Outsourcing vs Offshoring

Updated June 27, 2023

Difference Between Outsourcing vs Offshoring

Outsourcing (i.e. Outside resourcing) is also renowned as subcontracting. It is a process whereby the business or the firms or organizations will delegate or transfer their peripheral or non-core activities to the organizations’ external firms (i.e. service providers). On the other hand, Offshoring is defined as the shifting of business functions or activities in a country other than its primary or, say, the home country where the resources would be available to the firm or the enterprise cheaply and which will ultimately reduce the organization’s overall cost. It may also mean moving the firm’s service centers, production houses, or routine operations overseas.

Knowledge Process Outsourcing (i.e. KPO) or Business Process Outsourcing (i.e. BPO). The benefits or advantages of outsourcing are as follows:

• Reduction in operating cost
• Improvement in the quality
• Focus on the key business activities
• Access to the highly educated and qualified skill pool.

Head To Head Comparison Between Outsourcing vs Offshoring (Infographics)

Below is the top 7 difference between Outsourcing vs Offshoring:

Key Differences Between Outsourcing vs Offshoring

Both Outsourcing vs Offshoring are popular choices in the market; let us discuss some of the major differences:

• Outsourcing is the transfer of non-core business functions or activities to other firms or organizations that specialize in that kind of work. Offshoring can be referred to as moving or relocating the organization’s business or functions to any other country where the cost of running a business or the functions is lower or, say, cheap compared to its home country.
• The main objective of outsourcing business functions or business activities is to get the management to focus on the firm’s core business activities. On the other hand, the offshoring objective will be to minimize the company’s cost.
• Outsourcing will involve shifting the business activities or operations to external parties or third parties. On the contrary, Offshoring will involve shifting the business functions, activities, and offices.
• Outsourcing can be performed within the country or outside the primary country. While in the case of offshoring, it is mandatory to shift the business to another country, which is again different than its primary country.
• Outsourcing will be performed by non-employees that the third party’s employees to whom it has been outsourced. On the other hand, Offshoring will be performed by employees of the organization or the business entity.

Outsourcing vs Offshoring Comparison Table

Below is the 7 topmost comparison between Outsourcing vs Offshoring

The Basis of Comparison	Outsourcing	Offshoring
Basic Definition	Outsourcing is the business’s peripheral activities’ assignment or operations to an external entity or organization.	Offshoring can be referred to as the relocation of the entire business or the firm processes in another country other than its primary one.
Implied meaning	Outsourcing is shifting the operations to a third party.	Offshoring would include both shiftings of offices as well as operations.
Location	Outsourcing can be done in the same country or outside its primary country.	Offshoring can only be done outside the country or, say, outside its primary country.
Requirements	Lack of the required expertise. Availability of cheaper skilled labor; and also the cost-cutting Outsourcing the rest is an opportunity to concentrate on the key or the core activities.	To overcome certain rules and regulations constraining the business’s operation in some other ways. Cheaper labor. To enter into new markets.
Potential Benefits	Taking and getting benefits from the specialized services. Also, there is risk-sharing with the vendor to whom the company has outsourced. Also, there would be reduced recruitment and operational costs.	Again, here is access to cheaper labor costs. Specialized skills are available offshore. May also provide the correct “local” partners to expand. The company also benefits from the economies of scale by operating in the larger international markets.
Key Objective	The company’s main objective for choosing the outsourcing route would be to focus on the key or core business functions or activities.	The key objective of offshoring would be Lower labor or skilled labor cost.
Activities performed by	The person performing the business activities will not be the organization’s employees.	The person performing the business activities will be the organization’s employees.

Conclusion

Using offshoring and outsourcing activities for a call center has been in vogue since the last decade. When outsourcing any business activity or business operation occurs at a place other than the firm’s origin, it can be called offshoring. The business or the organization can decide how they want to use those practices, whether in combination or singly. Sometimes, offshoring can also be called a subset of outsourcing.

Businesses with significant revenue overseas, like Microsoft Corp and Apple Inc., can capitalize on the opportunity to keep the related profits in the offshore accounts in countries with lower tax burdens.

Popular jobs that have been outsourced are

1. Nursing
2. Call centers (Major hotels, computer makers, and financial institutions such as banks have outsourced their call-related functions to the Philippines and other foreign countries, such as India).
3. Research and development. (Tech giant Microsoft has recently opened a research center in Shanghai).
4. BPO and KPO.

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