Offshoring vs. Outsourcing
Offshoring and outsourcing are terms that are often used interchangeably, however, there is major technical difference that distinguishes one from the other. Offshore manufacturing and domestic outsourcing are discussed in more detail below.
What is Outsourcing?
Outsourcing is the process of using a third-party resource to fulfill a specific business project. Companies prefer to outsource when they cannot handle all the aspects of business internally, this could be due to a lack of skilled workers or high work pressure. The term outsourcing does not specifically mean that the third party from which the products or services are being acquired is based overseas, or out of country, but they can be.
There are several reasons why a company may choose domestic outsourcing for certain aspects of their business. However, when outsourcing is done correctly through a sourcing agent it provides a competitive advantage with a natural division of labor. Some of the reasons a company may choose domestic outsourcing, include:
- Cost advantages - Costs are arguably the chief motivation behind outsourcing. Often companies find that contracting work out to a 3rd party is cheaper.
- Focus on core competency - There are a lot of business functions within a company. Most functions of business are not "core" to the company. A "core" activity is one which offers the company a key competitive advantage over its competitors. It is an activity that the company does better than the competition, which is the main reason its customers do business with the company. Having to handle non-core functions is a distraction, so many companies outsource them.
- Quality and Capability - Often companies don't have in-house expertise for certain activities. In these cases, it is more efficient to outsource these tasks. The resulting products and services tend to be of higher quality when provided by domestic outsourcing vendors.
- Labor flexibility - Outsourcing allows a company to ramp up and down as quickly as needed. For example, a company may need many software programming experts for 6-8 months to develop an application. It would be infeasible to hire people for only 6 months. Outsourcing, however, can provide flexibility so the company does not have to worry about hiring and firing.
What is Offshoring?
Offshoring refers to when a company shifts all, or a portion of their service or production, to a location outside the borders of the company’s original country of origin. This can include businesses that outsource to foreign companies overseas. However, offshore manufacturing also includes companies who transfer production or services to a location abroad without outsourcing the job. Despite all the negative attention that offshoring receives there can be unrecognized benefits of offshore manufacturing that should not be overlooked. Some of these offshore manufacturing benefits, include:
- Cost Savings - Companies usually choose to offshore its manufacturing to developing countries where wages are low, which results in overall cost savings. These savings are then passed on to the customers, shareholders and managers of these companies.
- Skilled Worker Availability - The competitive advantage of nations often means that some countries or regions develop a much better ecosystem for certain types of industries. This means there is better availability of skilled human resources in that region for specific types of tasks. As a result, many companies choose to offshore certain business functions (e.g. call centers for customer support) to these locations. These can either be captive or outsourced.
- Taxation - Many decisions around offshoring are driven by a desire to take advantage of certain tax or tariff relief in some countries.
- Specialized Suppliers - Due to the sheer volume of manufacturing facilities around the world, you are likely to find highly specialized suppliers that that may not exist domestically. The right offshore manufacturing supplier will have the proper equipment, experience, work force and other resources to produce high-quality products at decreased costs.
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Whether you need assistance with offshore manufacturing or domestic outsourcing our manufacturers have the skills and expertise to complete projects quickly and efficiently, without sacrificing product quality. They offer the versatility and adaptability to adjust their manufacturing processes to your project’s needs.