I attended a meeting last month about the topic of outsourcing.  Before it started, I asked the woman leading it if she was going to talk about offshoring which is a type of outsourcing.  She said she was going to treat them as the same thing.  That conversation led me to think probably a lot of people think the same way.  In this article I'm going to discuss the definitions and differences between outsourcing and offshoring.

Outsourcing is the business process of hiring outside of a company for specific jobs instead of hiring internally a full or part-time employee.  A small company might outsource computer support services because they can't justify hiring a full-time person due to economic reasons or they don't have enough work for them to do.  By outsourcing the job to someone who specifically does part-time projects a company can save money, office space and other resources.

The business trend of shedding jobs at companies is actually creating more demand for outsourcing because of the cost benefits.  In the past processes like computer support or accounting were outsourced.  Now just about any function in a company can be outsourced.  For example, MarketStar supplies outsourced sales and marketing services to companies.  That's not a function one would normally turn over to someone else.  For MarketStar and their clients it works.

Offshoring is a type of outsourcing that relies on staff who live overseas.  By hiring people from countries with cheap labor, companies can save a lot of money.  Popular countries to offshore are India, China, the Phillipines and Eastern Europe.  The key principle that guides offshoring is the task being offshored is repetitive and doesn't require innovation.  Manufacturing jobs have gone overseas in droves over the past twenty years.  Now with cheap but improved technology even service related jobs are being offshored.  If the task can be done online or on the phone, it can be offshored.

While both types of outsourcing involve hiring an outside company and reducing costs, they are very different.  Offshoring is used for tasks that are repetitive and don't require much thought.  Outsourcing can be used for just about anything a company doesn't want to or can't afford to hire full time. 

Hopefully this article clears up the differences between outsourcing and offshoring.  Both are growing trends and will continue to dominate American business for years to come.