What is the difference between outsourcing and offshoring?

The words “offshore, outsourcing, out-staffing, leasing of personnel” can be something amazing and are used in the daily use of many businesses. Now on the way are new semantic expressions – resoring, profit sharing, uberization. But oddly enough, the main confusion around the question “what is the difference between outsourcing and offshoring” remained.

“Do what you do best and outsource the rest.”

Peter Drucker – Management Consultant, Educator and Author

Outsourcing refers to the delegation of routine or peripheral business processes to an external organization in order to free up resources, money, time, and labor for the main business processes.

Offshoring, on the other hand, can be understood as a type of outsourcing in which a business process or service is moved to another country in order to take advantage of lower costs. The differences are not significant at first glance, but these are different terms. In the table below, we have summarized the important differences between outsourcing and offshoring.

Definition of Outsourcing

Outsourcing is the process by which commercial organizations outsource or delegate their non-core or peripheral activities to external organizations (service providers). Such outside parties specialize in performing this operation and therefore do it efficiently.

Companies use outsourcing to focus more on the activities in which they can best perform. Thus, the rest of the activities are outsourced to small and large multinational corporations that include manufacturing, payroll, customer service, regulatory filing, and so on.

Outsourcing is not limited to a domestic country, and often involves overseas contracts. Outsourcing can be Business Process Outsourcing (BPO) or Knowledge Process Outsourcing (KPO). The advantages of outsourcing are as follows:

• Reduce operating costs
• Improving quality
• Focus on core activities
• Access to a highly qualified skill pool.

Definition of offshoring

Offshoring is defined as the displacement of business activity in a country other than the country of residence, where resources can be readily available to a business, ultimately leading to a decrease in the company’s overall costs. This could mean moving a manufacturing plant or service centers or routine company operations overseas.

The company seeks to move its business from a developed country to a developing country in order to gain the advantage in the form of low labor costs, soft laws, less government intervention, cheap availability of resources, lower tax rates, and more.

In the past few years, it has been noted that offshoring has become a development factor for economically failing countries, as it increases gross domestic product (GDP), infrastructure development, and lower unemployment. Although it suffers from a number of shortcomings, such as language for example.

Key differences between outsourcing and offshoring

Answering the main question of this post What is the difference between outsourcing and offshoring? we have defined the next list of differences:

• Outsourcing means the transfer of non-core activities to another organization that has specialized in this work. Offshoring means moving a company’s business to any other country where the cost of doing such a business is lower than at home.
• Outsourcing involves the transfer of business operations to external parties. Conversely, offshoring involves shifting activities and offices.
• The purpose of outsourcing business activities is to focus on the core business of the company. On the other hand, offshoring is done to minimize costs.
• Outsourcing is carried out not by employees, but Offshoring – by employees of a business entity.
• Outsourcing can be done domestically or internationally. Although in the offshore sphere, the transfer of the business to another country is mandatory.