Offshoring and Outsourcing: Know the Difference

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Offshoring
and Outsourcing Difference
Know
the
Outsourcing and offshoring are two terms that I
am sure every businessman is aware of whether
you outsource any function of your business or
not. Most of the times, these two terms are
interchanged in conversation or even confused by
some to think they are one and the same. However,
there are some fundamental differences between
the two. In this blog post, we shall explore
these differences and get a clear sense of what
both these terms actually mean for a business.
Outsourcing
In simple terms, outsourcing refers to the act of
contracting a third party company to carry out
certain functions of your business. Outsourcing
can be done for the sake of reducing operating
costs as outsourcing is more cost effective than
hiring an in-house team. Another reason why
companies outsource services is to avail expert
or specialized skills that their own team does
not possess.
Here are some benefits of outsourcing for
businesses
Cost-effective
As stated above, outsourcing provides
cost-effective services to businesses. When a
company sets up a department in-house, apart from
the salaries, they have to bear other expenses
live electricity, internet, furniture, computer
systems, employee benefits, paid leaves etc.
Outsourcing saves the business these costs.
Access to specialized skills
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Instead of going through the time-consuming
process of finding and training staff members
with certain skill sets needed for the job, it is
easier to outsource the functions to an Indian
outsourcing company that already employs staff
members with those skill sets, who are already
well trained.
Flexibility
Outsourcing offers companies the flexibility to
scale up or down according to their
business requirements. If seasonal hiring has to
be done, its better outsource this than conduct
this in-house. This will save you the
inconvenience of constant hiring and firing.
Focus on Core Functions
No matter what your company does, it has many
non-core functions like customer services,
billing, hiring, training, accounts etc that need
to be handled. Outsourcing these functions to a
third party helps your company focus its
resources on the core objectives.
Offshoring
Offshoring refers to a company getting their
various services handled in a different country
to make the most of the cost advantage.
Offshoring is usually done by finding a country
where the exchange rate gives your business a
distinct monetary benefit. Companies based in
western countries like the U.S or U.K offshore
their business to countries like India,
Philippines, and China etc.
Now, this is where we cannot confuse outsourcing
with offshoring. A company can offshore
their particular department but not outsource it
at the same time. For example, companies based in
the U.S can offshore their customer service to
their Indian captive units. This way, they are
not hiring any third party company and still
getting cost reduction benefits.
Offshoring has the following benefits for
businesses
Reduced Cost of Operations
Whether it is help desk service or manufacturing,
when any service or function gets offshored, it
is usually for the benefit of cost reduction.
Cheap labor or workforce is a big driving force
for western companies to offshore. Through
offshoring, work can get done with just a
fraction of the cost of doing it in your own
country.
Capitalizing on Skills of the Locals
Due to various reasons, there are certain
geographical areas where the locals have
developed skills in a particular industry or
sector. For example, India has been for long
considered the hub for offshoring help desk
services or tech support services. The reason for
this is that India produces well educated
and tech-savvy workforce that is perfect for the
tech support processes for some of the biggest
technology companies in the west.
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I hope that this blog post has clarified for you
the basic differences between outsourcing and
offshoring. It is important to remember that you
do not have to outsource in order to offshore.
There are several captive units of companies set
up across different countries that can be used
for offshoring. When work is contracted to a
third party that is set up in a different
country, then it can be called offshore
outsourcing.