Insourcing or outsourcing? That is the question

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October 20, 2021

Insourcing or outsourcing? That is the question

Insourcing and outsourcing are two opposing ways of working. There is no right one: both choices can have pros and cons depending on various factors, most importantly the type of business you have. It is therefore necessary to perform an analysis of both in order to understand exactly the right strategy for a company. But first the introductions – let's see in detail what these two terms mean.

Definitions

Insourcing is a business practice that takes place within the company itself, be it a subsidiary or affiliate. Outsourcing, on the other hand, is a business strategy whereby a job is transferred to an external company that works remotely. Let's proceed with outsourcing vs insourcing analysis.

Proximity and control

Insourcing certainly has on its side the fact that the team that is managing the company’s services is on site and therefore can communicate better with all departments while being aware of company processes. In addition, you will have greater control over the workflow because the insource team is always reachable and therefore able to update and manage not only the software part but also any hardware parts directly in the company.

Costs

What should we bear in mind when comparing outsourcing and insourcing costs? Outsourcing is certainly cheaper for the company, as it is a consultancy relationship and not a dependency one, and has a wider flexibility. Furthermore, with outsourcing, the risks of data loss and hacking are mitigated: in an increasingly competitive environment, outsourcing companies strive to provide a better service with greater security. Outsourcing providers take measures to improve data recovery, prevent data loss and technology downtime. Finally, with this method you can have a team of highly skilled workers who will be chosen according to the needs of your project. Outsourcing companies have a wide range of professionals, trained specifically for a given set of tasks, so project managers will be able to recruit people with a particular skill set for each project.

Expertise

However, outsourcing companies may not be up to the task, so it is important to choose your team carefully to avoid disappointment. On the other hand, with insourcing you are able to train employees for particular business needs, build a team from scratch that is suitable for your company, and set it up according to your needs. However, this also has a major disadvantage: employees trained in this way become indispensable, and if they decide for any reason to leave the company the project may come to a standstill because of the need to find and then fully train another employee. And the choice between outsourcing and insourcing is particularly delicate when it comes to IT services and software development.

Outsourcing, simple contract or strategic partnership?

From a legal perspective, while insourcing always presupposes an employment contract between the company and the internal resource, outsourcing can take many forms. Very light forms of collaboration based on a simple contract can be used. On the one hand there will be a commitment on the part of the outsourcer to pay a fee for the services, and on the other a commitment on the part of the outsourcer to carry out the typical obligations of the outsourced service, with special diligence required by their professionalism and specific experience in the sector. Normally this scheme is used in the case where it is decided to outsource those parts of the business that are not fundamental or characteristic for a company.

It is increasingly common, however, for outsourcing to cover those activities that define the core business of the company or that are strategic, such as the management of legal and tax matters. Also in this case, a contract will be necessary to regulate the relationship between outsourcer and outsourcee. It will not be a simple entrusting of services, but a real commercial partnership. The law does not prohibit the delegation of important and strategic parts of one's business to an external partner. It will be essential, in this case, that the contract properly regulates the roles and contributions of each, because, from that discipline, it will be possible to determine the respective responsibilities of clients, between partners and of the authorities in the various countries.

The advantages of outsourcing the management of legal and tax matters through a global partner

It is no coincidence that outsourcing through strategic partnerships is used by companies that want to expand their business beyond national borders or into new markets. For example, when the merchant of record formula is used – whereby the partner will be the actual distributor of the company's goods and services – taking care of all the legal and fiscal aspects of the various operations in the market. In this way, the partner will be responsible for the final customers and the authorities of that market, thus leading to a reduction of risks and a more effective expansion in the new market, whose specifics will be managed by a specialised partner. In addition to the partner's fee, the company will have no extra costs for specific staff training, research and compliance, which are delegated to the partner.

Make your choice

We have therefore seen the comparison between outsourcing and insourcing in the supply chain. There are pros and cons to both business strategies and the decision will depend very much on what is best for your business. When a company finds itself in the situation of having to decide whether to outsource or insource, there are many factors to consider: cost, effort required, and expertise. Choosing between outsourcing and insourcing is a choice that can determine business success, which is why it is important that the decision is made carefully.