Remote staffing and outsourcing are both popular options for businesses today. While remote staffing means you have a team of remote employees working exclusively for you, outsourcing means contracting third-parties to complete certain projects or operations for you.
Outsourcing has been a popular means for getting a job done for quite some time. Countries like Armenia or Belarus are new hubs for IT outsourcing in particular. But with the surge in remote work since the start of the CoVid19 pandemic, remote staffing has quickly become a contender to outsourcing.
Outsourcing vs remote staffing: what is the best option for SaaS companies?
Our client, Quotapath, asked us how outsourcing differs from remote staffing when you are hiring 12 engineers, for example, in Ukraine. As the SaaS industry grows, companies want to know how to effectively manage their software development and engineering processes.
We asked our own Head of Engineering, Matt Belanger, about the tradeoffs between hiring full-time and outsourcing when hiring engineering staff.
With remote staffing, “you can fully vet and integrate the engineers into your team, and they become more a part of building your team culture. In house engineers often help solve problems, in contrast to most outsourced teams that only implement tickets as assigned.”
“Outsourcing obviously offers a lot more flexibility when it comes to scaling your team up & down based on workload; that said, most SaaS businesses don’t have that kind of variability in workload demand.”
Speaking from personal experience, Matt defines the key problem with outsourcing for SaaS companies: “you need most of a full time engineer to properly work with a 4 or 5 person outsourced team, and often get worse results.”
What is remote staffing?
Remote staffing means hiring remote employees. You can source talent from anywhere and integrate them into your company and its processes. Remote staffing is a brilliant option for scaling companies looking to find the ideal talent to build their brand, products and services. While outsourcing may seem cheaper, remote staffing is well worth the investment and can really help you scale your business with the best talent.
Remote staffing can also mean contracting a person, but still treating them as an employee. This means they can work full-time, while receiving benefits, social security, and a steady salary. While this option sounds enticing, contracting in this way is not legal in most countries. Doing so could saddle your company with hefty fines and lengthy legal battles.
Let’s break down the pros and cons of remote staffing further.
What are the advantages of remote staffing?
The advantages of remote staffing really speak for themselves. Whatever your goals are as a growing business, remote hiring could really help you on your international expansion journey. The benefits are:
Ownership of product and services
With a remote team, you have full control over how your products and services develop and your team’s processes. You also have more flexibility and can make changes as and when needed without much hassle. This tends to be more difficult with outsourcing, where changes often have to be negotiated.
Remote staffing also means you have an in-house team, even if they are working remotely. Regarding employing engineers, Matt says, “In house engineers’ incentives are fully aligned with yours: building a solution that solves your customer problems, with the appropriate level of quality for your stage of business and the problem being solved.”
Ownership over your team
Remote staffing also has the great advantage of letting you handpick your team. Most outsourcing options won’t allow you to do this. Particularly if you go through agencies or third-party companies, you will be matched with talent, but have a lot less control over who gets picked.
Many employers assume that remote employment is automatically more expensive than outsourcing. In reality, remote staffing is well worth the investment, with your company being able to scale faster and develop better products and services. You also save on overhead costs like office spaces.
Remote staffing can help you stay compliant, particularly compared to outsourcing abroad. Outsourcing abroad generally means you are contracting third-parties for a particular service. Contracting isn’t very popular in a lot of countries and hiring contractors might actually land your company with extensive legal expenses. Remote hiring allows you to stay on the right side of the law by employing compliantly.
What are the disadvantages of remote staffing?
While the benefits definitely outweigh the costs, remote staffing does have some drawbacks that you will need to consider.
At the end of the day, remote staffing comes at a price. While it is good to see it as an investment, employing people compliantly, offering the right salaries and benefits isn’t cheap. You need to be aware of this when making your decision and whether this is feasible for your company.
Requires remote work functionality
When remote staffing, your company will have to have processes in place to manage a remote team. You will need to consider things like communication, collaboration, and task management tools. This doesn’t have to be a disadvantage, it just requires foresight and prior planning.
Remote staffing can also be an administrative burden, especially if you are doing it all yourself. You will need to have the right information on things like employment contracts, social security and benefits requirements. You might also have to have the ability to manage payroll and contracts for employees in multiple locations. The smaller your remote team, the easier it will be to handle. But you can also consider going with a PEO or EOR to help you sort this all out as your remote team expands.
