There are things you learn the hard way in business. Data shared by In Parallel revealed that 61% of business leadersadmit that their companies struggle to launch their strategies with seamless execution.
So one day, you might have realised that you’ve been calling something outsourcing when it was actually subcontracting. Or worse, you’ve outsourced something when you should’ve subcontracted it. And now you’re untangling a very expensive misunderstanding.
It happens. But it doesn’t have to keep happening.
Both outsourcing and subcontracting have their place in business strategy. But like most things that sound similar, they serve very different purposes.
One lets you hand over whole functions of your business. The other gives you skilled hands for specific tasks. And if you mix them up, you risk losing time, money, and control.
In this guide, we’ll break down the difference between outsourcing vs subcontracting. We’ll look at what each means, where they work best, and how to figure out what your business needs.
Because the line between the two isn’t just semantics. It’s a line that can make or break your operations.
To get a handle on the differences, let’s nail down what each term means:
What is Outsourcing?
Outsourcingmeans having a service provider take over an entire area of your business, a whole set of responsibilities handled by an outside team. Think customer service, payroll, marketing, or IT support.
You can offload small tasks, yes, but outsourcing can also mean letting someone else manage your operational pillars for you.
This arrangement is usually long-term and strategic. The outsourced provider is responsible for results. Not just doing tasks, but delivering outcomes.
You pick a vendor, sign a contract, and they run the show (of course, depending on how much control you let them have). Plus, they take care of hiring, managing staff, and meeting KPIs.
What is Subcontracting?
Subcontracting, on the other hand, is task-specific. You’re not offloading an entire business function. You’re hiring someone to do a part of it. It’s common in construction, IT, finance, and customer support.
A subcontractor usually reports to the main contractor (you or someone you’ve hired), not the client directly. You tell them what to do, how to do it, and when it’s due. They provide skills and labour, but not strategic direction.
Main Differences Between Outsourcing vs Subcontracting
While both involve external help, the scope, duration, and control differ significantly:
Industry Coverage
Outsourcing happens across all industries. From retail to healthcare to education, any business can outsource.
Even when it’s an Australian startup outsourcing bookkeeping to the Philippinesor a global brand handing over digital marketing, the model scales.
Subcontracting is more common in project-based fields like construction, IT development, finance, and customer support. You’re more likely to subcontract a backend developer or an HVAC technician than an entire HR department.
Service Duration
Outsourcing is a long-term play. It’s built around strategic partnerships. Many companies sign multi-year deals with their providers because these relationships involve ongoing operations and results.
Subcontracting is often short-term or project-based. Once the task is done, like installing hardware, developing a software module, or processing end-of-year tax documents, the contract ends. There’s little continuity unless the next project comes along.
Chain of Command
When you outsource, you give up somelevel of control. The service provider manages their team. They set schedules, monitor productivity, and handle performance issues. Your role becomes more of a client than a manager.
In subcontracting, you (or the contractor you’ve hired) remain in charge. You manage timelines, give instructions, and handle quality control. It’s more hands-on and hierarchical.
Outsourcing vs Subcontracting: Pros and Cons
Each approach comes with its own set of advantages and disadvantages:
Outsourcing Benefits and Challenges
Here are some of the pros and cons of outsourcing:
Outsourcing Pros
Outsourcing Cons
Cost efficiency – Outsourcing often reduces costs related to labour and operations. Businesses save up to 70% by outsourcingfunctions (Outsource Accelerator).
Focus on core tasks – You free up internal teams to focus on strategy and growth.
Scalability – You can grow operations without the overhead of hiring locally.
Access to a global workforce – You get highly skilled professionals without dealing with recruitment hassles.
Less control – You can’t manage daily activities as closely.
Communication gaps – Time zones and cultural differences can cause friction.
Security risks – Sharing sensitive data with a third party always carries some risk.
Vendor lock-in – Long-term contracts may make it hard to switch providers quickly.
Subcontracting Benefits and Challenges
Here are some of the pros and cons of subcontracting:
Subcontracting Pros
Subcontracting Cons
Specific expertise – You get specialised help for unique tasks.
Short-term commitment – You’re not tied to long-term contracts.
Control – You manage how the task is done.
Cost savings – Subcontracting can be cheaper than hiring full-time staff.
Inconsistent quality – Not all subcontractors meet the same standards.
Dependency – If a subcontractor drops out, project timelines may collapse.
Legal complexity – Contracts must be tight to avoid liability issues.
Time spent managing – You need to supervise and coordinate more actively.
Which Solution is Right For Your Business?
Choosing between outsourcing and subcontracting comes down to what exactly your business needs.
