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Chapter 5, End of Chapter, Review Questions, Exercise 1
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What is the difference between outsourcing and offshoring?


Both of offshoring and outsourcing ultimately save companies money but they reduce costs in very different ways.


Outsourcing is when a company negotiates a contract with a third party to perform a specific function. When outsourcing a process or operation, it is vital to find a company or person that specializes in the task at hand

Example:- Suppose you want to make a software but your business does not work in technology field so you will go to  any third party organization to make software for yo and you will pay for that.


  • Outsourcing can save costs by accomplishing the same task for less money. One of the most attractive aspects of outsourcing is the reduction in cost while still receiving high quality services. 
  • Outsourcing can increase efficiency by entrusting business processes to third-party vendors that specialize in that specific area.
  • Outsourcing allows companies to focus on the core areas of their business and improve their brand by freeing up time, energy and resources.



Offshoring is when a company sends in-house jobs to be performed in another country. An example of offshoring is for a United States based company to produce their goods in India.

Example:- Suppose you want to make a software and you are a technology company which has lots of branches all over the world. So suppose you want an software in New York and you have another branch in India so you have assigned that task to indian people that work into your company 


  • Companies often offshore manufacturing or services to countries where the hourly labor rate is significantly lower. In India, for example, the hourly labor rate is only a fraction of the minimum wage in the United States. 
  • Offshoring reduces risk for companies, thereby allowing them to better support clients when they need it.
  • Offshoring creates new revenues by fostering a demand in destination countries for products, particularly high tech items.
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