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Outsourcing vs. Offshoring: Do You Know the Difference?

 

Outsourcing isn't quite the same thing as offhosring

Today’s rant post stems from hearing a lot of people voicing concerns over the increase in outsourcing. Usually the gripe is about how outsourcing reduces available jobs for hardworking Americans. What they’re really concerned about is increasing offshoring. There’s a key difference between the two which I’ll explain in more detail.


Outsourcing means the work is being shifted from one company to outside contractors. Those contractors may be on-site, down the street, or in some low-cost area somewhere else in United States. In the latter example, the jobs are still going to hard working Americans, just not you… 

Offshoring is when companies take work and move it to other parts of the world, such as Philippines or India. This is what people are usually talking about when they talk about Americans losing jobs to outsourcing. 

In both cases, we’re talking about a pure cost play as a method to increase profits. Companies are perpetually trying to cut their costs by moving work to low-cost parts of the world without compromising work/product quality. This strategy “assumes” moving work to other parts of the world won’t hurt current revenues, but this isn’t always the case.  
 
You need to know a couple of things about offshoring in today’s economic environment. First, you have to understand what type of work is typically offshored. It’s generally low value, high volume, and transactional in nature. You could consider it a commodity product. 

Second, if you subscribe to basic economic principles, you likely believe there’ll come a point when the strategy of labor arbitrage will no longer be viable. At some point in time, you expect the demand for offshore labor to get so high that the price of labor will start to rise. It will continue to increase until it reaches an equilibrium point where jobs shift back domestically. This spike in offshore labor costs could happen in a few different ways – it could be done by policy, increasing corporate tax on international employees, or as a result of the high volume of demand since a finite number of people in the talent pool exist in any market. 

None of this stuff about outsourcing or offshoring really matters though. 


Just like I tell my kids…you need to worry about yourself. The biggest risk to your job is not outsourcing; it’s your own complacency. 

If you keep your skills up to date and stay on top of industry trends, you’ll never have to worry about not having a position somewhere. 

So keep reading those blogs, going to those professional conferences, and taking those trainings. As time consuming and expensive they are, if you do it right, they have a great return on investment in the end. 

photo credit: Scott Ingram Photography via photopin cc

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