Here’s a quick breakdown to help you with the choice:
When to Choose Outsourcing:
When you need long-term support that operates like an extension of your business
When you’re scaling and don’t want to deal with recruitment, payroll, or HR headaches
When you care more about results than about micromanaging how those results are achieved
When you want to partner with expertswho bring in their own systems, tools, and people
When you’ve hit a point where internal bandwidth is maxed, and building capacity from scratch would take too long or cost too much
When you want to reduce operational risk by shifting responsibility for outcomes to someone who’s contractually bound to deliver
When to Choose Subcontracting:
When you have a short-term, defined task, like needing someone to build a website, install security systems, or manage a seasonal marketing campaign
When you want full visibility and control over how the work gets done, including the deadlines, tools, methods, and team integration
When you already have capable managers in-house who can oversee and direct external contributors
When you work in industries where agility is key (construction, tech, or finance), and every project comes with different needs
When you’re looking for narrow, specialised skill sets for work that doesn’t justify a full-time hire
The moment you shift from asking, ‘What do I need done? to ‘How embedded do I need this to be in my business?’, the answer often becomes obvious.
Outsourcing or Subcontracting? The Right Path Forward
You don’t always realise you’re at a crossroads until you’ve already made the turn. That’s the nature of business.
It rewards clarity, punishes assumption, and occasionally forgives the honest mistake. But there’s something quietly powerful about stopping to name what kind of help you really need.
The next time you’re buried in decision fatigue and tempted to just ‘get it off your plate,’ take a breath. Don’t default to what everyone else seems to be doing. Most of them are guessing, too.
The cost of a guessis rarely just money. It’s time. It’s morale. It’s the extra hours you’ll spend fixing what could’ve been done right the first time.
So, before you send the next RFP or greenlight the next project, pause for a moment. Ask yourself: Am I trying to hand something off, or just get something done?
The answer between choosing outsourcing vs subcontracting could save you six months of backpedalling. Or maybe it just saves you a headache. Either way, it’s worth asking.
FAQs
Can a company use both outsourcing and subcontracting?
Yes. Many businesses use both. You can outsource your accounting department while subcontracting a web developer for a one-off project. It’s just using the right model for the right job.
Is outsourcing more expensive than subcontracting?
Not necessarily. Outsourcing may seem costlier upfront, but it’s often more efficient long-term. Subcontracting may cost less per task but requires more management, which can eat into your time.
What legal protections should I consider when outsourcing or subcontracting?
Always use detailed contracts. For outsourcing, focus on service level agreements (SLAs) and data protection. For subcontracting, define deliverables, timelines, and liabilities clearly. Consult a legal expert to avoid gaps.
Is outsourcing just for big companies looking to cut costs?
Lots of businesses, big and small, choose to outsource so they can tap into specialist knowledge they don’t have on their own team, or to just let their own people concentrate on what makes their business unique.
If I subcontract someone, are they considered my employee?
Generally, no. Subcontractors are usually independent contractors who work on a specific project or task. However, it’s crucial to have clear contracts in place that define the relationship to avoid any misclassification issues.
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Frequently Asked Questions
How do I ensure remote staff have necessary company knowledge?
To ensure remote staff have the necessary company knowledge, implement comprehensive onboarding processes, provide access to resources, and encourage regular communication and training sessions to keep them informed and aligned with company goals.
What are the advantages of hiring an outsourcing company?
The advantages of hiring an outsourcing company include cost savings, access to a global talent pool, increased efficiency, and the ability to focus on core business functions while leveraging specialized skills in tech, digital, engineering, and customer support.
How do outsourcing companies benefit small businesses?
Outsourcing companies benefit small businesses by providing access to skilled talent at reduced costs, enabling them to focus on core operations while efficiently scaling their teams with specialized professionals in tech, digital, engineering, and customer support.
How do I manage and track remote employee productivity?
Managing and tracking remote employee productivity involves utilizing tools such as project management software, regular check-ins, and performance metrics to ensure accountability and visibility into work progress.
What services does an outsourcing company typically offer?
Outsourcing companies typically offer services such as recruitment, payroll management, and administrative support, along with specialized roles in tech, digital marketing, engineering, and customer service to help businesses build efficient remote teams.
What are the benefits of hiring remote staff for my business?
The benefits of hiring remote staff for your business include significant cost savings, access to a global talent pool, and increased flexibility in scaling your team. This approach allows you to find skilled professionals from the Philippines and Eastern Europe efficiently.
What tasks can virtual assistants perform?
Virtual assistants can perform a wide range of tasks, including administrative support, customer service, social media management, data entry, and bookkeeping, helping businesses streamline operations and improve efficiency.
What tools are essential for effective remote team collaboration?
Essential tools for effective remote team collaboration include project management software like Trello or Asana, communication platforms such as Slack or Microsoft Teams, and file-sharing services like Google Drive or Dropbox, which facilitate seamless teamwork and information sharing.
How do I choose the right outsourcing company?
