A topic that comes up often in I.T. is the fear of both outsourcing and offshoring. The two terms are used interchangeably, yet they are two totally different things. I’d like to start by quickly discussing what the two terms mean, and what are the differences between the two.
Let’s start with outsourcing. According to Dictionary.com outsourcing is defined as:
A practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.
That is a quite simple definition. Specifically, outsourcing is an activity of transferring work outside of a company, rather than having their own employees do it. Notice that there is no discussion of the work being transferred to another nation, but just that the work is performed by a third party. This is important to keep in mind, because outsourcing is not a threat to the economy, but rather a result of standardization of work, and increases in efficiency in companies that focus only on doing that work. For example, most companies do not perform their own payroll. A popular company for outsourcing this to is ADP. ADP does have thousands of employees worldwide, but a good number of those are located inside of the United States. As a result of ADP standardizing payroll and timekeeping, other businesses have been able to take their focus off of those tasks to focus on their core business. During the time the payroll function was being outsourced to companies like ADP, many jobs were lost, although the companies became more profitable.
Now that we have an understanding of what outsourcing is, we will take a look at offshoring. According to Dictionary.com, offshoring is defined as:
Transfer of a business process, e.g. manufacturing or customer service, from a company in one country to the same or another company in a different country. This overlaps partially with outsourcing, in which work is transferred to a different company in the same or a different country.
As you can see, this is a little more complex of a term. There are basically two conditions that define offshoring:
- A company outsources its’ work to another company, which is located overseas.
- A company hires overseas employees to perform work.
While outsourcing is often successful, offshoring requires more work and dedication on the part of the company. Many companies are unprepared for the differences in culture, timezones, and not being able to directly see their employees when they need to. These things can be overcome, but they are risks that any company considering offshoring will have to plan for.
In another article, I plan to discuss the pros and cons of outsourcing and offshoring in more detail. Additionally, I will write a few steps any employee who is worried about losing their job to outsourcing or offshoring should take into consideration.
