It is the business practice of hiring a party outside a company to perform services or create goods traditionally performed in-house by the company’s employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. It can affect many jobs, from customer support to manufacturing to the back office.
The value for business
Outsourcing can help businesses reduce labor costs significantly. When a company uses outsourcing, it enlists the help of outside organizations not affiliated with the company to complete certain tasks. The outside organizations typically set up different compensation structures with their employees than the outsourcing company, enabling them to complete the work.
This ultimately enables the company that chose to outsource to lower its labor costs. Companies can employ an outsourcing strategy to better focus on the core aspects of the business. Outsourcing non-core activities can improve efficiency and productivity because another entity performs these smaller tasks better than the firm.
The strategy
This strategy may also lead to faster turnaround times, increased competitiveness within an industry, and the cutting of overall operational costs.
Offshoring is the transferring of activities or ownership of a complete business process to a different country from the country (or countries) where the company receiving the services is located. This is primarily to access a lower-cost labor market, but may also be to access additional skilled labor or establish a business presence in a foreign country. Companies offshore either through an outsourcing arrangement with a third party or by establishing their own Global In-house Center (GIC) presence in the offshore location, among other business structures.