One of the casualties in the discussions relating to globalization seems to be semantics. In a recent NPR feature about Rhythm & Hues, a VFX studio based in Los Angeles, Mumbai, and Hyderabad, the commentator, Laura Sydell, seemed to have confused “offshoring” with “outsourcing.”

As most of us understand it, outsourcing is the wholesale deployment of a contractor or an outside vendor by a company to perform an operation that is part of the company’s business model. These contractors and vendors are hired by the company to “outsource” the operations in their business model.

When a company establishes operations in another location, especially overseas, to support it’s business model, that’s “offshoring”. That’s a key difference between offshoring and outsourcing – in the offshoring model, the company establishes a presence in different locations. It’s a key difference because having a presence in multiple nations, cultures, economic and labour conditions changes the nature and culture of the company itself. In offshoring, a company has to assume responsibility and act according to its new international dimension, whereas in outsourcing that is not necessarily the case. Offshoring, therefore, requires a greater investment in long-term plans, global cultures, and globalization paradigms. The return on this investment may be several: a) greater competitiveness due to economics and availability of skilled labour, b) increased market presence and access to markets worldwide, and c) a global company culture and image.

One the other hand, companies that outsource their operations may do so because, a) they may not have the core competency in that operation, b) a vendor might be able perform the operation at lowered costs, and c) they may not have the wherewithal to make a long-term investment in another operation offshore.



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