Which of The Following Statements About Offshoring and Outsourcing Is True?

Which of The Following Statements About Offshoring and Outsourcing Is True?

Offshoring and outsourcing are two terms often used interchangeably. In fact, however, they are quite different. Offshoring involves contracting a business process to an external service provider outside the home country. Conversely, outsourcing involves contracting the business process to an external service provider within the home country. The goal of offshoring is to improve efficiency through specialization and scale. When this is achieved within the same country, non-economic reasons are usually at the forefront of the decision. Such includes improving customer responsiveness or flexibility or reducing costs through economies of scale.

Offshoring involves contracting a business process to an external service provider

Offshoring is a type of outsourcing in which a business process is contracted to an external service provider. Offshoring can be as simple as hiring an outside company to manage your accounting. Equally, it could involve moving your entire call center overseas.

However, offshoring does not entail using offshore resources − not all offshoring involves sending jobs to foreign countries. Using offshore resources means that you’re working with people who live abroad. Nonetheless, these people are not employed by your company. For example, if you hire a company in India to build software for you they may use their own employees on contract. This would be considered using offshore resources rather than offshoring (and this may also be known as co-sourcing).

The goal of outsourcing is to improve efficiency through specialization and scale

Outsourcing is a way of improving efficiency through specialization and scale. Outsourcing allows for companies to focus on their core competencies while letting other parties handle the more peripheral tasks. This means that your business can achieve more yet use fewer resources. Such will result in higher profits and a better customer experience.

Offshoring can be accomplished within the same country

While offshoring is often associated with moving jobs to foreign countries, offshoring is not limited to this practice. Often, companies move their manufacturing operations from one area of the US to another or even move within a single state. The same is true of other sovereign nations; there are many examples of companies moving production facilities from one part of an EU country (e.g. Germany) to another (e.g. Poland). The same goes for companies operating in the UK − they may move production overseas but still remain within European borders!

Outsourcing is usually done for a variety of non-economic reasons

Business needs: 

You may want to outsource your IT infrastructure, for example, because you need a reliable infrastructure or security systems around the clock. This can be difficult to achieve if you have a small staff and limited resources. Outsourced services are also useful if your business is growing rapidly. You may therefore need the flexibility that outsourcing provides in order to maintain growth momentum. This is especially true for startups and other fast-growing companies that need IT services that are not yet mature enough internally.

Customer needs:

You may want to outsource some customer service functions because they are not core competencies. Possibly they do not fall within the scope of what you do as an organization. Think about call centers at which customer inquiries are handled by outsourced employees rather than internal staff. This can be especially beneficial when managing large volumes of calls.

Business strategy: 

Some organizations choose to outsource because it allows them greater flexibility in terms of how they create value through their own products or services. Such can be achieved while maintaining control over critical functions such as logistics or manufacturing processes. This might make sense if there are economies of scale related specifically to certain business areas. Such areas may possibly not be exploited sufficiently by smaller firms without sacrificing agility in other areas. For instance, R&D tends not to benefit from economies of scale “due to difficulties associated with coordinating activities across multiple sites.” 

Outsourced jobs are very likely to come back (onshore) eventually

Offshoring can be a threat to the economy if not managed correctly. The outsourcing process involves finding cheaper labor rates in countries such as India and China. However, this strategy can damage your company’s reputation. The strategy may also harm your company’s ability to compete with other companies that have already offshored their operations. Companies that outsource must also deal with cultural differences and language barriers, which may make communication between employees difficult at best or impossible at worst.

When it comes down to it, and if not managed correctly, offshoring will put your business at risk. It could lower productivity levels among both managers and workers alike. You may also lose time due to inefficient communications and processes within your organization. Such may arise frequently as a result of these issues. In such a case, no money saved by outsourcing will replace what you have forfeited financially!

Outsourcing is the same as offshoring

When you hear the word ‘outsourcing’ you might think of a business hiring a third party to perform functions such as accounting or payroll. When you hear the word ‘offshoring’ this can conjure up images of outsourcing labor and services to another country. The end could be to save money on labor costs or for any of several other reasons. Although these two terms are often used interchangeably, they refer to two different actions:

Outsourcing occurs when a business hires another company or person—often abroad—to perform some type of work on its behalf;
Offshoring is a specific type of outsourcing in which an organization transfers part or all of its operations outside its home market (or domestic area).

Conclusion

Offshoring involves contracting a business process to an external service provider outside the home country. Conversely, outsourcing involves contracting a business process to an external service provider within the home country.

The goal of outsourcing is to improve efficiency through specialization and scale

The key takeaway here is that offshoring and outsourcing are two distinct processes. While both involve sending work to an external service provider outside the home country, there are some important differences between them. It is important to be aware of these differences so that you can make informed decisions about whether or not to either outsource or offshore your business process.

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