Does Outsourcing Mean Offshoring?

The short answer is no. Yet many people make the mistake of interchanging these two terms. The launch of NBC’s newest sitcom “Outsourced” does not help prevent the misuse of the words.

Philosophy 101 question: if all A are C, and all A are B, but not all B are A…are all B considered C?

A = Offshoring, B = Outsourcing and C = controversial

Whereas all offshoring (A) is controversial (C), and all offshoring (A) is indeed outsourcing (B); but not all outsourcing (B) is done offshore (A). Many outsourced services are kept within the nation’s borders. Is all outsourcing (B) considered controversial (C)? No, not really.

Head spinning?

Simply put, outsourcing refers to sending work outside of your company in order to take advantage of cost savings, expertise, variable capacity and to allow your company to stay focused on your core business.

A simplified example might be a restaurant that wanted to print high-quality flyers. It only seems logical that they would send their desired print job to a 3^rd party print house to do the work. It would not make sense for a restaurant to purchase a high-volume production printer and paper cutter just to be able to create flyers in-house. Outsourcing their print jobs would not only save them money, but allow restaurant management to focus their time, energy and resources on improving their culinary skills, business operations and customer service. The print house already owns the necessary equipment and possesses the knowledge to run the machines and execute the print job.

Outsource providers may be onshore, nearshore or offshore

In this same way, companies are increasingly outsourcing pieces of their business which are external to their core competencies, including many IT initiatives. Outsourcing does not necessarily mean that the business will be sent offshore to a distant country, like India or China. In fact there are three main outsourcing categories:

1) Onshoring – domestic outsourcing
2) Nearshoring – outsourcing to a country located in the same geographic region as the country of origin
3) Offshoring – outsourcing functions to a company located in a distant country

When it comes to information technology outsourcing, some firms may be looking to lower costs in the near term, or to speed time to market of a new product, or to gain competitive advantage through innovation and superior client experiences, or to supplement in-house IT resources with a long term partnership.

Depending on your business goals, you should consider the advantages and disadvantages of selecting either an onshore, nearshore or offshore technology service provider.

This is the first of a three part blog series on outsourcing.

The next in the series will discuss the advantages and risks of onshore, nearshore and offshore technology services. The final post in the series will discuss 10 best practices for selecting the best location (onshore, nearshore or offshore) to suit your needs and business goals.

If you just can’t wait, you may download Fairway’s white paper on this very topic today. Fairway Technologies has developed a white paper to help companies determine which outsourcing method is best suited to their needs, titled “Location, Location, Location: Best Practices for Selecting Onshore, Nearshore or Offshore Technology Services“.

The white paper was developed via extensive study, research, surveys and interviews with IT professionals that are involved with sourcing and vendor management decisions. The white paper is currently available here on the Fairway website, and will be accessible on CIO.com during October and November 2010.

Leave a comment to let me know why you think “outsourcing” and “offshoring” are so often used interchangeably.

3 Comments

• 
  Jaiden Scott November 14, 2010 at 7:31 pm

  Every company has to take a Make or Buy decision. Common wisdom is that whatever is a part of your core competency should be made in house. If a part or a sub-system is important to your business, but not your main competency you may choose to acquire that competency or decide that you want somebody from outside the firm do the job for you. You will in the second case buy that part of sub-system from a supplier or have a supplier do a part of your job. This is called outsourcing. As everybody knows, this phenomenon is not new.
  Much noise about software jobs going to India or manufacturing jobs going to China represent a special case of outsourcing called offshoring. This phenomenon has grown specially in the last decade with China opening up its cheap labor market for manufacturing and internet enabling India’s software industry to take off. Often times, the concern of people is about the jobs being offshored as opposed to jobs being outsourced.

  Reply
• 
  Call Center in Philippines November 18, 2010 at 12:01 am

  outsourcing has advanced to become a large industry in itself. One of the major reasons why people outsource is because they cannot find competent personnel within the company and also find it difficult to hire new employees simply for the additional function. Nowadays, even established organizations have now opened services to accept outsourced projects simply because it generates profit. They know that they have expertise in the demanded service and companies pay well to obtain it. Nevertheless, businesses just love the cost-cutting benefits of offshoring and it is the primary reason why they opt to do it. With it, they can now concentrate on what is more important to their organization.

  Reply
• 
  Call Center in Philippines January 10, 2011 at 6:52 pm

  I am confused with the terms outsourcing and offshoring. Your comprehensive article about this subjects enlightened me. Thanks a lot!

  Reply

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