Is Outsourcing the same as Subcontracting?

In the corporate world, the terms Outsourcing and Subcontracting are often confused with each other. Both activities involve delegation of work by hiring a third-party to perform tasks which would otherwise have been done by the in-house Staff.

However, the two are not the same. Let’s understand the concepts in detail to distinguish between them. By the end of this article you would be able to decide which practice is suitable for your enterprise and why.

Two forms of Outsourcing: Capacitive and General

There are two reasons why a company would require to outsource, also could be called as two forms of Outsourcing that is, either the in-house staff is unqualified in certain skills and they require professional assistance to perform tasks, or when the internal staff can perform the operations but they choose to outsource due to strategical reasons such as cost cutting, time saving and to drive more focus on key tasks for growth and expansion purposes.

The former one where the mindset is, I do not know how to do, so I make do refers to General Outsourcing. Meanwhile the later reason represents the mindset that I can do but I choose to make to, due to strategic reasons. [1]

So where does subcontracting fit in this? Well, it is another term for general form of outsourcing. Subcontracting is done by a company that needs assistance in a task that it is, otherwise unable to perform. The two parties work hand-in-hand to complete a specific job.

For instance, when a real estate company well equipped with staff that can perform book keeping, choosing to outsource the task so that they can assign more significant roles to them is called capacitive outsourcing. However, when the same real estate company hires an Interior designer, to complete a Model housing project. It is termed as General Outsourcing or Sub-contracting.

Difference between outsourcing and subcontracting
Photo by August de Richelieu from Pexels

Key differences between Outsourcing and Subcontracting

Outsourcing includes diverse sectors of work such as Data Entry Outsourcing, IT, Digital Marketing, Back Office Outsourcing, Customer support etc. Professionals from various fields work as outsourcers for mutual benefit of theirs and the hiring company.

Subcontracting on the other hand is mostly used in the Industrial sector. A Sub-contractor is a person or company usually hired for production activities and is remunerated accordingly.

Outsourcing involves a direct chain of command between the hiring company, let’s say ‘A’ and the outsourcer ‘B’.  All the talks and discussions take place between the two parties to make a mutual profit.

In case of Subcontracting, the hiring company is in direct communication with the contractor (the outsourcer) and the contractor then passes on the duty to the Sub-contractor. This process involves an indirect chain of command between the two firms.

 The sub-contractor is accountable to the contractor who in turn answers to the hiring company.

For instance, a financial company office hires an external company to perform customer support services. The two companies are in direct contact, the later performs the services asked by the former company. When the same financial company office hires a painter to make the office look good, it hires a contractor who in turn appoints a painter to perform the job. The Painter is not directly answerable to the financial company.

Another primary distinction between Outsourcing and Subcontracting is the amount of control the hiring company has, over the work. Subcontracting involves higher level of control by the requiting company. Every small detail is worked on after asking and thus has less space for innovation. The Subcontracting company and the provider of such work, operate closely throughout the project.

The Bottom Line

Subcontracting has become a buzzword in the 21st century[2] and is increasingly being adopted by companies all over the world to get specific duties done. This has created dubiety in corporate minds as to what actually qualifies as outsourcing. We hope you are able to distinguish between the two now.

Before deciding the form of outsourcing you want to pick for your company, analyze the current tasks being performed by the internal staff, the add-ons or improvement it needs and the fields that require new requirements.

Need expert advice for the same? Talk to us now.


[1] https://bs-solution.com/en/blog/article/subcontracting-and-outsourcing-what-is-the-difference

[2] https://www.investopedia.com/ask/answers/032415/whats-difference-between-outsourcing-and-subcontracting.asp

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