Difference Between Outsourcing and Offshoring (with Comparison Chart)

In the last few decades, a trend has been noticed, with respect to the outsourcing and offshoring of business processes and activities, by big business houses. Outsourcing refers to the delegation of the routine or peripheral business processes to some external organization, so as to free up their resourcesi.e. money, time and manpower, for the core activities of the business.

On the contrary, offshoring can be understood as the is a type of outsourcing whereby the business process or services is relocated or shifted in a different country, with the aim of taking advantage of lower costs. The line of demarcation between the two is subtle, but they are different terms. You can find the important differences between outsourcing and offshoring below.

Comparison Chart

Basis for Comparison	Outsourcing	Offshoring
Meaning	Outsourcing is the assignment of business peripheral operations to an external organization.	Offshoring refers to the relocation of business processes in a different country.
What it implies?	Shifting operations to third party.	Shifting activities or offices.
Objective	Focus on core business activities	Lower labor cost
Function performed by	Non-employees	Employees of the organization
Location	Within or outside the country.	Outside the country.

Definition of Outsourcing

Outsourcing (Outside resourcing), also regarded as subcontracting, is a process whereby the business organisations transfer or delegate their non-core or peripheral activities to the external organisations (service providers). Such outside parties are specialised in performing that operation and hence does it efficiently.

The companies use this tool for the purpose of increasing focus on those activities in which it can do best. Therefore, the rest activities are outsourced by the big multinational corporations that include manufacturing, payroll, customer service, maintenance of statutory records and so on.

Outsourcing is not limited to the domestic country, but foreign contracting is also allowed. Outsourcing can be Business Process Outsourcing (BPO) or Knowledge Process Outsourcing (KPO). The benefits of outsourcing are as follows:

Reduce operating cost
Improvement in quality
Focus on main business activities
Access to highly qualified skill pool.

Definition of Offshoring

Offshoring is defined as the shifting of business activities in a country other than the home country where the resources can be cheaply available to the enterprise which will ultimately reduce the company’s overall cost. It may mean, moving the company’s production house or service centres or the company’s routine operations, overseas.

The company seeks to shift their business from a developed nation to a developing nation, in order to get the advantage of low labor costs, lenient laws, less government interference, cheap availability of resources, less tax rate and much more.

For the past few years, it has been observed that offshoring has emerged as a developmental factor for the economically unsound countries as it increases the countries Gross Domestic Product (GDP), infrastructural development and reduction in the rate of unemployment. Although it suffers from a number of disadvantages like language such as communication barriers etc.

Key Differences Between Outsourcing and Offshoring

The major differences between outsourcing and offshoring are explained below:

Outsourcing refers to the transfer of non-core business activities to another organization who got specialization in that work. Offshoring refers to the moving of the company’s business to any other country, where the cost of running such business is lower than the home country.
Outsourcing involves shifting business operations to external parties. Conversely, Offshoring involves shifting of activities and offices.
The objective of outsourcing business activities is to focus on the core activities of the company. On the other hand, offshoring is performed to minimize the cost.
Outsourcing is performed by non-employees, but Offshoring is performed by employees of the business entity.
Outsourcing may be performed within or outside the country. Although, in offshoring, the shifting of business to another country is a must.

Conclusion

Using outsourcing and even offshoring activities for a call center is in vogue since last decade. When the outsourcing of any business operation, at a place other than the business’s origin, can be termed as offshoring. The business organization can decide itself that how they want to use these practices, i.e. singly or in combination. Sometimes, offshoring can also be termed as a subset of outsourcing.