Outsourcing, offshoring, and cat pictures.
Aside from numerous cat pictures, what else did the internet bring to the table?
For one, it drastically changed the way we do business. What was once limited by geography has been made one by the information superhighway. And thus, outsourcing and offshoring became the next step in a global-minded business structure. There is a lot of confusion between the words “outsourcing” and “offshoring”. Most people use these two words synonymously. In fact, even business owners and administrators often interchange these words without differentiation. There are distinct differences between the two, however. It is important that we know these distinctions to make better management decisions. So what’s the difference between outsourcing and offshoring?
What is Outsourcing?
As a simple definition, outsourcing refers to contracting work with a third party. You should note that this business process is not limited by geography. You can subcontract a third party both domestically or internationally. As long as you get some of your work done by hiring a different person or company to do part of your work for you, it is considered outsourcing.
As an analogy, you are a father managing a family of four living in Kensington. Part of your daily routine is the maintenance of your garden, including landscaping and lawn mowing. Of course, you can do all these on your own. However, you can also hire the kids from across the street to do that for you in exchange for a tub of ice cream. This will give you more time to spend with your own children, or watch football. In this case, you are outsourcing a specific project (mowing your lawn) to a third party (the kids across the street) to focus on your expertise (spending time with your family, or watch footy).
What is Offshoring?
If one of your services or part of your production is shifted to a location abroad, then it is offshoring. This business process takes advantage of cost differentials between countries. Usually, companies offshore in developing countries where labor is relatively cheaper compared to their home country. This enables them to sell their goods at a hefty profit.Let’s go back to our analogy. Instead of hiring the kids across the street to mow your lawn, you hired your sister’s kids living in Flemington who will do it for a price of three ice blocks. Ice blocks are way cheaper than a tub of ice cream. You can then spend your savings on additional snacks while playing with your kids, or watching footy. In this case, you are offshoring a part of your business (lawn management) to a different country (Flemington) because of the low cost of labor (three ice blocks).
Is Offshoring Better Than Outsourcing?
While the primary motivations for both outsourcing and offshoring are similar, there are still differences in practice when it comes to management. Indeed, both process will free up some of your resources and capital, but they have different repercussions to your business in the long term. This gives offshoring an edge over its outsourcing counterpart.First, offshoring gives you access to a global talent pool instead of being limited by your location.
Next, there is a much closer and intimate employee-employer relationship in offshoring compared to outsourcing. In my opinion, this is what sets offshoring apart.Looking back at our analogy, your nieces and nephews in Flemington have a more personal relationship with you. They know you better as a relative compared to the kids across the street. There’s a higher level of trust in-between, which leads to more effective communication and productivity. This gives you a better degree of control and collaboration which will result to a lawn tailor-fit to what you envisioned.
Are you ready to try offshoring or remote staffing? Contact us now to learn more.