Knowing the difference between outsourcing and offshoring and being able to put it in simple words, will make you look smarter and more knowledgeable about business issues.
It’s easy to confuse these two concepts with each other. It’s also easy to explain the difference between them. Although many people do it, they often use complex terms and you still have the same question unanswered at the end of a long reading.
Outsourcing happens when:
A company decides to delegate one, two, or more internal business processes to another party or company. The other company can be located in the building across the street or on another continent. General trends show that companies tend to outsource small business processes that are time-consuming, expensive, and kind of boring.
In order to avoid these elements, a startup or enterprise decides to hire another company to get the work done, by outsourcing the specific process. By doing so, the organization gets transactional processes done by external experts, while the in-house team focuses its capacities to the core processes that deliver the organization’s goals.
On the other hand, a company that moves one or more business process to one of its units in another nearby country or on another continent is offshoring. The concept is closely related to geography. Companies relocated their factories or units to a country where labor is cheap. At the same time, they send jobs that don’t require qualified skills overseas.
Their logic says that if a product is cheaper to manufacture in another country than domestically why not. Afterward, the goods and service are imported and sold back in origin countries at higher prices. Offshoring has often been criticized. One of the main criticisms is related to the fact that work is offshored in countries where the workers’ rights are not guaranteed by the law.