Outsourcing vs Offshoring:
What's the Difference?

Offshoring vs Outsourcing





The terms "outsourcing" and "offshoring" are often used almost synonymously in much of the popular literature today. However, there is a technical difference.

When a company outsources, it buys from a third party a part or service it used to produce itself. This does not necessarily mean that the product is outsourced abroad, although it can be. For instance, General Motors, a US company, can outsource production of a certain car part to a Chinese company. The Chinese company, in turn, can outsource production of various components of that part to various other Chinese companies.

When a company offshores, it shifts the location of a service or production of a part to a location abroad. This can include companies who outsource to foreign companies - for example, GM offshores production of a certain part to a Chinese company, and the Chinese company outsources (but does not offshore) various components of the production to other Chinese companies. However, offshoring also includes companies who transfer production or services to a location abroad without outsourcing the job. So, for instance, if GM opens a factory in China, and shifts production of a car part to the factory in China, it is offshoring but not outsourcing - it is still an American company running the factory rather than a Chinese one.


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