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Difference Between Outsourcing and Offshoring

Updated on March 14, 2017
Made in China
Made in China | Source

You might have heard quite a bit about outsourcing and offshoring jobs in the presidential campaign. The difference between the two might appear to be very slight.

Despite what these terms mean, they certainly sound negative when it comes to keeping jobs in America! So what is offshoring? What is outsourcing? How do these two things differ and how do they affect you?

Hopefully, the following will clear up a few mysteries for you when it comes to offshoring, outsourcing, presidential candidates, and American jobs.

What Is Outsourcing?

Outsourcing is what happens when companies hire outside help to take care of some or all of the work for them. This is usually in the form of contracting with other companies to take care of manufacturing, marketing or other needs that they don't have the staff or facilities for.

As an example, Pepsi and Coke usually outsource the actual bottling of their beverages by hiring bottling companies to take care of it for them. You might have even heard of freelancers. These are people with specific skill sets who don't work for any particular company. Instead, they take care of tasks that various clients need to have completed.

Freelancing is a form of micro-outsourcing and it can work for companies that need a particular job done. However, this is generally something that is done for a short period of time, usually because they don't want to hire another employee for a temporary position.

As you can see, outsourcing can be done within the US and might not involve the loss of domestic jobs.

An Xceed call center in Cairo
An Xceed call center in Cairo | Source

What Is Offshoring?

A company might choose not to outsource, but, instead, simply open facilities in the new country. This is what is often referred to as offshoring.

Offshoring allows a company to have control of their workforce which they normally wouldn't have with outsourcing.

A common example of offshoring is when a company operates a foreign call center. If you've ever had a customer service rep who doesn't quite understand (or speak) clear English, chances are he's from another country. Other forms of offshoring include foreign knowledge processing and software development.

Can companies take the offshore route for short-term operations and small jobs? Sure they can. They might just open a temporary facility to handle an upswing in demand if they anticipate that it will drop off again within a certain period of time. They may also hire a foreign freelancer to create a mobile app or website for them.

Outsourcing: What's it like in other countries?

Outsourcing can be harmful in countries where products are made (where American jobs are shipped.) There are a number of reasons outsourcing can do more harm than good:

  1. While it might create jobs in these countries, they are usually low paying ones. They often come with poor work conditions and little chance for career advancement.
  2. They help keep the standard for salaries to a minimum.
  3. These jobs can kill any initiative in local residents since it's easier to work for the foreigners and just complain what bad conditions they are offering.
  4. Offshoring creates a bad name for the country a product with bad quality is manufactured. The cause of this isn't bad quality control, but rather that the company chooses low-cost and low-quality materials and manufacturing processes for the sake of higher profits.

Quick Poll

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Are Outsourcing and Offshoring Bad?

Outsourcing isn't bad by itself. It's just hiring somebody on the outside to take care of a specific job that the primary company doesn't have the facilities or expertise for. This allows companies find people with skills they need, but often these companies don't allow for long-term employment. Oftentimes these are contractors that might create a website or write an app and move on to the next thing.

Outsourcing can make life easier for companies that don't want to invest in building staff and facilities when somebody else might already have what they need.

Offshoring is a more controversial topic. Companies who offshore certain operations are sending jobs and facilities to another country in an effort to cut costs. A number of the stories about subpar or dangerous products are often due to questionable manufacturing processes and low-quality materials used by companies to "save a buck."

There's also the chance that somebody might get a fake version of a high-end product and not even think anything of it because so many things are made in China or India.

Is offshoring good or bad? It's really a matter of opinion and the answer will highly depend on who you ask. What do you think?

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    • Wedding Reviews profile image

      Ryan Swayt 

      5 years ago from Salt Lake City, Utah

      Thanks for the distinction. I agree when you say outsourcing doesn't always result in a loss of jobs in the US. I have seen outsourcing help a company grow and provide more job opportunities within the nation.

    • NateB11 profile image

      Nathan Bernardo 

      5 years ago from California, United States of America

      Good piece on clarifying the distinction between outsourcing and offshoring, establishing solid definitions. The problem with offshoring is that it becomes a convenient way to lower wages and avoid environmental law. I generally consider its benefits dubious, because it's advantageous to a small group with money and, at best, short term superficial help to anyone else.

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