What is the meaning of the business term "offshore outsourcing?"

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ophelious's profile pic

ophelious | High School Teacher | (Level 1) Educator

Posted on

The thing to be careful of, here, is in the definition of "offshore."  We tend to think of "offshore" as meaning somewhere out in the ocean or something, like on a ship or oil rig.  In the sense of "offshore outsourcing," the term means "someplace other than a company's home country."  If it is being related to a company in the US, than "offshore" would refer to any place other than the US.

You really have two similar but distinct business terms here: outsourcing, and offshoring. Outsourcing is the practice of hiring another firm to run some aspect of your business, such as the accounting or customer service aspects.  Offshoring is the practice of transferring some aspect of you business to a foreign country, where it may or may not be handled by the company doing the offshoring.  Confused?

Here's an example of Outsourcing: Company A, a small lightning rod manufacturer, decides that it is not cost effective to maintain a bank of phones for customer service purposes.  Apparently, few people call to complain.  Because it is cheaper than paying a bunch of people to sit all day in front of silent phones, they contract with another company (we'll call it "Complain Co") to handle customer complaints for them. "Complain Co" also represents 50 other small businesses that aren't big enough to need their own complaint numbers.

Here's an example of Offshoring: Company A lightning rods grows really big and needs a big complaint center again.  Instead of paying American workers $10 an hour to answer phones, it either opens an office in India and pays workers $2 an hour to answer phones, or hires a company already in India to do the same thing.  Dealer's choice.

Does that make sense?   There are lots of reasons why companies do this, but the two biggest seem to be that it saves money and allows smaller companies to focus on doing the type of business they are good at, rather than the worrying about some aspect of the business that they don't have as much experience with.  While this practice reduces the cost of doing business for a company, it also eliminates American jobs, just leading to a nasty cycle by which there is less money in the economy to be spent (which leads to more outsourcing/offshoring in order to squeeze out profit.)

In the end, blessing or curse, outsourcing is probably here to stay.

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Offshore outsourcing is the practice of having all or part of a company's business be conducted by firms in other countries.

Since the advent of the Internet, offshore outsourcing has become more and more common.  American companies often outsource customer service aspects of their businesses to other countries, notably India.

Offshore outsourcing has become a major political issue in the United States.  Many Americans see it as an unpatriotic way of taking jobs away from Americans for the sole purpose of enriching the companies doing the outsourcing.  However, economists argue that outsourcing is good for the economy as a whole.

Please note that the CIO link is from a labor union that opposes outsourcing and is therefore not unbiased.

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

Posted on

Out sourcing refers to the practice of sub-contracting of part of the the business activities of a firm to independent businesses rather than having them carried out by people directly employed by the firm, and using facilities owned and operated by the company. In this way outsourcing may be simply described as procurement of business services from independent businesses.

When the outsourcing involves manufacture of some component used in assembly of the main product, outsourcing simply involves purchasing of these components rather than manufacturing them in-house. But outsourcing may simply involve purchase of service rather than supply of a product. For example, a company may provide raw material to subcontractors and pay them for converting these into some intermediate products or components, rather than purchase from an outside business the semi-finished products including the raw material used. Outsourcing may also be used for just carrying out some auxiliary manufacturing or operational activity such as maintenance, inspection, and transportation. Outsourcing can also be used for business processes such as payroll processing, issue of stocks and share, payment of dividends, and contacting customers on telephone.

Outsourcing get the qualifier tag of offshore when the outsourced activity is performed by businesses and people located in other countries. It should be noted the outsourced country may be a neighboring country across land border. rather than only across the seas.

The practice of outsourcing of all types, including procurement of physical goods has become quite common due to globalization. For example big retailers like Wall-Mart outsource many of the products sold by them from countries like India and China. With advancement of information and communication technologies, business process outsourcing and knowledge process outsourcing has also increased substantially and continues to increase further.

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