Difference Between Outsourcing and Offshoring

Outsourcing and offshoring are business practices that allow companies to leverage the best available skills, to reduce cost of operations and to get jobs done that are not the forte of the organizations. Despite having similar objectives, there is substantial difference between outsourcing and offshoring.

What is Outsourcing?

If a company hires another company or individual to get a job done that should have been done by itself and the individual or firm hired doesn’t become an employee or a partner, it is outsourcing. A company can hire an HR firm to take care of recruitments, payroll processing or payroll management and to even train the recruit. A company can hire a marketing firm to take care of its promotional, advertising and branding needs. A company can hire an IT company for its technological infrastructure. Likewise, a company can choose to outsource any and every department that traditionally should have been taken care of in-house.

What is Offshoring?

Offshoring can be the same practice as outsourcing but it involves hiring a company or individual who is not in the same country. An American company hiring a British IT firm for its technological infrastructure is offshoring. A British telecom company hiring a call center in India for its customer service is offshoring. In both these cases, the practice is outsourcing and offshoring. In that sense, offshoring includes outsourcing but outsourcing doesn’t necessarily mean offshoring.

The Primary Difference

There is another difference between outsourcing and offshoring in the manner they are carried out or planned. Outsourcing will never lead to the merging of the two or more parties involved in the arrangement. The companies or individuals will remain separate entities, they will function independent of one another but would get the tasks done that they have mutually agreed upon. Offshoring doesn’t necessarily require hiring another company. An American company can register a business in Germany and run a data center which hosts servers catering to American customers. The new company in Germany is owned partly or completely by the American company. This is offshoring but not outsourcing since the American company is the owner of the new setup and is running the show there.

Both outsourcing and offshoring have their fair share of benefits and challenges. In a globalized world, neither is seen as avoidable and both are seen as necessities by most companies. Not only are businesses considering outsourcing and offshoring for jobs they cannot do in-house but also those jobs that they can do but would be better done or attend to with cheaper overhead.

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