Question

What is the difference between "outsourcing" and "offshoring?" Why might this difference be important to managers?

Answer 1

Basis of difference	Outsourcing	Offshoring
Meaning	It means getting the work done from an external organization	Offshoring refers to getting the work done in a different country
Risk	It may increase the reliance on third parties. It can also lead to lack of in-house knowledge of critical business operations	Risk associated with offshoring is geographical risk, language difference, poor communication etc.
Rewards/ Benefits	The company can take advantage of specialized skills, cost efficiency through Outsourcing.	Benefits of offshoring includes lower cost, better availability of skilled people.

This difference might be important to managers as the manager has to consider all risk and rewards associated with the two.

While deciding between the two various factors need to be considered. There can be significant cost saving or specialization benefits from both offshoring and outsourcing. Often there can be hidden costs, reducing the benefit. The manager has to ensure that he do not have to later reverse the decision because of making a decision which leads to a very costly error over time.

The ultimate goal of the manager is to save a significant amount of money by combining both outsourcing and offshoring.

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