Outsourcing refers to an organization contracting work out to
an external place, but offshoring refers to get work done in a different
country, usually to leverage cost advantages. It's possible to outsource work
but not offshore it. For example, hiring an outside law firm to review
contracts instead of maintaining an in-house staff of lawyers; it is also
possible to offshore work but not outsource it. For example, an Apple customer
service center in India to serve American clients. So these two items have
separate effects and benefits:
The advantages
of outsourcing include better specialized skills, efficient cost and flexible
labor. Reasons for
outsourcing include: (1)Focus on core competency: There are a lot of
business functions in a company. For example, human resources, information
technology, manufacturing, sales, marketing, payroll, accounting, security and
so on, paying much attention to non-core functions is
a distraction, so many companies outsource them. (2)Labor flexibility:
Outsourcing allows a company to ramping up and down quickly as needed.
At the same
time, offshoring also
benefits a lot: (1)Cost
savings : Companies usually offshore manufacturing or services to developing
countries where wages are low, thus resulting in cost savings. (2)Skills: The competitive
advantage often means that some countries or regions develop a much better
ecosystem for certain types of industries. However, there are some criticisms, especially
from a political standpoint. Risks associated with offshoring including job
losses and wage erosion misaligned interests of clients, increased reliance on
third parties and lack of in-house knowledge of critical business operations
etc. These are reasons why many Americans mind the offshoring of whiting-collar
or skill-intensive jobs so much.
Dell Inc. is an
intermediate case. Dell assembles its computers overseas in firms it does not
own, so it is outsourcing rather than offshoring the assembly. However, Dell
exercises careful control over inputs that these overseas firms use (eg:
technical secrets). Dell outsources the assembly but monitors the overseas
firms closely to ensure high quality of the computers being assembled.
Reference:
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