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Outsourcing Vs. Outstaffing

Chief Business Development Officer at Alcor
Expert in offshore development strategies for technology companies and startups. Legal background in M&A, IP rights, and contract law.
21 December 2020
6 min

The topic of outsourcing vs outstaffing is highly debated and often confusing. In the tech sphere, both engagement models are frequently used by large technology corporations and small software startups around the world. Even these IT businesses may not fully understand the real essence of outsourcing and outstaffing by themselves, mainly because these models share many similar features. In this article, we’ll try to dig deep into the notions of outstaffing vs outsourcing and figure out what solution is going to bring the most value to your tech business.  


IT Outsourcing Vs. IT Outstaffing: What’s Better?


The term “outsourcing” denotes shifting a certain scope of work to external professionals. Tech companies tend to outsource minor and non-core software development projects due to the lack of in-house resources. In this situation, they don’t control the development process but seek the ultimate result. 


What’s Outstaffing? 


Outstaffing is a model for engaging specialists to work on company tasks without legally employing them (and needing to create a workspace for them). Basically, it’s about the involvement of a dedicated remote team that is officially employed by another company. It resembles a leasing agreement, yet you lease the whole team. 




With this model, you “rent” developers who are officially employed by another company and work from another office. This ensures close cooperation as well as strong control over project performance and completion. 


Like with outsourcing, the client doesn’t have to worry about any operational issues. However, these specialists are required to meet the customer’s requirements, so they get an extension of their in-house team (who work according to given instructions/workflow/technologies).   


Outsourcing vs. Outstaffing 


Let’s now make a distinction between outstaffing vs outsourcing for the delegation of activities in client-vendor relationships. From the table below it becomes clear that outstaffing and outsourcing imply a contrasting distribution of responsibilities. 


An outsourcing vendor is accountable for work results and quality. They choose the preferred framework, decide on team composition, and control the whole development process by themselves. As a client, you just receive reports, suggest edits, and communicate only with a project manager. 


An outstaffing vendor, on the contrary, doesn’t intrude into your work with their software engineers. You can manage the outstaffed team directly, ask for an increased workforce, or reduce the number of developers involved in your project (as well as handle the software development with attainable results). 



Another important point for consideration is communication. As mentioned above, clients don’t have direct access to their outsourced engineering team, and that’s why effective communication with the PM becomes vital to perfectly understand all requirements. At the same time, direct communication with the outstaffed team allows one to solve arising issues fast and efficiently.  


What is more, a vendor usually owns and takes care of the equipment & workspaces of your team (either outsourced or outstaffed). Your outsourcing service provider is also able to mix people between teams, so that they work on multiple projects simultaneously. Unlike this, the outstaffing team usually works with one client.  


Outstaffing example:  

OVPN is a Swedish VPN provider. They turned to the assistance of a Ukrainian company (due to the local talents) to create an extended team of developers. The vendor has taken responsibility for hiring, onboarding as well as HR and administrative support. The team now works at the vendor’s location, but they focus solely on the OVPN project. 


Outsourcing example:

A bright example is Slack. At the early stage, they hired a design firm to help with their product. The provider has contributed both to the website and the app. They have also redesigned Slack’s logo and created most elements that customers see when interacting with the messenger. 


Outsourcing vs. Outstaffing vs. Offshoring 


Offshoring is an umbrella term that can refer to either outsourcing or outstaffing. It describes the proximity of a vendor to the client (on-shore, near-shore, off-shore), while outsourcing and outstaffing denote the delegation mode and engagement model. Accordingly, there can be offshore outsourcing and offshore outstaffing




Since offshoring requires doing business in another country, you’ll need operational management support for your engineering team abroad. IT recruitment, HR payroll, accounting, real estate consultations, legal & compliance support, and other additional services will be of good use to run your offshore development center. 



Dwelling on the difference between onshoring and offshoring, it is vital to mention that there may exist various combinations of delegation modes and locations. For instance, if we speak about outsourcing, you can outsource your activities to a vendor in your country (onshoring) or to a foreign company (offshoring). In a similar way, if you’re considering outstaffing, you can either hire a dedicated team in your location (onshoring), in a neighboring country (nearshoring), or in another country (offshoring) to handle all the issues more cost-efficiently. 


Related article: Outsourcing VS Offshoring 


We can summarize the relationships between the concepts discussed and the different combinations of outsourcing, outstaffing, and offshoring as follows: 




How to Choose What’s Better for Your Business 


Any variation could help you develop your venture faster. Yet some companies prefer in-house teams which is better option to manage everything. For instance, if you’re selling, let’s say, home appliances, you can easily delegate work on a website to a third party. However, if you want to create a messenger like WhatsApp, it’s usually more reasonable to engage in-house developers and get stronger control (as well as higher security of confidential information and trade secrets). Home teams are usually a great fit for software product companies and startups. In most cases, ventures working on their own product prefer having employees committed to a single project. It’s true if you develop, for instance, an e-commerce or a trading platform that must be as safe as houses. Since it is your core task, you might feel better about controlling the development process and making instant changes. 


Can Outsourcing or Outstaffing Replace In-house Employees? 


The above is possible with outstaffing. However, it’s better to invest in the training of your employees rather than third-party specialists, right? And as a final thought, many companies want people who work on their projects to feel a part of their team. This is impossible with outsourcing and outstaffing, where the specialists are officially employed by the vendor and consider themselves a part of that culture. For such cases, offshoring offers another solution we haven’t discussed yet. The alternative model does not actually involve outsourcing or outstaffing. This is referred to as an offshore development center, and this variant combines the benefits of offshoring with the advantage of having your own team. 


At Alcor, we specialize in opening software development centers in Ukraine without intruding into your software development processes. We built teams of IT talents for, ThredUP, BigCommerce (NASDAQ: BIGC), Tonic Health (SCI), and other outstanding tech companies from Europe and the US. Our all-in-one-place solution includes various services which clients can choose (and apply a pay-as-you-go model for pricing). It all starts with finding an office space, recruiting talented engineers, and continues to HR payroll, legal compliance, and full support of your tech business in Ukraine.


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We will provide you with statistical data regarding the number of developers in Ukraine and their average salaries. The discussion will proceed with the expected hiring deadlines and our recommendations on managing payroll, equipment procurement, and compliance matters.

We respect your privacy and will never share your data with any third party or spam you

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