Contents
1. Introduction.............................................................................................. 3
2. Reasons for outsourcing........................................................................... 4
3. Lower costs is where it all begins............................................................. 5
4. Different Outsourcing Categories............................................................. 6
5. Conclusion................................................................................................ 7
6. References................................................................................................ 8
2
Introduction
In business, outsourcing involves the contracting out of a business process and operational, and/or
non-core functions to another party. The concept "outsourcing" came from the American Glossary
'outside resourcing' and it dates back to at least 1981. Outsourcing sometimes involves transferring
employees and assets from one firm to another, but not always. Outsourcing is also the practice of
handing over control of public services to for-profit corporations.
Outsourcing includes both foreign and domestic contracting, and sometimes
includes offshoring (relocating
a
business
function
to
a
distant
country) or nearshoring (transferring a business process to a nearby country). Many people
confuse outsourcing and offshoring – however they are different. A company can outsource (work
with a service provider) and not offshore to a distant country. For example, in 2003 Procter and
Gamble outsourced their facilities management support, but it did not involve offshoring. Financial
savings from lower international labor rates can provide a major motivation for outsourcing or
offshoring. There can be tremendous savings from lower international labor rates when offshoring.
The opposite of outsourcing, insourcing, entails bringing processes handled by third-party firms
in-house, and is sometimes accomplished via vertical integration. However, a business can provide
a contract service to another organization without necessarily insourcing that business process.
Outsourcing is a practice in which an individual or company performs tasks, provides services or
manufactures products for another company -- functions that could have been or is usually done in-
house. Outsourcing is typically used by companies to save costs.
Outsourcing is a common trend in information technology and other industries. Businesses
outsource for services that are seen as intrinsic to managing a business and serving internal and
external customers. Products, such as computer parts, and services, such as payroll and
bookkeeping, can be outsourced. In some cases, the entire information management of a company
is outsourced, including planning and business analysis as well as the installation, management,
and servicing of the network and workstations.
Outsourcing is also known as Business Process Outsourcing (BPO). This is the process of hiring
another individual or company, either domestically or internationally, to handle business activities
for you. It has become a common business practice that allows small and medium-sized businesses
to gain services and skills they would usually find hard to develop, because of either financial or
manpower restrictions, or possibly a combination of both. Meaning, you can grow your business as
and when you need to, without any major investment.
It also allows your business to focus on core competencies and, more importantly, cut costs and
improve efficiency, all very much hassle-free. As time has gone by over the last decade or so,
business owners now realize that there are many reasons that companies, both big and small,
outsource various jobs, but the most prominent advantage seems to be the fact that it saves money
