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What Is the Difference between Outsourcing and Offshoring?

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  • Last Modified Date: 17 October 2014
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Though outsourcing and offshoring may simultaneously take place, the two differ in terms of location and worker selection. When offshoring occurs, a business moves all or some of its activities to another country. Outsourcing, on the other hand, is the process of utilizing third party workers for traditionally in-house business tasks; this may take place either inside or outside the company's home country. Both are typically done to save a business money.

Outsourcing is a common practice that businesses use to cut expenses, gain access to employees with a special skill set, and obtain other benefits. Unlike offshoring, outsourcing does not need to take place in a separate country to occur. Businesses that remain in their countries of origin may seek out local third party workers, resulting in outsourcing. Outsourcing can, however, take place outside of the company's country of origin as well.

Offshoring is sometimes referred to as a subset of outsourcing. When the costs of running a company are cheaper in another country, the company may choose to move their activities or offices abroad in order to reduce expenses. If company activities are still handled by in-house employees while this occurs, outsourcing and offshoring are not occurring simultaneously. If the company opts to shift duties to a third party to further reduce costs, however, then the two practices are both being used. Many instances of offshoring do involve outsourcing.

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The location of these practices is another difference between outsourcing and offshoring. Outsourcing does not require that the third party being hired to complete a job, be from another country. Many instances of outsourcing are done within a country, such as when a printing company may employ a third party shipping business to transport its goods, rather than using its own staff. Outsourcing within a country's borders can be just as cost effective and popular as doing so internationally. Offshoring, on the other hand, always takes place outside the business's country of origin.

A growing trend in many business industries is to use outsourcing, and sometimes offshoring, for call centers. Many businesses outsource their call operations to workers in other areas. Should a business sets up a new call center in another country, offshoring occurs. Businesses may use both practices, individually or simultaneously, for these and other activities.

Many people assume that outsourcing and offshoring are limited to the information technology, or IT, industry. While offshore IT outsourcing is a frequent practice of many businesses, the activities are not limited to this field. Other common types of outsourcing and offshoring include knowledge process outsourcing, business process outsourcing, and offshore software development, just to name a few. Nearly any type of business has the potential for using such strategies.

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anon947109
Post 7

I think the U.S. is severly behind on education; grades 3-8 in particular are lacking. Simple things like geography, basic biology, history (of other countries, not just the U.S.), math, music and art are all covered more consistently in other countries.

Is that why outsourcing is occurring? Maybe, but it certainly might be a good idea to improve education from the bottom up, rather than trying treating a symptom such as outsourcing in the IT sector.

anon355632
Post 6

Hope this helps:

A company functions like you building a house. You want to get a quality product for the minimum cost (value). You might have the know how and resources to do the framing, but are you also the best person to do the electrical and plumbing? If not, you contract that work to someone else (outsource).

If you want custom windows built for the house and the house is large enough, you might have that work done offshore (large enough because for you to factor in the freight cost to ship back to US, if the freight equals savings from cheap labor might as well outsource in the US). If I'm specing the windows and telling you how to build them in the low cost geo, then that is offshoring. If I hire you in the low cost geo to spec and build based on my needs, that is offshore outsourcing.

anon296812
Post 4

Outsourcing is making the poor even more poor, hurting the economy of that particular state, and downright wrong. The masterminds behind allowing the outsourcing are driven by greed. Unemployment rises from outsourcing and the foreigners definitely aren't going to be spending money in the U.S. But when foreigners are in the U.S., they send money back to their countries. The U.S. is becoming a third world country.

serenesurface
Post 3

I think offshoring has become a trend. I'm pretty sure that companies can outsource inside of the country and still reduce costs.

It might seem more profitable to offshore to far away countries that will work for less. But I think that communicating with and managing employees so far away would be difficult. I think it would actually make running the company harder.

And is profit everything? Shouldn't we worry about unemployment that results from offshoring? So many Americans have lost their jobs. Stuff might be cheaper to buy but we can't buy it if we don't have a job, right?

candyquilt
Post 2

@simrin-- I don't think we are behind other countries in education or expertise. It's just that many developing countries --or emerging markets I think they are called-- can provide the same expertise for cheaper. Offshoring or outsourcing is just about profit.

SteamLouis
Post 1

What I have gathered from this information is that offshoring is harder on our economy than outsourcing, right? Because we can outsource and still have our citizens employed by the company. But offshoring will most likely lead to outsourcing as well, in which case, foreigners might make up most of the employees.

I understand if a company is oursourcing and offshoring because natural resources and labor are cheaper somewhere else. But why would you want to outsource knowledge processing? Are we running behind other countries when it comes to education?

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