Defining Offshore Outsourcing

There has been some confusion about offshoring and outsourcing in some circles. These two business practices, while similar to one another, are not exactly the same. They have certain aspects that differentiate them from one another. It is also possible to combine these practices, such as in the case of offshore outsourcing. There is likewise the practice of nearshoring, which some may also mistake for outsourcing.

Offshoring is the theoretical origin of every outsourcing strategy in the book. The term refers to the relocation of the business process of a company - either partial or complete - from one country to another. Typically, this involves manufacturing or support functions. In the beginning, the concept was to move production to the countries or areas where the raw materials were most abundant. This allowed companies to reduce the production time and the costs involved, allowing them to make their products more profitable. In time, companies from other industries began to outsource some of the non-essential functions of their businesses to other countries to take advantage of a reduction in operating expenses.

Nearshoring is a similar idea, but with some differences. This refers to moving production processes or tasks to another country but still within a certain geographical limitation. This means that the process is moved to a location that offers some geographical advantage, such as being in the same time zone as the corporate origin. A business in the United States, for example, may nearshore part of their business process or global outsourcing needs to a South American country. The primary purpose is getting the lower cost of skilled labor without going too far from home.

There is also the practice of outsourcing. The outsourcing strategy is based on the idea that a company will hire a third-party provider to accomplish some part of their business process or support functions. This includes tasks like technical support, contact center services, and back office functions such as human resource management and accounting. The third-party company is expected to provide these under the terms of the agreement, allowing the client business to focus on its core competencies. The primary difference is that the source of the services is no longer the original company.

Offshore outsourcing is what many outsourcing companies specialize in. This practice involves getting a foreign third-party service provider, based in another country, to perform production or support functions. This provides advantages in the form of cost-reduction, because the company no longer needs to spend on hiring employees or providing equipment and space for them.

All these types of outsourcing strategies are sometimes lumped together into a single global outsourcing presence, but they are different in their little details. These are all legitimate business practices that companies engage in to cut costs or improve efficiency. The decision to outsource is entirely left up to the business, and numerous factors need to be considered before making this decision. Nevertheless, outsourcing provides many different advantages that help a business to prosper and to maximize profits.