcing is a commonly used strategy that many businesses leverage to offset the costs and time associated with developing websites in-house.

Outsourcing can take many different forms, each with their own pros and cons. Some businesses may choose to outsource their web development projects to a local agency or freelancer, while others may take a more global approach and outsource their projects overseas.

Regardless of the type of outsourcing a business chooses, it is important to carefully evaluate potential vendors to ensure that they have the right skills and experience to deliver quality work on time and within budget.

By taking the time to carefully consider their options, businesses can successfully outsource their web development projects and achieve long-term success.

Benefits of Web Development Outsourcing

1. Cost Savings

One of the primary benefits of web development outsourcing is cost savings. Outsourcing web development can reduce costs by eliminating the need to hire and train additional staff, as well as the overhead associated with maintaining a larger in-house team.

Additionally, outsourcing can help to reduce labour costs, as many companies are able to find developers at a lower rate than what they would pay for an in-house employee.

2. Access to Expertise

Another benefit of web development outsourcing is access to expertise. By outsourcing web development projects, companies can access a global pool of experienced developers who specialise in different technologies and platforms.

This allows companies to find the best talent for their specific project needs without having to search through local talent pools or invest time and money into recruiting and training new employees.

Additionally, outsourcing gives companies access to specialised tools and technologies that may not be available in-house.

11. Cybersecurity Outsourcing

Cybersecurity is an essential aspect of any business, and it is critical to ensure that your organisation is well-protected against any potential cyber threats.

Outsourcing cybersecurity services can be an effective way to achieve this, offering several advantages such as access to expert cybersecurity skills and up-to-date technology.

There are different types of cybersecurity outsourcing services, including managed security services, cloud security services, and incident response and forensics services.

Managed security services provide ongoing monitoring and management of network security, while cloud security services ensure that your cloud data is secure.

Incident response and forensics services help you address security incidents and minimise their impact.

Understanding the different types of IT outsourcing services available can help you choose the right solution for your specific needs.

Examples of Cybersecurity Outsourcing

Example 1: Managed Security Services

Managed security services are a type of cybersecurity outsourcing that involves the use of third-party vendors to provide monitoring, maintenance, and management of an organisation’s IT systems and networks.

This type of service can help organisations reduce their costs and ensure that their data is secure. The vendor will be responsible for setting up firewalls, intrusion detection systems, antivirus software, and other security measures.

They will also provide regular updates to ensure that the system is secure against any potential threats.

Example 2: Penetration Testing

Penetration testing is another type of cybersecurity outsourcing that involves hiring a third-party to test an organisation’s IT systems for vulnerabilities or weaknesses in their security measures.

The vendor will use various techniques to attempt to gain access to the system, such as attempting to bypass authentication protocols or exploiting known software flaws.

Once they have identified any potential weaknesses, they can then work with the organisation to develop solutions or implement additional security measures.

Why consider IT outsourcing?

The cost benefits of outsourcing are often discussed – it’s far cheaper to outsource functions, as and when required, than to maintain coverage in house.

Round the clock access and predictable fees provide another incentive. Plus, outsourcing can provide access to those with expert-level skills without having to contract them on a permanent basis.

It is particularly appropriate to businesses where:

• There is little resource to allocate to an IT budget
• The business needs skilled IT people that it can’t pay for
• A requirement for support may be temporary or intermittent
• New tech would be an advantage but there isn’t sufficient money to buy it specifically for the business.