Offshoring and Outsourcing
For people that do not have an in-depth understanding of the global supply chain one of the most common misunderstandings is the difference between outsourcing and offshoring. Sometimes it can be frustrating for business owners when their customers do not have a full understanding of the terms that are used.
The misunderstanding between offshoring and outsourcing causes problems for businesses because both terms have quite a negative perception, although this is actually not the case.
Despite the common misconception between the two terms, there is a clear difference between offshoring and outsourcing. A more detailed definition of both along with an explanation of the key differences can be found below.
Outsourcing is the practice of hiring an individual or another company to carry out a specific role that is vital to the company. One of the main reasons why it is so popular is that allows business owners to pass certain tasks to experts in their field so that they can focus on the things that they are best at.
Outsourcing creates more business opportunities all over the world because companies are not restricted to just working with other businesses in their country. Companies that provide services for other businesses also have a great deal of choice over the businesses that they choose to work with. This helps to ensure that everything is running smoothly as the companies that are working together are a good fit for each other.
There are also financial benefits of outsourcing that businesses can take advantage of. If part of the production process is taking place elsewhere then businesses will not need as much real estate and can save on the overheads that are associated with occupying any type of business premises.
It is easier than ever now for businesses to communicate with the people that they have outsourced work. Work orders can be sent electronically and if a face to face conversation is needed then there are many ways that this can take place online.
A company can outsource work to anywhere in the world and this includes the country that they are based in. Offshoring is different because in this case the work is always moved overseas.
The main reason companies take part in offshoring is that the cost of producing goods is often far cheaper overseas. The cost of materials can sometimes be cheaper, and the cost of labour will almost certainly be lower. Before a decision about offshoring is made it can be useful to do a comparison of costs to determine the level of savings that can be made.
Offshoring has been credited with being one of the main reasons why the cost of goods such as clothing and technology has fallen so much in recent years. The savings that are made by companies can be passed on to customers in the form of lower pricing and if customers are able to buy more than this stimulates the economy. It also provides people in poorer countries with a chance to earn some money which in turn will boost their economy as well.
Offshoring can also open new markets to the business in the country that is carrying out work for them. If products are made in another country, then it makes sense to sell them there as well. There is the potential for these markets to become quite lucrative for businesses that can be one of the first to get their products out there.
Combining the Two
Even though they mean different things, outsourcing and offshoring can be combined to maximize profits for the company and to lower prices for consumers. This is not a new idea and many companies have been doing this for years, with a lot of their production shifting overseas.
However, while the savings are being felt by businesses it can be argued that there are costs which are felt by the entire nation. The prominent concern here is that if production is being outsourced to an offshore location then this reduces job opportunities for workers in the country where the company is based.
If you ever find yourself in the middle of a discussion about the way companies use sites overseas, then it can be very useful to know the differences between outsourcing and offshoring. There are economic and moral upside & downside about both that can be debated but knowing the difference will help you to make a better decision.