Outsourcing vs Offshoring

Difference Between Outsourcing and Offshoring

In case of outsourcing the work of the company is given on contract basis to the external organization and the company itself focuses on its core business activities whereas in case of the offshoring the business process of the company is relocated to a different country with the motive of taking lower-cost advantage in that country.

Offshoring and outsourcing are two tools of modern business and have proved to be a game-changer in the modern-day era as the margins of the businesses have tightened and companies have taken the route to save cost and bring efficiencies in the business.

What is Outsourcing?

When a company outsources a service or a product it means that the company is not producing the service or a product themselves and have started to purchase that product or service from some vendor.

For example, a USA company has outsourced certain car parts manufacturing to a Chinese company.

What is Offshoring?

When a company talks about offshoring it shifts the location of the production of a certain product or service to a different location for cost savings and where there is a much bigger set-up of that product or service which results in some kind of cost savings for the company.

For example, a BPO company wants to relocate to a much cheaper place because the company FTE’s cost will be reduced if the per FTE cost has been reduced. This shift will result in much-improved processes and will bring inefficiencies in the business. Although the ownership of the product or the service still lies with the company itself.

Outsourcing vs Offshoring Infographics

Let’s see the top differences between outsourcing vs offshoring.

Key Differences Between Outsourcing and Offshoring

• Offshoring means getting the work done in a different location or a different country whereas in outsourcing means contracting or sub-contracting the work which was previously done with the organization to an external party client who more specializes in the work which the company is offering
• The objective of outsourcing is to focus more on the mainline of the activity or the business that the company has expertise in and not to focus on ancillary products or services which do not derive the major revenue pipeline of the company. The objective of Offshoring is to lower the cost of that service or the process that the company is providing. Offshoring results in cost-saving and lower labour but it does not necessarily mean that it will improve or enhance the work efficiency in the company
• The task which is outsourced is performed by the non-employees of the company as the process has been completely outsourced and is no longer comes within the scope of the company’s operation. Offshoring, on the other hand, is performed by the employees of the company as only the location of the work done performed has been changed. The employees have been working on the company’s payroll only which makes the process much familiar and fast track
• In outsourcing, the skill-set does not change hand with the employees of the company as the service is now being purchased by some other agency who is self-sufficient and capable to get the work done within the expectation grid and timelines. KPO Agencies have been growing massively in the countries of South Asian which is booming due to this outsourcing. Offshoring, on the other hand, the skill-set which they are performing changes hands and results in upgradation of the skill-set of the employees of the company and also much cheaper and cost-effective for the company performing the transformation

Comparative Table

Offshoring		Outsourcing
Performed by the staff of the existing company		Performed by the non-employees of the company as the service has been sourced
Offshoring is always performed outside the boundaries of the present work location as the shift of one center to another country is a must		Outsourcing may be performed within the present country’s boundaries or outside the country. It does not necessarily change of location because it is primarily a change of skill-set
The objective of offshoring is mostly cost-saving and cheap labor which is required to do a work which demands less skill-set		The objective of outsourcing is to focus on the main business activity of the company and not to make many efforts on the ancillary ones
Offshoring results in no cash outflow from the company expect in the initial years of transformation cost and other things		Outsourcing results in cash outflow as the company needs to pay for the services which it is rendering from the external parties which result in an outflow of cash

Conclusion

The business should decide for itself whether they want to use these kinds of practices alone or in a combination of both. Combining both outsourcing and offshoring activities together would result in much more savings of cost. Recent trends have shown that both activities are on a rise.

The word wide sluggish economy have given rise to these measures taken by the company to save their cost and make the business more efficient and dynamic. Another trend – especially in information technology (IT services) outsourcing – is industry consolidation, with larger companies acquiring smaller vendors.

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