What is outsourcing?
Simply put, outsourcing means contracting a third-party for specified services. Companies outsource particular projects or end-to-end operations when they are missing the in-house capabilities and experience.
Outsourced staff may work on specific operations, on a project basis, or for a stated number of hours. Usually outsourcing relationships are managed by one point of contact like an account manager. Compared to remote staffing, outsourcing staffing doesn’t require you to employ anyone.
What are the different types of outsourcing?
Some of the main outsourcing types include:
- Professional outsourcing: this means contracting third-parties to handle certain specialised services for your business. This could mean digital marketing, legal, accounting, purchasing, PR, and many more.
- IT outsourcing: this one explains itself. IT outsourcing can cover a range of services, depending on your needs, like app development, data security, or licensing.
- Multi-Sourcing: this option can cover a variety of IT and business services. It tends to be more suitable for companies requiring a wide range of infrastructure and IT operations.
- Project outsourcing: rather than outsource a whole set of operations, you can also ask third-parties to work with you on a project basis, for example, on marketing campaigns or for a research project.
You can also choose between local outsourcing, off-shore outsourcing, and near-shore outsourcing. Local outsourcing is usually considered more expensive but safer. Off-shore outsourcing tends to be cheaper, but potentially gives you less control over the outcomes. Near-shore outsourcing means outsourcing outside of your country, but still in your vicinity.
What are the benefits of outsourcing?
Compared to remote staffing, outsourcing can provide a cheaper and more outcome-targeted option. Some pros of outsourcing include:
The immediate cost of outsourcing is much lower compared to remote staffing. This can be hugely beneficial for smaller companies or start-ups in particular.
While remote staffing requires your commitment as an employer, outsourcing can give you more flexibility. You can focus on particular outcomes, projects, or operations without having to commit to an employment relationship upfront.
Improving your business operations
Outsourcing provides a simple option to improve your day-to-day business operations. You can pick and choose what you would prefer a third-party to deal with for you.
What are the disadvantages of outsourcing?
Outsourcing provides great flexibility in the short-term. But as a long-term solution, outsourcing could be more of a hassle than it’s worth.
With outsourcing, it’s much more difficult to change the scope of the work, project, or operations once these have been agreed upon. You may have to renegotiate the terms of the agreement at any point where changes are necessary. In this sense, it’s a lot less flexible than remote staffing.
“Outsourced companies”, Matt says, “can have diverging incentives: either to deliver a fixed scope project as quickly as possible, to increase billable hours, or to otherwise find ways to increase revenue.” The potential misalignment in interests could create friction and additional work for you in the long term.
Matt explains that “outsourced teams often appear cheaper on the surface, but carry hidden coordination costs, particularly in cases where they operate as a fully separate team.” These can be incurred due to recurring negotiations, low engagement, and poor work quality. Particularly if you are planning to continue a project or particular operations long-term, remote staffing is likely a more viable option for you.
What is the difference between remote staffing and outsourcing?
Remote staffing is a great way to scale your team at much lower cost compared to in-house hiring. Having a dedicated remote team allows you to control your operations, projects, and processes, and make changes wherever necessary. You can keep your team engaged and build a workplace culture that works for your business.
The downside is that the immediate cost is rather high and you need a solid remote work strategy. The administrative burden of hiring remotely, particularly abroad, can also be immense. But as with most challenges, these can be overcome with the right planning.
On the other hand, outsourcing can provide a great, cost-effective, and quick way to tackle certain operational challenges or just to get a job done. It can give you flexibility and the immediate cost is low compared to remote hiring. But the costs can still be high and you may have little to no control over how outsourced staff work. Outsourcing works in the short-term, but as a long-term solution, it tends to be more expensive and less flexible than remote staffing.
Remote staffing helps strengthen your team’s expertise
Outsourcing is a good option for when you don’t have the right expertise inhouse and are comfortable with an external team managing certain tasks. But remote staffing is great for supplementing your existing team with greater expertise and control over your processes. In the long term, remote staffing is the most effective way to optimise your remote work processes, build a dedicated remote workforce, and expand your global reach.