Befuddled by outsourcing and offshoring?
The words "outsourcing" and "offshoring" are often used interchangeably in news, research and reports despite important differences in meaning. To help clear up some of the confusion, we will define these words, concepts and some of their derivatives. First, the outsourcing industry is an international conglomeration of firms that provide services including information technology, customer care, finance, human resources, engineering, procurement, real estate and facilities management, and data analytics to replace in-house selling, general and administrative functions. (Source: Strategy + Business, "How to be an outsourcing virtuoso," autumn 2006)
What is Human Resource Outsourcing?
Human Resource Outsourcing (HRO) is a model of outsourcing. Traditional outsourcing is transferring an internal corporate function or functions -- such as payroll processing or benefits administration. HRO is transferring the entire process of payroll, benefits, HR or even recruiting. It means more than just processing and administration, but actually outsourcing the management, processing, administration, call center and other items.
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Put most simply, outsourcing is transferring an internal corporate function to a third party. The third-party company provides services that are generally regarded as intrinsic to managing a business. Offshore outsourcing
This definition is used when the third-party company is located in another country, usually where there are lower labor costs and/or tax savings. Offshoring and globalization
Offshoring is transferring an organizational function to another country, whether or not the work stays within the company. For example, many companies have relocated their service call centers to India. Globalization is the growing integration of economies and societies around the world. Rapid growth and poverty reduction in China, India and other countries has been a positive result of globalization. But globalization also generates significant international opposition over concerns that it increases inequality and degrades the environment. (Source: www1.worldbank.org/economicpolicy/globalization) The prime motive for companies to offshore business functions has been to take advantage of a huge wage gap between industrialized and developing nations. But according to BusinessWeek, a more enlightened and strategic offshoring approach is starting to emerge as managers better understand its potential. "Many executives are discovering offshoring is really about corporate growth, making better use of skilled U.S. staff, and even job creation in the United States, not just cheap wages abroad." (Source: BusinessWeek, "The Future of Outsourcing," January 30, 2006). Homesourcing
That brings us to another buzzword: "Homesourcing" is used to describe the hiring of people who work from their home instead of a company's office or other business location. (Source: www.Wikipedia.com) Gartner estimated that in 2006, 10 percent of customer contact centers would use home-based workers. Many firms are beginning to switch to home-based agents to both lower costs and keep jobs inside the United States. According to experts, homesourcing allows companies to provide a higher level of customer service at what is still considered a reasonable cost.
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