Difference Between BPO & Offshore

Distinguishing Business Process Outsourcing (BPO) from Offshore Outsourcing

The term Outsourcing Opens in new window generally refers to the business strategy through which firms cut costs by transferring a portion or an entire organizational function to a third-party service provider.

With the growth in the outsourcing of business functions and services to offshore locations, the terms business process outsourcing (BPO) and offshore outsourcing have entered the business literature and they are often used interchangeably despite important differences. The goal of this literature is to clarify both terms.

Business Process Outsourcing

Business Process Outsourcing (BPO) Opens in new window occurs when a firm completely hands over the execution and management of a particular business process, such as back office processing and call-centre support, to an external vendor that specializes in that process.

The underlying premise is that the external vendor or supplier can execute the process more efficiently, thereby generating significant cost savings for the outsourcing company. In the last decade, BPO contracts have increasingly been awarded to offshore suppliers in developing countries.

Offshore Outsourcing

Offshore Outsourcing Opens in new window refers specifically to the practice of outsourcing to suppliers in foreign countries, mainly to take advantage of wage arbitrage.

In this practice, companies typically engage foreign suppliers to perform some or all business functions in a country other than the one where the product or service will be sold or consumed.

The National Academy of Public Administration Opens in new window (2006) notes that, in spite of the differences between these terms, the definitions tend to focus on the movement of employment and production of goods or services to offshore locations and imply an increase in imports.