Risks of outsourcing include misaligned interests of clients and vendors, increased reliance on third parties, lack of in-house knowledge of critical (though not necessarily core) business operations etc.
Outsourcing refers to the contracting out of an entire business function, a project, or certain activities to an external provider.
Outsourcing refers to an organization contracting work out to a 3rd party, while offshoring refers to getting work done in a different country, usually to leverage cost advantages.
It's possible to outsource work but not offshore it; for example, hiring an outside law firm to review contracts instead of maintaining an in-house staff of lawyers.
Reasons for outsourcing include: Note that you do not need to outsource in order to offshore.
Captive offshore units are set up to leverage the benefits of offshoring without having to outsource to vendors.
While the benefits of outsourcing and offshoring largely overlap, they do not face the same disadvantages.
Outsourcing, when done within the country, does not face the same political criticism of loss of jobs.
For example, while it can be challenging to work with an external organization for projects that require knowledge of your business operations, these challenges could increase manifold when members of the external organization are located in a different country.
Risks include poor communication, incorrect setting of expectations and disconnected control structures.