What is Outsourcing?
Outsourcing is the contracting out of an internal business process to a third party organization. The practice of contracting a business process out to a third party rather than staffing it internally is common in the modern economy. The term "outsourcing" became popular in the United States near the turn of the 21st century. Outsourcing sometimes involves transferring employees and assets from one firm to another but not always. The definition of outsourcing includes both foreign and domestic contracting, and sometimes includes offshoring, which means relocating a business function to another country. Financial savings from lower international labor rates is a big motivation for outsourcing/offshoring. The opposite of outsourcing is called insourcing, which 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 business without necessarily insourcing that business process.
Advantages of Outsourcing :
Outsourcing creates opportunities for a company to focus on lowering costs and improving the efficient allocation of resources within a company. Outsourcing allows a company to redirect its attention to its own competencies and hire outside resources to handle other tasks. For example, Jobs in the mid-west can often consist of phone tech support. However since it is even cheaper to pay people in India then support this community with jobs, it will send its jobs to India, another country which is an example of outsourcing. So outsourcing allows a firm to reduce costs and concentrate its resources on the things It does best while gaining access to expertise it may not have. Companies outsource primarily to cut costs. But today, it is not only about cutting cost but also about reaping the advantages of strategic outsourcing such as accessing skilled expertise, saving time, cutting cost, concentrating on networking, business growth and core competencies ,reducing overhead, flexible staffing, and increasing efficiency, reducing turnaround time and eventually generating more profit. 1.Accessing Skilled Expertise : One of the primary advantages of outsourcing is to get access to skilled expertise. This skill set may not be a core competency of a company’s business, but to allow on focusing on the core mission in providing a high quality product and service to its customer what makes sense is handing over the task to people who can perform it better. Moreover, as a double whammy, a company not only spends less on employee trainings and saves precious man-hours but cuts costs as well. 2. Saving time : When running a business, companies soon discover which skills they possess are strong, weak and non-existent. Rather than using their time and money to learn several new skills, they can simply outsource to someone who is already proficient. Perhaps they have other things in life besides business to focus on. Companies may want to spend the extra time outsourcing because it gives companies to learn a new skill such as public speaking, a new language, accounting, or some other subject. 3. Cutting Costs and Saving BIG! : Maintaining an infrastructure can be an extra burden for some businesses, which outsourcing can remove. Outsourcing business requirements to a trusted vendor can help companies to save on the capital expenditure, time, and extra efforts of their personnel. Additionally, companies are no longer committed to invest on employee training, or purchasing expensive software, or investing in latest technologies. All these help the companies to get higher returns in the longer run. For example, A small doctor's office that wants to accept a variety of insurance plans. One part-time person could not keep up with all the different providers and rules. Outsource to a firm specializing in medical billing.
4. Concentrating on Business Growth, Networking and Core Competencies :...
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