Notes

Outsourcing Vs Offshoring

Today, outsourcing and offshoring are integral parts of almost every business strategy, as they help in efficiency and innovation, by continually evolving in response to economic, technological, and geopolitical shifts.

In short, these models not only help to shape your corporate strategies but also influence global labor markets and economies. So, if you are not using them in your business, you are behind the curve.

That’s why in this post, we start with…

A basic understanding of them,
Then go over the top 10 differences between outsourcing and offshoring,
And lastly, discuss the key factors to keep in mind while choosing between them.

Understanding of Outsourcing & Offshoring

Outsourcing, at its core, means you are hiring third-party services to complete a piece of work or a whole project, which involves delegating specific tasks or services to external companies, often to harness specialized expertise or reduce costs.

For example, Google outsources IT management to firms in India, and Nike outsources manufacturing to factories in Vietnam and China.

Offshoring means you are relocating your business operations to other countries frequently where labor costs are lower like India and China to emphasize geographical cost advantages and talent pools.

For instance, Apple offshores its manufacturing to China, and Wells Fargo offshores customer service to India and the Philippines.

Evolution of Outsourcing

Outsourcing began during the Industrial Revolution in the 18th century when businesses started contracting out non-core activities to outside experts with a view of improving efficiency.

First, it was limited to simple clerical work such as accounting, but, in the late 20th century, outsourcing expanded with the emergence of Business Process Outsourcing (BPO), which also includes more complex service activities such as call center and IT support.

Evolution of Offshoring

Offshoring started to gain momentum in the 1980s and the 1990s due to enhanced telecommunications and the Internet. From then, most developed Western firms started relocating manufacturing and IT services to developing countries like India and China. So, you can mark this era as the start of a new global economy, where geographic boundaries became less relevant to scale businesses.

Outsourcing v/s Offshoring: An In-depth Analysis

As the title suggests, this will be an in-depth analysis of outsourcing vs. offshoring. However, if you are in a hurry and just want to know the differences, please refer to the chart below.

But our recommendation is to go through all the points and understand them thoroughly so you can make the right decision for your company’s future.

Types of Outsourcing and Offshoring

Actually, the types of outsourcing depend on individual perspectives. For instance, HubSpot covers 7 types, PearlTalent covers 9, and Digital Minds BPO covers 11 types of outsourcing in their articles.

Here, we list 4 categories that encompass almost all types:

IT Outsourcing: Hiring top companies, like Agicent, to facilitate IT functions like software development, maintenance, and support.

Business Process Outsourcing (BPO): It is about delegating non-core business processes such as payroll, HR, and customer service.

Source: https://www.agicent.com/blog/outsourcing-vs-offshoring/