Despite receiving a lot of attention in the last decade, outsourcing is still a term many people do not understand fully. Let us, in this section, try to examine some of the basic factors that are common to all types of outsourcing and thus derive a definition.
A Simple Definition
Let us do away with the more complex aspects of outsourcing and look at the basics. Outsourcing at its simplest is when a company or individual delegate some of its specific tasks to another individual who is not their direct employee, or another company. The individual or the company receive monetary compensation in exchange for the services rendered.
This way, we can see that outsourcing does not necessarily mean only situations where large corporations are involved. It can also apply to small companies and entrepreneurs who get some of their work done by people who are not their employees.
Domestic and Overseas Outsourcing
Similarly, outsourcing is not always about getting your manufacturing work done overseas. There are situations where both the client and the service provider reside in the same country. It is understood that outsourcing often brings cost benefits; however outsourcing work overseas is not always necessary for this purpose.
The scenario where companies outsource work overseas is familiar to most people. Both large corporations and small companies get their manufacturing, customer relations management and other work done overseas to enhance their profits. This is especially true for companies in the United States where manufacturing, material and manpower cost much more than the outsourcing destinations.
We have already seen that cost savings is one major reason why companies outsource. There are also other factors like greater flexibility and access to a larger number of skilled people without actually employing them.
As stated earlier, manufacturing, labor and material costs are much higher in the United States than in countries like India where skilled labor is easily available. Domestic outsourcing can also reduce costs. People hired on a contract/outsourcing basis do not have to be paid for medicare, pension and other benefits and thus they prove to be easier on the company's budget.
Apart from this outsourcing also offers greater flexibility to companies. Companies develop a larger network of qualified individuals and specialist companies through outsourcing. This comes in handy when the company needs a larger than usual or more complicated project at hand.
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