People are often confused about the differences between offshoring and outsourcing.
In my opinion they are as follows.
Offshoring is the practice of moving certain business activities to another country often to a foreign subsidiary. For example a company might setup an offshore IT team in India or Eastern Europe to develop and maintain their backoffice systems or website.
Proponents of offshoring cite greater control, flexibility and transparency over outsourcing.
The term is often used by people incorrectly to refer to offshore and offshore outsourcing.
Nearshoring is a form of offshoring albeit much closer physically. For example a company in London sets up operations in Eastern Europe and India. Eastern Europe being less than 3 hours travel from London is nearshore whereas India being 8-10 hours from London is offshore.
There are other benefits including but not limited to
- Time zone difference is typically 1-2 hours
- Cultural affinity, e.g. humour, music, sports, education system, etc.
- Freedom to travel, e.g. visa waiver
- Laws, e.g. if source and destination are part of Europe
- Currency, e.g. if source and destination use the same currency
Outsourcing is the practice of hiring an external organisation to perform certain business activities whether they be in the same country or a foreign country.
Offshore outsourcing is the practice of hiring an external organisation to perform certain business activities in another country. For example, outsourcing IT development of a website in PHP to a company in India.
Critics of outsourcing often cite lack of control, flexibility and transparency as issues.