WHAT IS THE DIFFERENCE BETWEEN OUTSOURCING AND OFFSHORING?

Outsourcing, also known as subcontracting, is the process of delegating peripheral or non-core processes or activities of a business to an external business. This is done to free up their resources i.e. money, time and manpower so that these could be better invested in the core activities of the business. This way, firms can focus on strong sectors and delegate those activities to outsourcing companies that they know are not good at it. Outsourcing companies have employees who have expertise in such tasks. Firms outsource services like manufacturing, accounting, payroll, marketing, development and more.

On the other hand, offshoring is shifting of business processes or activities from the home country to another country. This is done to enjoy cheap resources of an overseas country so that the organization's operating costs are reduced. In short, offshoring is a transfer of the business process to a foreign country. Generally, companies want to move their business from a developed country to a developing country to take advantage of low labour cost and cheap resources.

Therefore, the important difference between outsourcing and offshoring is that outsourcing aims to focus on the core activities of the business while offshoring aims to take advantage of cheap labour costs.

Outsourcing can be done in the same country where your business is present and also in outside countries, on the other hand, offshoring can be done only in the outside country.

There are basically two types of outsourcing i.e. Knowledge Process Outsourcing (KPO) and Business Process Outsourcing (BPO).

Outsourcing tasks are done by non-employees (virtual employees assigned to you by an outsourcing company).  On the other hand, offshoring tasks are done by the employees of the company.

The benefits of outsourcing are –

1. Increasing focus on the core activities of business means better business development
2. Increased productivity of in-house employees
3. Better Quality
4. Operating cost reduction
5. Access to skilled virtual employees

 

While the benefits of offshoring are –

1. Access to cheap resources
2. Low labour cost
3. Less tax rate
4. Lenient laws, less government intervention
5. Operating cost reduction

 

What is the difference between outsourcing and offshoring? – in table format

	Outsourcing	Offshoring
Definition	Outsourcing is the delegation of non-core activities to an external firm.	Offshoring is the relocation of the business process to another country.
What it implies?	Sharing work responsibility to another firm. Transferring operations to the third party.	Sharing work responsibility within the firm. Shifting activities or offices.
Motive	Focus on core activities of the business.	Taking benefits of low labour cost, that means low operation cost.
Tasks performed by	Non-employees, virtual employees hired through an outsourcing company.	Employees of the organization.
Location	Within or outside the country	Outside the country