Outsourcing and Offshoring are two of the most commonly used terms that one gets to hear these days. Jobs are either being outsourced to India or they are being offshored. Just what do these terms mean? Well, outsourcing refers to contracting an outsourcing service provider for carrying out the non-core business functions. The outsourcing vendor can be in the same country of residence. Offshoring specifically implies shifting a portion of the business processes to a different country altogether. However, the work itself may or may not be outsourced.
Two terms are very commonly used these days whenever there is talk of outsourcing. One is, obviously, outsourcing. The other is offshoring. Just what do both words mean? Are they interchangeable in their meanings? Or do they refer to two totally different aspects of the business world?
Let's start by first defining the two terms 'outsourcing' and 'offshoring'.
Definition of ‘outsourcing’ and ‘offshoring’
Outsourcing is when a company contracts with an outside provider for services or a particular function that might otherwise be performed by in-house employees. These services may be provided on-site or off-site. Typically, the decision to outsource stems from a desire for efficiency and cost-saving for the company.
Outsourcing achieves a three-pronged result. It helps the company achieve a competitive edge in the market by leaving it free to focus on its core competencies; it ropes in the expertise of a third party for its non-core functions; and, finally, it reduces the organisation’s overall operational costs while making it benefit from talented but low-cost employees of the outsourcing vendor.
In today’s global scenario, almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. For example, an electronics goods company might decide to outsource its customer care operations to those firms that specialize in such types of work. Many large companies now outsource jobs such as call centre services, e-mail services, and payroll.
Offshoring can be said to be a type of outsourcing. Offshoring simply means having the outsourced business functions performed in another country. The biggest motivating factor to have one’s work offshored is to reduce labour expenses.
While big multinationals like Dell or IBM actually set up an offshore office in a new country, many SMEs offshore and outsource some of their business processes to a third party service provider in a new country with an eye on saving costs.
Similarities between Outsourcing and Offshoring
1.Both outsourcing and offshoring involve a third party to handle their non-core business processes.
2.In both cases, the primary motivating factors are low labour cost, technologically bright work force, and increased profits.
Differences between Outsourcing and Offshoring
1.Outsourcing may or may not be outside the country of residence but offshoring always implies a foreign country for performing the outsourced functions. A company can outsource any of its non-core business processes like payroll, customer service and similar functions, to a third party service provider who may work within the same country or outside, if they so prefer. However, offhsoring specifically refers to taking the function out of the country of residence to one where costs are less prohibitive. The offshored task may be performed by the employee of the company itself or may be outsourced to an outsourcing service provider.
2.The biggest difference is that while outsourcing can be (and often is) offshored, offshoring may not always involved outsourcing. To simplify, a large corporation may decide to set up a separate offshore operations in a foreign country but may not necessarily outsource its operations to a third party provider. It may just physically set up an extension of its head office in a new country, spurred on mainly by the latter's low-cost and high-profit possibilities.
Can all jobs be equally outsourced and offshored?
Almost all jobs can be outsourced. The outsourcing service provider may be residing in the same country as the client's country of operations or may be continents removed.
However, there are some jobs that cannot be outsourced. Goods-producing sectors, particularly those like construction, mining and the like, obviously cannot be offshored. But any work that can be easily done by a non-employee, even if they are thousands of miles away, can and will be outsourced or even offshored.
India is the outsourcing and offshoring giant in today’s world
India has emerged as the dominant player in offshoring, particularly in the Information and Technology sector. In India, English is rarely barrier in communication. It is very commonly spoken. India has a large and highly trained population of software engineers, and its labour costs are way lower than in developed countries.