Question: Which of the following statements about offshoring and outsourcing is true? Offshoring and outsourcing are two terms often used interchangeably.
However, they are pretty different. Moreover, offshoring involves contracting a business process to an external service provider outside the home country.
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Conversely, outsourcing involves contracting the business process to an external service provider within the home country.
The goal of offshoring is to improve efficiency through specialization and scale. When this is achieved within the same country, non-economic reasons are usually at the forefront of the decision.
Such includes improving customer responsiveness or flexibility or reducing costs through economies of scale.
Which of the following statements about offshoring and outsourcing is true?
Offshoring involves contracting a business process to an external service provider.
Offshoring is a type of outsourcing in which a business process is contracted to an external service provider. Additionally, offshoring can be as simple as hiring an outside company to manage your accounting. Equally, it could involve moving your entire call center overseas.
However, offshoring does not entail using offshore resources − not all offshoring involves sending jobs to foreign countries. Using offshore resources means that you’re working with people who live abroad.
Nonetheless, these people are not employed by your company. For example, if you hire a company in India to build software for you, they may use their employees on contract.
This would be considered using offshore resources rather than offshoring (and this may also be known as co-sourcing).
The goal of outsourcing is to improve efficiency through specialization and scale.
Outsourcing is a way of improving efficiency through specialization and scale.
Also, outsourcing allows companies to focus on their core competencies while letting other parties handle the more peripheral tasks.
This means that your business can achieve more yet use fewer resources. Such will result in higher profits and a better customer experience.
Offshoring can be accomplished within the same country.
While offshoring is often associated with moving jobs to foreign countries, offshoring is not limited to this practice.
Often, companies move their manufacturing operations from one area of the U.S. to another or even move within a single state.
The same is true of other sovereign nations; many examples of companies moving production facilities from one part of an E.U. country (e.g., Germany) to another (e.g., Poland).
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The same goes for companies operating in the U.K. − they may move production overseas but remain within European borders!
Outsourcing is usually done for a variety of non-economic reasons
Business needs:
For example, you may want to outsource your I.T. infrastructure because you need reliable infrastructure or security systems around the clock.
This can be difficult to achieve if you have a small staff and limited resources.
Outsourced services are also helpful if your business is snowballing. You may need the flexibility that outsourcing provides to maintain growth momentum.
This is especially true for startups and other fast-growing companies that need I.T. services that are not yet mature enough internally.
Customer needs:
You may want to outsource some customer service functions because they are not core competencies.
They may not fall within what you do as an organization. Think about call centers where outsourced employees rather than internal staff handle customer inquiries.
This can be especially beneficial when managing large volumes of calls.
Business strategy:
Some organizations choose to outsource because it allows them greater flexibility in creating value through their products or services.
Such can be achieved while maintaining control over critical functions such as logistics or manufacturing processes.
This might make sense if there are economies of scale explicitly related to specific business areas.
Smaller firms may not exploit such areas sufficiently without sacrificing agility in other areas.
For instance, R&D tends not to benefit from economies of scale “due to difficulties associated with coordinating activities across multiple sites.”
Outsourced jobs are very likely to come back (onshore) eventually.
Offshoring can threaten the economy if not managed correctly.
Outsourcing involves finding cheaper labor rates in countries such as India and China.
However, this strategy can damage your company’s reputation. The strategy may also harm your company’s ability to compete with companies that have already offshored their operations.
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Companies that outsource must also deal with cultural differences and language barriers, which may make effective communication between employees problematic or impossible.
When it comes down to it, and if not managed correctly, offshoring will put your business at risk.
It could lower productivity levels among both managers and workers alike. You may also lose time due to inefficient organizational communications and processes.
Such issues may frequently arise. In such a case, no money saved by outsourcing will replace what you have forfeited financially!
Outsourcing is the same as offshoring.
When you hear the word ‘outsourcing,’ you might think of a business hiring a third party to perform functions such as accounting or payroll.
The term ‘offshoring’ can create images of outsourcing labor and services to another country.
The end could be to save money on labor costs or several other reasons.
Although these two terms are often used interchangeably, they refer to two different actions:
- Outsourcing occurs when a business hires another company or person—often abroad—to perform some work on its behalf;
- Offshoring is a specific type of outsourcing in which an organization transfers part or all of its operations outside its home market (or domestic area).
Conclusion: Which of the following statements about offshoring and outsourcing is true?
To answer the question: which of the following statements about offshoring and outsourcing is true -?
Offshoring involves contracting a business process to an external service provider outside the home country.
Conversely, outsourcing involves contracting a business process to an external service provider within the home country.
The goal of outsourcing is to improve efficiency through specialization and scale.
The key takeaway here is that offshoring and outsourcing are two distinct processes.
While both involve sending work to an external service provider outside the home country, there are some crucial differences between them.
It is essential to be aware of these differences to make informed decisions about whether or not to outsource or offshore your business process.
Moreover, the main goal can’t be denied – hiring skilled workers without hiring expensive or unskilled on-site workers is a cost-effective solution.
One of the benefits of globalization is that you can hire quality staff, regardless of where they are from, without paying huge wages.
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