In this technologically-advanced generation, there are now loads of ultra-modern jargons that laymen cannot easily understand and identify the difference, such as the difference between offshoring and outsourcing. Today, due to the upsurge of the IT and software industry across the globe, a lot of people these days find it really confusing to distinguish between offshoring and outsourcing. Until now, it still is unclear to them if what outsourcing really is as well as offshoring.
Actually, outsourcing is a general term for a business function done by non-employees. It is where a company deals with a third party to do some of the company’s work on its behalf. Outsourcing is an option often selected by big companies to chuck out particular routine work which could be performed by third parties for money.
Outsourcing is usually done to care for human resources and to focus their energies on the companies’ core competencies and it can be done in the same area. Thus, it doesn’t harm local labor market. Outsourcing in local premises poses no real communication problems while offshoring can have significant communication and language barriers.
An example of outsourcing is where a bank may give a large IT company in that country the responsibility for running its network and IT infrastructure. The IT company would then procure people to do that as part of the contract.
On the other hand, offshoring is basically the same but it is more focused on financial prudence. In general, offshoring is outsourcing too yet the function is done only outside the country or outside the area of the client. Actually it is often chosen because the operating cost for business process costs less in other places. In view of the fact that work is done outside of the country, it may pose some disadvantageous effects on the local labor market.
For instance, the bank in the United Kingdom would use its subsidiary in South Africa or any other country to perform the work that is what you call offshoring.
In short, offshoring is where you take a function out of your country of residence to be performed there generally at a lower cost. This may be kept in-house, within the same company group, or it may be outside, contracted to a third party that is to say, outsourced.
