The terms outsourcing and offshoring are frequently used interchangeably, which can be confusing. There is a distinction between the two concepts.
Outsourcing refers to the practice of contracting or delegating certain tasks or services to an external company or individual, usually with the goal of reducing costs or accessing specialized expertise. It involves hiring a third party to perform these tasks on behalf of the original company, which can be located either domestically or internationally.
Offshoring specifically refers to the practice of relocating business operations or processes to another country with the company retaining full or partial ownership.
Let’s look at an example.
Ford manufactures many of its vehicles in Mexico. This is considered offshoring (even though it’s the same continent) because Ford still owns the factories. They have moved their own processes out of the country.
Nvidia designs microprocessors but contracts the actual manufacturing to outside fabricators, primarily Taiwan Semiconductor Manufacturing Corp (TSMC). This is considered outsourcing because TSMC is purely a contractor. Nvidia does not own or control TSMC, they just pay them to make chips.
In summary, outsourcing involves hiring external help, while offshoring involves moving a company’s own operations to a different country.
In this article, we delve into outsourcing statistics, exploring the various facets of outsourcing, including industry trends and the impact it has on businesses and economies.