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1. OUTSOURCING VS OFFSHORING
Part I
Outsourcing is contracting of specific projects to a 3rd party organization; contrary to
Offshoring which is the practice of contracting with foreign & international corporations.
With the vast improvement in technology and telecommunications infrastructure,
offshoring has become a standard business practice. It is an increasingly efficient and
cost effective option for the majority of businesses today.
Is it possible to Outsource work but not offshore it? Absolutely. For example, an
organization may choose to hire an outside law firm to review contracts instead
of maintaining an in-house staff of lawyers. This is outsourcing only. It is also
possible to Offshore work without outsourcing it. For example, an
organization may add a customer service center in India to more efficiently and
effectively serve their clients.
Management experts generally agree that outsourcing and offshoring, when
done right, increase competitive advantage through a natural division of labor
which is vital to improving production and reducing ongoing costs.
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2. BENEFITS OF OUTSOURCING
Part II
 Cost Advantage: Costs are arguably the chief motivation for offshoring
and outsourcing; these processes dramatically reduce overhead and are
proven to generate an immediate return on corporate investments.
 Focus on Core Competency: There are several business functions in a
company. For example, Human Resources, Information Technology,
Manufacturing, Sales, Marketing, Payroll, etc. Most of these are not
“core” to the company. A core activity is the main essential activity for
which the organizations grows. The burden of “non-core” functions
often distract organizations from their main objective. These functions
are usually outsourced or offshored.
 Quality and Capability: Most companies don’t have in-house expertise
for certain functions. In these cases, it is more efficient to outsource or
offshore to a vendor with the knowledge and ability to complete the
tasks proficiently.
 Labor Flexibility: Outsourcing allows employment flexibility as quickly as
needed. For example, a company may need a large number of software
programming experts for 6-8 months to develop an application. It’s very
tough to locally hire people for only 6 months. Outsourcing however,
can provide flexibility for short term projects.
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3. RISKS….OUTSOURCING AND OFFSHORING
Part III
Most economist agree that offshoring lowers costs for companies and
Passes on the benefits to consumers and shareholders. However, there are risks
associated with offshoring.
The risks include:
 Project failure due to poor communication
 Civil or political unrest impacting production
 Service delivery or poor infrastructure in developing countries
Risks associated with outsourcing are attributed to the vendor's lack of familiarity
with the client's business. Another risk is a lack of alignment of long-term
business objectives between the client and the vendor.
On the whole, both Outsourcing and Offshoring are on the rise. The worldwide
economic recession has forced companies to explore all options to increase
efficiencies and cut costs. Companies are getting increasingly comfortable
Outsourcing as well as offshoring larger parts of their businesses.
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