One of the most commonly misunderstood grounds of the global supply chain is the difference between offshoring and outsourcing. Consumers also use these two terms interchangeably and often view these negatively because of the profit gained by these processes. Below are the concepts and differences between offshoring and outsourcing that can correct these misconceptions and stereotypes.
What Is Offshoring?
Offshoring, also known as offshore outsourcing, is primarily a geographic activity where work is done by other countries, usually to leverage cost advantages. For instance, in Western areas, products are costly because of the contractual workers of that product are highly paid. However, in developing countries, vast inexpensive labor pools provide a smooth bedrock for a low-cost economy. Offshoring takes advantage of these cost differences by relocating factories to the cheaper economies to sell it to the West at a hefty price.
What Is Outsourcing?
In outsourcing, an organization contracts work out to an external organization or a third party to transfer transactional activities to the experts for the better focus of the organization on its expertise. It may come in forms of selling the physical plant to a supplier, to buy back, to shift an entire business division to a third-party, and repurchasing its service.
Outsourcing requires the selling of property and laying-off many workers facing an ambiguous future because of the high possibility of retaining jobs due to the new supplier or perhaps being made entirely redundant.
What Are The Differences Between The Two?
In general, offshore outsourcing or offshoring means getting work done in a different country, while outsourcing is about contracting work out to another external party. In offshore outsourcing, lower costs usually come with better availability of skilled people, where work is faster through a global talent pool. Meanwhile, outsourcing takes advantage of specialized skills, cost efficiencies, and labor flexibility.
It is crucial to be knowledgeable of the differences between these terms, especially when engaging political debates on business strategies. Both offshoring and outsourcing have moral and economic implications in different aspects, but they are distinct in each of their methods.