Outsourcing | Meaning and Definition

What is outsourcing?

Outsourcing is a practice where businesses consider hiring third parties for creating goods or performing services that were traditionally done in-house by the employees and staff of the company. Outsourcing is adopted as a cost-cutting measure in enterprises. As a business strategy, this practice was identified in 1989 and since then, gained an integral position in business economics.

Outsourcing is helpful in lowering business costs and time as well to a great extent. For instance, a company that manufactures electronic appliances may outsource the components from other companies and thus, save much on the costs of production.

Nowadays, companies can outsource a number of services and tasks. They often outsource technical support, and technology services such as programming, development, and HR tasks like payroll management, bookkeeping, etc.

The outsourcing of business functions is often called business process outsourcing or contracting out. 

Why do companies outsource?

Companies consider outsourcing to reduce costs, expedite the business, and improve efficiencies. Furthermore, since the outsourcing companies focus on providing services for a specific task, they do it faster, better, and cheaper compared to the situation when a company hires employees.

This enables the enterprises to focus on their core competencies, hence, facilitating them to grab competitive gains in the market. Other companies may consider outsourcing because they are not able to hire full-time employees with the expertise and experience required to accomplish certain jobs.

Sometimes, outsourcing may bring about drawbacks and challenges for the companies. The enterprises who outsource any services/ products must consider renewal of the contracts often to ensure success.