Difference Between Offshoring and Outsourcing

Offshoring vs Outsourcing

In business, there are lots of processes or functions involved to operate it and the bigger organization gets, the more complex the processes become. Internal problems may arise such as, management, lack  of employee proficiency, lack of focus on core competencies, and operational costs. For every additional process, new difficulties are emerging and sometimes adding manpower within the company to perform such functions is not, in business sense, a good idea. It is laborious, expensive, and problematic.

Due to this predicament, an idea of outsourcing business processes has materialized. Outsourcing is sub-contracting a service to a third-party company. These companies will function as extensions and they can perform business processes like manufacturing, design, and even clerical jobs; the potential is limitless.

Overtime, outsourcing has advanced to become a large industry in itself. One of the major reasons why people outsource is because they cannot find competent personnel within the company and also find it difficult to hire new employees simply for the additional function. Nowadays, even established organizations have now opened services to accept outsourced projects simply because it generates profit. They know that they have expertise in the demanded service and companies pay well to obtain it.

Currently, there are organizations that are put up solely to provide outsourcing services and they often specialize in a particular industry — like IT for instance. Eventually, this outsourcing trend has spread globally, making developing countries, even third-world ones, a force to be reckoned with. These countries have less labor costs and have decent and, in some cases, exceptional proficiency in whatever function they do.

This business decision of outsourcing processes to other countries to lessen costs is called offshoring. It is often seen as a win-win situation since companies that offshore their processes have lessen their overhead and significantly diminished employee management problems and conversely, the countries that accepted those offshored tasks gained more labor opportunities.

Nevertheless, businesses just love the cost-cutting benefits of offshoring and it is the primary reason why they opt to do it. With it, they can now concentrate on what is more important to their organization.

However, it is not without problems. Communication and language barriers may hinder smooth operation and transactions. Then again, if it worked between two parties, the benefits are just amazing.

Summary:
1. Outsourcing is a general term for a business function done by non-employees while offshoring is also, and in most cases, outsourcing but the function is done outside the country or area of the client.
2. Outsourcing is an option often selected by big companies to get rid of particular routine work which could be performed by third parties for money. Offshoring is often opted because the overhead for business process costs less in other places.
3. Outsourcing is usually done to preserve human resources to focus their energies on the companiesí core competencies. Offshoring is basically the same but more concentration on cost-cutting.
4. Outsourcing can be done in the same locality therefore it doesnít damage local labor market. While in offshoring, since labor is done outside of the country, it may pose some detrimental effects on the local labor market.
5. Outsourcing in local premises poses no real communication drawbacks while offshoring can have significant communication and language barriers.

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