In business, outsourcing involves the contracting out of a business process to another party (compare business process outsourcing). 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 another country). Financial savings from lower international labor rates can provide a major motivation for outsourcing/offshoring.
Two organizations may enter into a contractual agreement involving an exchange of services and payments. Outsourcing is said to help firms to perform well in their core competencies and mitigate shortage of skill or expertise in the areas where they want to outsource.
Outsourcing can offer greater budget flexibility and control. Outsourcing lets organizations pay for only the services they need, when they need them. It also reduces the need to hire and train specialized staff, brings in fresh engineering expertise, and reduces capital and operating expenses.
One of the biggest changes in the early 21st century came from the
growth of groups of people using online technologies to use outsourcing
as a way to build a viable service delivery business that can be run
from virtually anywhere in the world. The preferential contract rates
that can be obtained by temporarily employing experts in specific areas
to deliver elements of a project purely online means that there is a
growing number of small businesses that operate entirely online using
offshore contractors to deliver the work before repackaging it to
deliver to the end user. One common area where this business model
thrives is in providing website creation, analysis and marketing
services. All elements can be done remotely and delivered digitally, and
service providers can leverage the scale and economy of outsourcing to deliver high-value services at reduced end-customer prices.
Reasons for outsourcing
Companies primarily outsource to avoid certain costs - such as peripheral or "non-core" business expenses, high taxes, high energy costs, excessive government regulation/mandates, production and/or labor costs. The incentive to outsource may be greater for U.S. companies due to unusually high corporate taxes and mandated benefits, like social security, Medicare, and safety protection (OSHA regulations). At the same time, it appears U.S. companies do not outsource to reduce executive or managerial costs. For instance, executive pay in the United States in 2007 was more than 400 times more than average workers—a gap 20 times bigger than it was in 1965.In 2011, twenty-six of the largest US corporations paid more to CEO's than they paid in federal taxes.Such statistics imply that the reason companies outsource is not to avoid costs in general but to avoid specific types of costs............................................................................................. Copy (Wikipedia)
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