What Is Offshoring? What Is Outsourcing? Are They Different?

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In today's globalized economy, businesses often seek cost-effective solutions to stay competitive and expand their operations. Two strategies that have gained popularity are offshoring and outsourcing. Although these terms are often used interchangeably, they refer to slightly different practices. In this article, we will explore the definitions of offshoring and outsourcing, as well as the key differences between them.

The Industrial Revolution radically changed how businesses operated. Highly productive machinery and breakthrough technologies meant companies could grow at an unprecedented rate. By the mid-1900s, many were thinking outside the box, looking for any angle to increase profits and grow their market share.

Technology was then so powerful that by simply scaling up operations, companies could leverage massive economies of scale to increase profit margins while undercutting smaller rivals. Unfortunately, this scaling led to a bloated and complex management structure and business process and a lack of agility and flexibility.

Struggling with having their cake and eating it, companies decided to focus on their core business and began to outsource their support functions. This move made it easier for companies that weren’t self-sufficient or had no internal competency to outsource to third-party vendors on a contract basis, forming the baseline of outsourcing.

Fast-forward to the 1990s. Outsourcing, as a cost-saving measure, was as popular as ever. Contracts were drawn, timelines set, and what seemed like smooth and hassle-free delivery of services was established.


The outsourcing model of the 90s worked amazingly well, and companies were more than happy with the results. However, their expectations began to rise, and they wanted more. The one thing that outsourcing couldn’t give them was a sense of ownership, and they wanted to be in charge of the entirety of their business. Thus began the search for a business model that was cost-efficient, scalable, and gave business owners complete control and ownership. The ethics of offshoring slowly but surely began to shift.

At the turn of the 20th century, offshoring came into play.

Benefits of offshoring and outsourcing

Both offshoring and outsourcing offer various benefits to businesses that choose to implement these strategies. One of the primary advantages is cost reduction. Offshoring and outsourcing allow companies to access a global pool of talent and resources that may be more affordable than domestic alternatives. By expanding their operations beyond borders, businesses can take advantage of lower labour costs, overhead expenses, and taxes, ultimately leading to increased profitability.

Additionally, offshoring and outsourcing enable businesses to focus on their core competencies. By delegating certain tasks or functions to external partners, companies can concentrate on their primary objectives, such as product development, marketing, and customer service. This specialization often results in improved efficiency and innovation, leading to a competitive edge in the market.

Moreover, offshoring and outsourcing can offer businesses enhanced flexibility and scalability. By leveraging external expertise and resources, companies can easily adjust their operations according to market demands, seasons, or economic fluctuations. This agility allows businesses to respond quickly to changing circumstances and optimize their operations for maximum productivity.

Source: https://www.zupyak.com/p/4047895/t/what-is-offshoring-what-is-outsourcing-are-they-different

Learn more about difference between offshoring and outsourcing
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