Outsourcing VS Offshoring – What’s The Difference?
If you’re confused between offshoring and outsourcing, you’re not alone!
It’s one of the most commonly misunderstood aspects of the Global Supply Chain.
Fear not! We’re here to help clear things up for you.
- Outsourcing is the act of transferring business activities to an external organization that has a level of specializations.
- Offshoring refers to moving an organization’s business to another country.
However, offshoring and outsourcing often coincide and are used interchangeably.
Are you confused again?
Let’s dig a little deeper…
It’s essential to understand offshoring is only carried out internationally (literally off the shores of your business’s or corporation’s current location), whereas outsourcing can be done both locally and globally.
It happens when a business or corporation obtains services and products overseas, shifting the location of that service or production abroad.
Reasons why businesses offshore:
- Costs- By offshoring, companies can produce goods or acquire services at much lower prices and rates than locally – which, during a cost of living crisis, can be particularly helpful for businesses to remain competitive.
2. Tax and Tariffs- The regimes in different countries offer specific tax and tariff reliefs. For instance, many countries typically allow companies to import goods at low prices, enabling them to generate significant savings.
3. Control – Offshoring can give companies more control over their production processes instead of relinquishing control to local suppliers.
Outsourcing is when you hire an external party (a company who usually specialises in the tasks required) to carry out services and handle a company’s operations on their behalf.
Reasons Why Businesses Offshore:
- Costs – In English fluent countries with well-respected education systems (like the Philippines) services and products can be offered at lower prices while maintaining high quality output.
2. Specialization– Some business processes or products are very specialized, and outsourcing to another provider enables companies to access higher-quality results because they have the systems, processes, and tech already in place.
3. Flexibility– When companies outsource, they only pay for exactly what they need. Therefore, outsourcing offers them the flexibility to only pay for what they actually need and will use as well as saving all the legal hassle of HR etc as this is taken care of by the specialized outsourcing company in question.