We recently came across a video by Minute MBA, titled “Why Outsourcing is bad for Business”, see video below.
As you can imagine, as a medical device Outsourcing company, we were quite intrigued by the title, but as we watched the video, it became clear that the film maker was actually referring to ‘Offshoring’. There has always been much confusion when using the terms Offshoring and Outsourcing. Are they the same thing or different? How are they different? Which term applies in which instance? So first lets get the two concepts clearly defined:
Outsourcing: Refers to an organization contracting work out to a 3rd party.
Offshoring: Refers to getting work done in a different country. This can be done in two ways:
- When the work is performed by a global subsidiary or affiliate of the organization, then it remains exclusively as Offshoring.
- When the same work is contracted to an oversees outsourcing supplier, it is ‘offshore outsourcing’ , which is still commonly referred to as offshoring.
Coming back to the video, the film maker uses Offshoring and Outsourcing as synonymous terms, but you can clearly see they are in fact referring to Offshoring when they talk about contractors in China, India and other overseas locations.
That being said, we feel the video paints an accurate picture as to the movement in the “Offshoring” market. It discusses how Offshoring cost advantages are not as attractive as they once were, with human resource and shipping costs increasing over the years, supply chains becoming more convoluted and intellectual property safety being more at risk. There is also a negative public sentiment of being identified as using an offshore Outsourcing company.
We have seen firsthand through our own company and our Offshore supplier, that due to these changes, companies are now exploring working with domestic Outsourcing companies and, with the help of those suppliers, focusing more on product engineering to streamline the manufacturing processes. What this means is while Offshoring is a declining trend, Outsourcing is not.
So take heed when you hear of the declining popularity of Outsourcing. The word is likely being used in place of Offshoring, as the value proposition associated with Outsourcing is still as strong as ever. The ability to tap into shared overheard, industry bench marking, best practices, and existing well trained operators is still the same. You just don’t have to go halfway around the world to see those benefits.