OUTSOURCING VS OFFSHORINGPart I

Outsourcing is contracting of specific projects to a 3rd party organization; contrary to Offshoring which is the practice of contracting with foreign & international corporations.

With the vast improvement in technology and telecommunications infrastructure, offshoring has become a standard business practice. It is an increasingly efficient and

cost effective option for the majority of businesses today.

Is it possible to Outsource work but not offshore it? Absolutely. For example, an organization may choose to hire an outside law firm to review contracts instead

of maintaining an in-house staff of lawyers. This is outsourcing only. It is also possible to Offshore work without outsourcing it. For example, an

organization may add a customer service center in India to more efficiently andeffectively serve their clients.

Management experts generally agree that outsourcing and offshoring, whendone right, increase competitive advantage through a natural division of labor

which is vital to improving production and reducing ongoing costs.

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BENEFITS OF OUTSOURCINGPart II

Cost Advantage: Costs are arguably the chief motivation for offshoring and outsourcing; these processes dramatically reduce overhead and are proven to generate an immediate return on corporate investments.

Focus on Core Competency: There are several business functions in a company. For example, Human Resources, Information Technology, Manufacturing, Sales, Marketing, Payroll, etc. Most of these are not “core” to the company. A core activity is the main essential activity for which the organizations grows. The burden of “non-core” functions often distract organizations from their main objective. These functions are usually outsourced or offshored.

Quality and Capability: Most companies don’t have in-house expertise for certain functions. In these cases, it is more efficient to outsource or offshore to a vendor with the knowledge and ability to complete the tasks proficiently.

Labor Flexibility: Outsourcing allows employment flexibility as quickly as needed. For example, a company may need a large number of software programming experts for 6-8 months to develop an application. It’s very tough to locally hire people for only 6 months. Outsourcing however, can provide flexibility for short term projects.

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RISKS….OUTSOURCING AND OFFSHORINGPart III

Most economist agree that offshoring lowers costs for companies and Passes on the benefits to consumers and shareholders. However, there are risks

associated with offshoring. The risks include: Project failure due to poor communication Civil or political unrest impacting production Service delivery or poor infrastructure in developing countries

Risks associated with outsourcing are attributed to the vendor's lack of familiarity with the client's business. Another risk is a lack of alignment of long-term

business objectives between the client and the vendor. On the whole, both Outsourcing and Offshoring are on the rise. The worldwide

economic recession has forced companies to explore all options to increase efficiencies and cut costs. Companies are getting increasingly comfortable

Outsourcing as well as offshoring larger parts of their businesses.

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