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Understanding Outsourcing and Offshoring

May 26th, 2005

While interacting with
my colleagues and customers, I have seen the terms Offshoring and Outsourcing
used interchangably. Sometimes they say Outsourcing whereas they
really are talking about Offshroing and vice versa. Sometimes they
are talking about both. Here is my attempt to compare and contrast the two terms
and to also show the relationship between the two.

Basically, Outsourcing and Offshoring while often used together
can also be used in a mutually exclusive manner. Let me explain what I am thinking
using the following 4 basic combinational models. I will use the same definitions
of the terms Owner and Outsourcer from my earlier post on
Outsourcing
Models.

1. No outsourcing, No offshoring - Onshore, Internal:

   Nickname: In-On : In this model, the Owner does not really
   Outsource, but might be delegating the activity to an internal group within
   the Owner‘s company. This activity is performed by the internal group onshore.
   No outsourcing, No offshoring

2. No Outsourcing, Internal Offshoring - Offshore, Internal:

   Nickname: In-Off : This is same as the above model, except
   that the activity even though is within the same company, is shifted to be
   performed offshore at the company‘s location in another country than the Owner‘s
   home country. This is offshoring without outsourcing.

3. Outsourcing, No Offshoring - Onshore, External:

   Nickname: Out-On : This is the first model of outsourcing
   where the Outsourcer is basically in the same location/country as the Owner.

4. Outsourcing, Offshoring - Offshore, External:

   Nickname: Out-Off : This is the second model of outsourcing
   where the Outsource is offshore. This model is the one that gets most attention
   in the industry thus leading to the two terms (Outsourcing and Offshoring)
   being used interchangeably in my opinion.

In defining the models above, I am tempted to use the term Insourcing to
describe In-On and In-Off models, because that is what it
is. But there are other
usages of that term that led me to avoid using it for the time being. In-Off
and Out-On models demostrate the mutually exclusive nature of outsourcing
and offshoring.

Outsourcing
Offshoring
Software

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