Outsourcing vs. Offshoring: What’s the Difference?
To many business owners, “offshoring” and “outsourcing” have the same meaning: sending work that would otherwise be completed in-house to freelancers based in other countries.
While the two terms may seem similar, they actually have very different meanings when looked at more closely. Outsourcing refers to any type of external work that your business commissions someone to do, while offshoring refers to outsourcing work to a different country.
Confused? Don’t worry, it’s easy to understand the difference once you learn more about what offshoring and outsourcing are about. Enroll in The Outsource Course for a great, results-focused learning experience on what outsourcing is about.
What is outsourcing?
Is your business or organization’s staff worked to the limit? Outsourcing involves contracting certain aspects of your business’s work to a third party, like an online freelancer or an agency.
Businesses outsource a wide range of tasks, projects, and processes. Examples of outsourcing you may be familiar with include call centers and customer support, which are often outsourced by companies to third party agencies.
Outsourcing can also take the form of hiring contractors to complete repetitive or basic tasks. Many technology companies outsource aspects of their development work so that their in-house staff can focus on more important projects.
A huge range of tasks and processes can be outsourced. From design and corporate identity development to customer support and accounting, almost all of the world’s largest businesses outsource some aspects of their operations.
Learn more about outsourcing in our course, Business Process Outsourcing. Aimed at professionals working within large businesses and organizations, it’s an in-depth look at how outsourcing works and the way modern businesses outsource.
What is offshoring?
When your business or organization outsources, it can choose between selecting a contractor or agency within your country or an international one. Offshoring is the process of outsourcing work to a country other than where your business is based.
For example, a business in the United States could outsource work to a contractor within the United States. This is outsourcing. If the company instead outsourced its work to a contractor in India or the Philippines, it would be offshoring.
While outsourcing is typically done to access contractors with advanced skillsets or speed up the completion of a project, offshoring is typically carried out to reduce the cost of a certain task or process.
Many large companies, for example, outsource their customer support departments to other countries in order to reduce costs. This is offshoring. Other companies use offshore staff to complete tasks and projects at a lower cost than in-house staff.
You can learn more about offshore outsourcing in our course, Use Outsourcing to be More Productive & More Profitable! This in-depth course shows you how to use off-shore staff to take care of simple, repetitive, and inexpensive tasks.
The advantages and disadvantages of outsourcing vs. offshoring
Outsourcing has numerous benefits for businesses. Contracting external agencies or professionals can help them complete processes and tasks faster, reduce their costs, and run a more effective and profitable operation.
It can also allow the core staff of the business or organization to spend less time on ‘hands on’ projects and more time focused on the bigger picture and large strategic decisions that will help their business grow and develop.
When you outsource, however, you also run into potential problems. Many of these problems are amplified when processes and tasks are outsourced to companies or individuals in other countries.
One of these problems is communication. Since offshoring involves sending work to another country, time zones can make direct communication between the company and the contractor difficult to manage.
Language and culture can also play a factor in communications issues. Since many of the countries most popular among offshoring firms have different native languages to most of the Western world, simple messages can become lost in translation.
Culture clash can also make offshoring a challenge. Many countries have corporate values that are not identical to those of the Western world. The old cliché of doing business while trying to avoid committing faux pas is a major issue in offshoring.
Finally, being able to control the quality of the work produced by your contractors can be an issue for companies that contract work offshore. When you work with an in-house team, you have total control over the work and creation process.
When you outsource domestically, you have less control but are still able to keep in touch with your contractors. When you send work offshore, the level of control you have over quality and output is significantly more restricted.
Enroll in our course, Outsource Your Service Business, to learn more about the key issues you could face when offshoring certain tasks, as well as the best solutions to avoid culture clash and communications breakdown when outsourcing work.
Political arguments for and against offshoring
For many people, offshoring is a controversial topic. As the world has grown more globalized, a large number of jobs that were once performed in Western countries have been outsourced to offshore providers in China, India, and elsewhere.
Critics of offshoring claim that sending work to offshore providers takes jobs away from skilled workers within the company’s country. Others argue that offshoring is an excellent way for countries to focus on creating highly specialized jobs.
Finally, there is a geopolitical risk to extensive offshoring. Many countries with large offshoring industries have gained a geopolitical edge by offering offshore services as commodities that can be used in foreign policy and political strategy.
You can learn more about the political effects of offshoring in our blog post on Pros and Cons of Globalization.
Should your business outsource or offshore?
Both outsourcing and offshoring offer advantages and disadvantages for businesses and organizations. From quality control to cost, they both have extensive benefits, as well as issues that many businesses need to overcome.
Ultimately, the best solution for your business depends on your needs. If you need a high level of quality and communications, outsourcing may be best. If you need low costs and a systematized business, offshoring is often a better solution.
As the world continues to glow more connected, the line between outsourcing and offshoring may become more blurred. Will your business adapt to the outsourcing revolution or focus on acquiring talented in-house staff?
Last Updated July 2020
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