Offshoring and outsourcing typically occur simultaneously and are used interchangeably. Despite this, they are two different terms with unique meanings and functions.
Confusion between “offshoring” and “outsourcing” is one of the most common misunderstandings in the global supply chain industry. So, what exactly do these terms mean?
Understanding Outsourcing
As a way to reduce overhead costs and increase profit margins, outsourcing has become increasingly popular. Outsourcing occurs when a company entrusts a part of its business process to an outside vendor. Outsourcing offers numerous advantages, among those are:
- Reduce costs by accomplishing the same task for less money. Even though the cost goes down, the quality does not suffer. Outsourcing is a cost-effective way to get high-quality services.
- Entrust business processes to third-party vendors that specialize in that specific area to increase efficiency.
- Allow companies to focus on their core business, freeing up time, energy, and resources to divulge them into other areas.
Understanding Offshoring
Offshoring is when a company extends some of its operations into another country. It is beneficial for companies as it can improve the economies of both countries at once. Businesses using offshoring have the potential to greatly profit from it. Below are some examples:
- The hourly labor rate in most countries is much lower than in the US. A company that utilizes services in South America will accumulate cost savings from solely labor price cuts.
- Tax discounts and tariff rebates to reduce business expenses.
- Allow companies to maintain complete control over the operation and production of the business. While outsourcing relies on an outside vendor to complete tasks, offshoring relies only on those within the same company. For some, offshoring allows for a more cohesive, directionally focused business than outsourcing does.
- Offshoring creates new revenue avenues by fostering demand in destination countries for products, particularly high-tech items.
- Through offshoring, companies can purchase services at more cost-efficient prices and rates than they would do locally.
Having this information allows us to get a bigger picture of the mistake made by assuming offshoring and outsourcing are the same. Offshoring focuses on getting a fully committed team of talented collaborators that will ultimately enhance the operations of the company, improving aspects associated with cost savings. Outsourcing has traditionally been used by companies around the world to get a low-cost production workforce outside of one´s team.
Outsourcing does the job for you while offshoring does the job with you.
Beyond outsourcing, offshoring offers a strategic management choice, giving companies the tools to grow, optimize resources, and get a fresh wave of foreign talent that is professional and of high quality.
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