You are on page 1of 1

Outsourcing

In business, outsourcing is the contracting out of a business process to a third-party. The term "outsourcing" became popular in the United States near the turn of the 21st century. Outsourcing sometimes in ol es transferring employees and assets from one firm to another, but not al!ays. "1# Outsourcing is also used to describe the practice of handing o er control of public ser ices to for-profit corporations."2# Outsourcing includes both foreign and domestic contracting,"$# and sometimes includes offshoring or relocating a business function to another country."%# &inancial sa ings from lo!er international labor rates is a big moti ation for outsourcing'offshoring. The opposite of outsourcing is called insourcing, !hich entails bringing processes handled by third-party firms inhouse, and is sometimes accomplished ia ertical integration. (o!e er, a business can pro ide a contract ser ice to another business !ithout necessarily insourcing that business process.

Overview
T!o organi)ations may enter into a contractual agreement in ol ing an e*change of ser ices and payments. Outsourcing is said to help firms to perform !ell in their core competencies and mitigate shortage of s+ill or e*pertise in the areas !here they !ant to outsource.",# In the early 21st century, businesses increasingly outsourced to suppliers outside their o!n country, sometimes referred to as offshoring or offshore outsourcing. Se eral related terms ha e emerged to refer to arious aspects of the comple* relationship bet!een economic organi)ations or net!or+s, such as nearshoring, cro!dsourcing, multisourcing"-#".# and strategic outsourcing."/# Outsourcing can offer greater budget fle*ibility and control. Outsourcing lets organi)ations pay for only the ser ices they need, !hen they need them. It also reduces the need to hire and train speciali)ed staff, brings in fresh engineering e*pertise, and reduces capital and operating e*penses."0# One of the biggest changes in the early 21st century came from the gro!th of groups of people using online technologies to use outsourcing as a !ay to build a iable ser ice deli ery business that can be run from irtually any!here in the !orld. The preferential contract rates that can be obtained by temporarily employing e*perts in specific areas to deli er elements of a pro1ect purely online means that there is a gro!ing number of small businesses that operate entirely online using offshore contractors to deli er the !or+ before repac+aging it to deli er to the end user. One common area !here this business model thri es is in pro iding !ebsite creation, analysis and mar+eting ser ices. 2ll elements can be done remotely and deli ered digitally, and ser ice pro iders can le erage the scale and economy of outsourcing to deli er high- alue ser ices at reduced end-customer prices.

Reasons for outsourcing


3ompanies primarily outsource to a oid certain costs - such as peripheral or "non-core" business e*penses,"14# high ta*es, high energy costs, e*cessi e go ernment regulation'mandates, production and'or labor costs. The incenti e to outsource may be greater for U.S. companies due to unusually high corporate ta*es and mandated benefits, li+e social security, 5edicare, and safety protection 6OS(2 regulations7."11# 2t the same time, it appears U.S. companies do not outsource to reduce e*ecuti e or managerial costs. &or instance, e*ecuti e pay in the United States in 244. !as more than %44 times more than a erage !or+ers8a gap 24 times bigger than it !as in 10-,."12# In 2411, t!enty-si* of the largest US corporations paid more to 39O:s than they paid in federal ta*es."1$# Such statistics imply that the reason companies outsource is not to a oid costs in general but to a oid specific types of costs.