It is very easy to get confused about these two words “outsourcing” and “offshoring” because they sound more of the same meaning. But there are some peculiar differences between outsourcing and offshoring, which make business people eager to know this.
In this article, we are going to talk about offshore and outsource differences with examples.
So, let’s first begin to understand “What is outsourcing?”
The term “outsourcing” originated in 1981 and it means “outsider resourcing”. Outsourcing involves contracting a business process to a third party to perform certain tasks on behalf of the organization.
In outsourcing, a company hires another company to assign responsibility for a planned activity or recent activity that was to be executed internally and sometimes involves transferring employees and assets from one firm to another.
For example, you may have noticed that the company you are working in has a canteen (which provides different types of foods according to the needs of the employees) do not belong from the company in which you are working. They have outsourced foods from other company, be it foreign or domestic company.
In short, outsourcing is a process of contracting a business function to a specialized agency.
Outsourcing includes,
- Domestic contract – entering into a business contract with a company of the same country.
- Foreign contract – entering into a business contract with a company of a foreign country.
- Offshoring – transferring a business function to a distant country (discussed in detail below)
- Nearshoring – As the name suggests, it is transferring a business process to a nearby country.
Now let’s see “What is Offshoring?”
In offshoring, business processes typically an operational process, manufacturing process, or support process of one company is relocated to another company. More recently, technical and administrative processes have also been offshored.
In offshoring, offshore work is done based on the company’s internal model, sometimes referred to as in-house offshore. And this is a noticeable offshoring and outsourcing difference.
For example, an American IT company has transferred its support process (customer care services) to an Indian company.
Offshoring and outsourcing are not mutually inclusive. They can also exist without each other.
- Outsource work, but not offshore – for example, an Indian hotel has outsourced to McDonald’s (an American company) for burgers and snacks.
- Offshore work but not outsourced – for example, EA Sports Service Center in India to serve American customers.
They can exist together, that is offshore outsourcing.
In offshore outsourcing, the company hires employees offshore to give responsibility for their work. Its benefits are many,
- Companies get highly skilled and qualified employees at low cost,
- Companies have a large pool of skilled and talented people to choose from.
- It is cost-effective as it saves a huge amount of money as offshore employees of a country like India are cheap.
- It saves a lot of time and money.
- Enhance the efficiency of the business.
So, the key difference between outsourcing and offshoring are –
- Outsourcing is contracting work to another company while offshoring is getting work done in a different country.
- Benefits of outsourcing are – advantage of specialized skill, labour flexibility, cost effective
Invedus Outsourcing 