I know what you’re thinking: That the title of today’s blog post must be a trick since Outsourcing Buzz Blog is presumably a strong advocate for all things outsourcing. You’d be only partly correct. If I could change things, I’d get rid of the term “offshoring.” The term is a lightning rod for do-or-die turf and political struggles, and it no longer embodies what it really is – if it ever did.
Years ago, when companies first began sending their outsourced IT and business processes to India, outsourcing made such big splashes with the stories of cost-savings possible through labor arbitrage that the industry and media drew attention to the new phenomenon with the most logical differentiating term at that time: offshore outsourcing. In my opinion, the term now differentiates this kind of outsourcing deal incorrectly.
Doesn’t the word “offshore” influence your notion of the business value of the deal? And isn’t the notion of that value mainly or only cost reduction? Is that same notion the first thing that comes to mind when you see the terms “ITO” or “BPO?” Probably not. Even though the capabilities of so-called offshore firms moved up the value chain, the term “offshore” has such a connotation now tied to cost that it suppresses the perception of any value other than labor arbitrage.
I refer to them as “so-called” offshore firms because the defining lines are certainly blurring when it comes to location. I don’t know how many times I have read or heard offshoring described similar to this definition: “When you hire a company to do something for you, you are outsourcing. When you hire a company outside of the U.S., you are offshoring.” (This description is presented in Frank’s comment at the end of a Stossel blog.)
But Wipro and other Indian firms have now established resources and service delivery locations within North America and Europe, and they even use U.S. employees (thus also creating jobs in the USA). So by the above definition, if I outsource my application development and testing to Wipro – definitely an Indian company – but they do the work here in the USA, am I offshoring? Also, over the years, all the leading U.S. companies providing outsourced services set up facilities in other countries and several moved some of their employees to those facilities to work alongside the employees native to that country. So if I outsource to IBM – definitely a U.S. company – and it uses its employees in India to do my work, am I onshoring or offshoring?
What about the Wikipedia definition:“Offshore outsourcing is the practice of hiring an external organization to perform some business functions in a country other than the one where the products or services are actually developed or manufactured. It can be contrasted with offshoring, in which the functions are performed in a foreign country by a foreign subsidiary.” How confusing is that?
I suggest we rethink the practice of designating any outsourcing arrangements or models by location (offshoring). Why use a term that no longer accurately defines a particular aspect or model in outsourcing and is often incorrectly defined, especially when the use of that word often raises negative reactions? And why use a term to refer to non-U.S. companies that’s tied primarily to labor arbitrage when more and more U.S. service providers are competing with “offshore” firms through hiring lower-cost employees in rural areas in several U.S. states?
I think it’s high time the industry and media started using a more appropriate term – or just stick to using “ITO” and “BPO” or “outsourcing.” Don’t you? Post a comment and tell me what you think.
Since 1998, freelance writer Kathleen Goolsby has studied outsourcing relationships’ successes, failures, trends, and best practices. She has interviewed more than 860 executives at buyer and service provider companies and is the author of “Critical Requirements for Building and Sustaining a Successful Outsourcing Relationship,” a chapter in Global Outsourcing Strategies: An International Reference on Effective Outsourcing Relationships (December 2006, Gower Publishing). As a freelancer, she also currently serves as the Senior Writer for Outsourcing Center (whose parent company is sourcing advisory firm, Alsbridge) and has authored dozens of articles as well as white papers. In a past role, she was editor of Outsourcing Venture (a former print publication). You can contact Kathleen at ksgoolsby@gmail.com.
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Yes, BUT…..
We started an “offshore outsourcing” business in 1989 and FOR A VERY LONG TIME found it very difficult to succinctly describe to clients and prospective clients exactly what it was that we did. Eventually, after much trial and error, along came “offshore outsourcing”. Not perfect, I admit, but at least it’s something. And, NO, acronyms won’t cut it and nor will terms such as Business Process Outsourcing which the average man-in-the-street glazes over at.
So, if you’re going to replace the term, how about you coming up with some succinct alternative??
