What is Outsourcing and Offshoring

Outsourcing and offshoring are two terms that sound so similar but are so different at the same time. Often enough, we get confused as to what each term actually stands for. As such, in this article, we would be elaborating all about outsourcing and offshoring so that you would be able to clearly distinguish the difference between the two terms.

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What is Outsourcing?

Outsourcing is sometimes referred to contracting out, where companies seek to reduce cost or increase the level of efficiency by allowing a third party to take over a process, part of the operations or any other tasks for a significant period of time. As such, the company’s employees would not be handling certain aspects of the company’s operations as it is outsourced to third parties.

Who uses outsourcing?

Any company can opt for outsourcing in several areas such as technology, manufacturing, operations and many more. The primary purpose of outsourcing is so as to reduce the overall costs and increase efficiency in the companies’ processes.

What is offshoring?

Offshoring is extremely similar to outsourcing, as it is done for the same purpose of reducing costs and increasing efficiency. However, offshoring differs in terms of location. In outsourcing, the third parties are usually based within the same country or sometimes even work at the same office as the company that has opted for the services of third parties. Offshoring differs as it usually refers to countries moving certain task or operations completely overseas.

Who uses offshoring?

Offshoring is used by companies if they feel that it would be better to move the operations to another country due to lower costs or more optimal economical conditions. For example, many multinational firms such as Apple and other major brands offshore their manufacturing to China due to the lower cost of labour. Apart from manufacturing, other areas such as technology and even customer service are offshored due to the more favorable economic conditions. Furthermore, the employees hired are either locals of that country or employees from the country of origin.

Comparing outsourcing and offshoring

While both outsourcing and offshoring are of the same nature where a part of the company’s functions and operations are shifted to third parties. However, outsourcing typically takes place within the same country, while offshoring occurs when the operations are moved to another country. In today’s globalised society, both forms are extremely common and practised by organisations worldwide, regardless of multinational or not. Outsourcing and offshoring are done for two primary reasons. They are lower and more affordable cost of operations and/ or labour as well as to improve efficiency.

Outsourcing and offshoring are extremely popular in today’s increasingly globalised society

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