Choosing the right outsourcing company involves evaluating their expertise, industry experience, and client testimonials while ensuring they align with your specific needs and budget for building an efficient remote team.
Can an outsourcing company handle customer service?
Outsourcing companies can effectively handle customer service by providing trained professionals who manage inquiries, support, and feedback, ensuring quality service while helping businesses reduce costs and focus on core operations.
What is the benefit of hiring a virtual assistant?
The benefit of hiring a virtual assistant is that it allows businesses to save time and reduce costs while gaining access to skilled professionals who can handle various tasks, enabling teams to focus on core activities and enhance productivity.
How do virtual assistants improve productivity?
Virtual assistants improve productivity by handling routine tasks, allowing businesses to focus on core activities. They streamline processes, manage schedules, and provide support, ultimately enhancing efficiency and freeing up valuable time for strategic decision-making.
How does remote staffing differ from traditional hiring?
Remote staffing differs from traditional hiring in that it allows companies to access a global talent pool, reducing costs and increasing flexibility, while traditional hiring typically involves local candidates and in-person work arrangements.
What skills should remote staff possess?
The skills that remote staff should possess include strong communication abilities, self-discipline, adaptability to change, and proficiency in relevant technical tools. Additionally, problem-solving skills and a collaborative mindset are essential for effective teamwork in a remote environment.
How can I onboard remote employees effectively?
Effective onboarding of remote employees involves clear communication, structured training programs, and regular check-ins to ensure they feel integrated into the team and understand their roles and responsibilities.
What metrics measure remote employee performance?
Metrics that measure remote employee performance include productivity levels, quality of work, communication effectiveness, adherence to deadlines, and employee engagement scores. These indicators help assess the overall contribution and efficiency of remote team members.
How do I communicate with remote teams?
Effective communication with remote teams involves using collaboration tools like Slack or Zoom, setting clear expectations, scheduling regular check-ins, and fostering an open environment for feedback to ensure everyone is aligned and engaged.
What challenges do remote teams face?
The challenges remote teams face include communication barriers, time zone differences, and difficulties in collaboration, which can hinder productivity and team cohesion. Addressing these issues is essential for effective remote team management.
How can I foster team collaboration remotely?
Fostering team collaboration remotely involves utilizing effective communication tools, establishing clear goals, and encouraging regular check-ins. Additionally, promoting a culture of trust and inclusivity can enhance teamwork and engagement among remote staff.
What are common tasks for virtual assistants?
Common tasks for virtual assistants include managing schedules, handling emails, conducting research, data entry, social media management, and providing customer support. They help streamline operations, allowing businesses to focus on core activities.
How do I evaluate outsourcing company proposals?
Evaluating outsourcing company proposals involves assessing their expertise, understanding their pricing structure, reviewing client testimonials, and examining their communication processes to ensure they align with your project needs and goals.
What industries benefit most from outsourcing?
The industries that benefit most from outsourcing include technology, digital marketing, engineering, and customer support. These sectors leverage outsourcing to access specialized skills, reduce costs, and enhance operational efficiency.
How can outsourcing reduce operational costs?
Outsourcing can significantly reduce operational costs by allowing companies to hire skilled professionals from regions with lower labor expenses, minimizing overhead costs while maintaining high-quality service and efficiency in operations.
What are the risks of remote staffing?
The risks of remote staffing include potential communication barriers, cultural differences, security concerns, and challenges in managing remote teams effectively. These factors can impact productivity and collaboration if not properly addressed.
How do I ensure data security with outsourcing?
Ensuring data security with outsourcing involves implementing strict access controls, utilizing secure communication channels, and conducting regular audits. Additionally, partnering with reputable outsourcing firms that prioritize data protection can significantly enhance your security measures.
What is the process for hiring virtual assistants?
The process for hiring virtual assistants involves identifying your needs, selecting a reliable outsourcing partner, reviewing candidates, conducting interviews, and finalizing the hiring agreement to build an effective remote team tailored to your requirements.
How can I train remote staff effectively?
Training remote staff effectively involves setting clear expectations, utilizing collaborative tools for communication, providing comprehensive onboarding resources, and encouraging regular feedback to enhance performance and engagement.
What technology supports remote team management?
The technology that supports remote team management includes collaboration tools like Slack and Microsoft Teams, project management software such as Trello and Asana, and video conferencing platforms like Zoom. These tools enhance communication and streamline workflow for distributed teams.
How do I maintain company culture remotely?
Maintaining company culture remotely involves fostering open communication, encouraging team bonding through virtual activities, and regularly reinforcing company values. Prioritize feedback and recognition to create a sense of belonging among remote team members.
What are the best practices for remote hiring?
The best practices for remote hiring include clearly defining job roles, utilizing effective communication tools, conducting thorough interviews, and assessing candidates' remote work capabilities to ensure a successful integration into your team.
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