Offshoring and outsourcing sound exactly the same but the nuance is hardly seen. To cut the expenses on the production businesses rely on another firm. It can be done both overseas and locally to centralize all the efforts and resources of a business to its core function. Wage labor or the price of hiring workers varies from different regions of the world. As an example in Northeast Asia, there are more factory workers and the prices are usually cheaper. If a company is in the US, hiring locally can affect its profit margin.
Thus a method of separating an operation to be handled by another company overseas or local exists. It can be done through outsourcing and if you hear this word it’s likely that you have also heard about “offshoring”. Furthermore, the two are not covered by a single blanket to function. Meaning to say that offshoring which is a process of moving an entire business to another country does not require outsourcing to function. Initially, you could mistake them as the same but the differences are subtle which will be discussed further.
Outsourcing requires a third-party provider who will complete the output needed to produce. In this process, the full entrustment of the company’s operation outside of its expertise is given to another. Outsourcing happens not only on a local scale but also extends overseas. This, in turn, will give a company a more centralized process to its overall competencies. It has been around for a few decades already and many companies’ still continue this practice.
Outsourcing provides many advantages to businesses but it doesn’t mean it works for everyone. Inevitably, setbacks will occur for some businesses that failed in practicing this method. Today without cloud computing services a business will fail. Cloud Computing services make distance almost irrelevant for a business to function. It is used by companies to store, manage, and process large volumes of data produced by the whole operation. In outsourcing, the quality of the output is not guaranteed to meet the expectations of a client company.
Reasons Why Businesses Go Outsourcing
The most common reason why businesses resort to outsourcing is that it’s more cost-efficient. Accounting and back-office tasks are very expensive operations to maintain within a business. As a business grows it is no longer practical to hold on to the traditional business model. Processes like accounting, customer service, and back-office are more efficient if handled by BPO companies.
Offshoring is the process of moving an entire operation to another country. Unlike outsourcing, the entire control of an operation remains with the business. Operations run by the business itself can ensure the quality of the output. This will allow the business to hire talents and buy resources at cheaper prices. This is because businesses are likely to choose developing countries for offshoring. Businesses can also set their own standard in many aspects of their operations. This is to ensure that their expectations are met.
Reasons Why Businesses Go Offshoring
The primary reason why offshoring is an ongoing business practice is because of its lower cost. Quality in offshoring is more maintained and controlled. It’s best for industries needing a cheaper manual labor force. Manufacturers are the best industries that can fit well to offshoring as the output are physical products.
Now that you know the difference between the two methods, you are probably wondering which one is better. The two methods can’t outmatch the other one as their goal and purposes are subjective. As mentioned above outsourcing can be best for large enterprises needing customer service for their large volume of clients and customers. For instance, a large retailing company may encounter client problems that need to be addressed. The solution is hiring outsourcing companies specializing in customer services. Meanwhile, offshoring is primarily taking advantage of the global labor arbitrage.