What is offshoring vs outsourcing?

Offshoring and outsourcing are often used interchangeably, but they answer two different questions: offshoring is about where work is done, while outsourcing is about who does it. Offshoring means relocating work to another country, whether the company does it in house or through a provider. Outsourcing means handing work to a third party, whether that party is local or abroad. A company can do one, the other, both, or neither, and getting the distinction right shapes decisions about control, cost, and risk.

What is offshoring?

Offshoring is about location. It means moving a business function to another country, usually to access skilled talent, lower costs, or a favorable time zone.

• In-house offshoring: the company sets up its own team abroad, for example a captive center or a Global Capability Center.
• Via a provider: the company can also offshore by using a vendor located abroad, which combines offshoring with outsourcing.

What is outsourcing?

Outsourcing is about ownership of the work. It means delegating a function to a third-party provider, who employs the people and manages delivery.

• Onshore outsourcing: the provider is in the same country as the company.
• Offshore outsourcing: the provider is in another country, which is where the two ideas overlap.
• Vendor controls delivery: the third party owns the team and is measured on agreed service levels.

Two questions, four combinations

Because the two terms answer different questions, they can be mixed. The table shows how location and ownership combine.