Offshoring and outsourcing are often used interchangeably, owing to the fact that they both involve transfer of business processes. Keep in mind, though, that these are two different terms. To avoid confusion, here are some basic things that you need to know about offshoring that make it different from outsourcing:

Offshoring

In general, offshoring refers to the process of shifting one or more business functions to a company based in a low-wage country which is geographically far from the client. For purposes of discussion, the distance between the company and service provider plays a role since there is such a thing as nearshoring, which means transferring business processes to another country that is relatively near the company. In other words, offshoring is usually outsourcing, but the outsourced business process is done outside the country where the company is based.

Offshoring has become a huge industry, enabling several developing countries such as the Philippines to make a mark in the global scene. Many companies transfer work offshore since overhead costs are lower in offshoring locations. Companies can also reduce employee management issues.

Outsourcing

On the other hand, outsourcing means transferring one or more business functions to a service provider. With outsourcing, companies will be able to cut costs in labor and operations, gain access to a huge pool of skilled and talented individuals, and focus on their core operations.

Outsourcing is a tried-and-tested way to reduce costs. Many companies have realized that outsourced work costs lower than if it is done in-house. Buyers take advantage of areas that have a large labor pool with relatively lower salaries. Outsourcing also spares companies from the time-consuming task of looking for individuals who will take on additional business functions.

From products to services, outsourcing encompasses a wide range of business processes that can be outsourced. In most cases, providers customize their service offerings to accommodate whatever the buyer requires.