I read with interest your article on offshoring and outsourcing ("Outsourcing - the Myths and the Facts, 1 March). I feel, however, that some clarification is merited. There is a common misconception that the terms are interchangeable. "Outsourcing" and "offshoring" are not the same thing.
Outsourcing is the removal of the provision of services from within an organization to an external provider to benefit from cost-savings (for example through economies of scale). Offshoring is the relocation of the provision of services from one country to another to benefit from cost-savings (for example through lower labor costs in India).
An organization can do one without the other, be it a manufacturer or service provider. Car manufacturer Ford has been both offshoring and outsourcing for years. They select the most effective locations around the world for their manufacturing facilities and outsource some, but by no means all, of their manufacturing supply.
More recently, banks have shown that core transaction processes can also be improved by using offshore centers, but not necessarily outsource providers. Why outsource when all the competitive advantages gained from offshoring can be kept in-house? For example, for Standard Chartered, operating in a global market with customers across the world, there is no constraint to where it chooses to locate its processing. It makes the most sense for the group to use the best-value facilities it can find, anywhere in the world. The decision to outsource is a separate one.
In a truly global economy, with a seemingly limitless pool of educated employees who cost less to employ, the real issue here is offshoring - whether it be kept in-house or outsourced.
