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.

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 outsourcing and offshoring, 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.