offshoring vs outsourcing

05May07
There is quite a delimitation between offshoring and outsourcing. I found a very good explanation in Chapter 2, from The Only Sustainable Edge by John Hagel and John S Brown.

An offshore operation can be wholly owned by the parent company or it can be outsourced to a specialized service provider. Conversely, firms can outsource domestically – just look at the rise of specialized call centers located in North Dakota and New Mexico and that serve U.S. companies. Even though offshoring and outsourcing are distinct, they often become related operationally. Once a company has developed outsourcing skills, it will more likely consider moving its outsourcing relatiionship to companies offshore. Similarly, companies attracted to the specialized skills and cost advantage available offshore, may find that they lack the scale and focus required to effectively access these capabiliteis with internal operations. So they will consider outsourcing to access these capabilities.”

The study Globalisation: Trends, Issues and Macro Implications for the EU, written by the European Comission in 2006,

differentiates between foreign outsourcing, i.e., contracting out part of the production process to foreign suppliers, and offshoring, which entails moving production abroad by creating foreign subsidiaries. (BW)

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