That’s right – not easy, is it?
Brett Trevalyan
Director
The DDC Group
http://www.datacapture.com
The term outsourcing and offshoring are different because though Outsourcing means not doing it inhouse it means several other things such as – Analysts, brokers and advisories want you to hire them if offshoring since they advise you to take the right decision when chosing the partner. How many of us hire consultants when outsourcing locally, not many, so are we going to some post-war country that we need so much caution… no..its a big business opportunity for these analyst firms. Offshoring and On-shore outsourcing are same and the difference in cost is directly propotional to local wages in that country. Ofcourse the partner chosen can make it more efficient by deploying quality processes and best practises. But that process can be managed by procurement if there’s strong will.
Ah the challenges and limitations of our language… I agree, Kathleen, that the terms could stand some degree of evolution, consolidation and/or eradication. The business has evolved and the language has had a difficult time keeping up.
Each of these location-based terms “ off-shoring” “near-shoring” “right-shoring” “best-shoring” “home-shoring” , and the approach –based “sourcing” terms ( e.g. “strategic sourcing” ,“multi-sourcing”, “outsourcing” and “sole-sourcing” ) are loaded with nuance and introduce emotional baggage, confusion and misconceptions. But these nuanced terms are Consultant Speak, and fine distinctions (whatever they may be ) are lost on the average business client.
Even the terms BPO and ITO, which most people in the outsourcing business believe they understand, are confusing. Do we really need these distinctions ? If my company outsources the maintenance and support of computer hardware in its field offices, including the help desk, the shipping services, the repair services, etc, is that BPO or ITO? ITO, you say? What if the company is a computer hardware manufacturer and outsources the maintenance, repair and customer help desk for its clients’ computers? Now is it a BPO?
And what really constitutes “outsourcing”? If a company sources an application project to a third party is it outsourcing? What if it only sources parts of the project? Is that “outsourcing” or “outtasking” — or to use the Old English –“staff augmentation”? It has almost become necessary to produce a glossary to have a coherent conversation on the topic. Please pass the aspirin.
And talk about emotional baggage.. I have had more than a few clients warn me never to use the “o” word in their offices – and they weren’t joking. Rational? No. Real? Yes. Thanks to our politicians and television newscasters, “outsourcing” is now synonymous with losing jobs to foreign countries. And telling your new acquaintances at a cocktail party that you are an outsourcing advisor may get you relegated to the back room with a beer and a cookie.
As its essence, this is all simply about “sourcing” –building and executing service delivery models that enable companies to effectively and efficiently meet their business and financial objectives.
Maybe we should hire a branding expert and get a fresh start.
This was a very pertinent post. Outsourcing is an option often selected by big companies to get rid of particular routine work which could be performed by third parties for money. Offshoring is often opted because the overhead for business process costs less in other places. businesses just love the cost-cutting benefits of offshoring and it is the primary reason why they opt to do it. With it, they can now concentrate on what is more important to their organization. – Jaime
Thank you for your thoughts; you bring up an interesting topic. Sending work offshore can be a valuable tool for firms looking to enjoy the benefits of labor arbitrage, increased geographical penetration and strengthening ties with national governments.It can also be a nightmare. Done incorrectly, offshoring can undermine the very foundations of a company with bills that could draw tears from a stone.
The term “offshoring” may often be stereotyped as low cost. But mind you the result of our services are more than enough to tell that outsourcing is a good step to take in their companies.
This post caught my complete attention! I guess we should start thinking about “co-sourcing” or “cosourcing”. Different people call it differently, but I believe only co-sourcing is the right way ahead. visit http://www.phoenixsofts.com to know more.
Well, I understand your hesitation but BPO is really revolutionary. Trust me. Once you’ve tried it, you’ll always want it.
I have read your article Really Nice one.because Now a days not only big companies like Adobe, Microsoft are doing software and product development in India at their development center. But now many other small to medium scale companies have started software and product development and started entering into outsourcing software product development. It is considered that, increase in business will be around 100% in offshore outsourcing product development.