What is ‘Outsourcing’
Outsourcing
Outsourcing is when a company hires a third party to perform their task; in other words, when a company employs another company to fulfilling its tasks, it is termed outsourcing. In 1989, it was first recognised as a business strategy, and later, in the 1990s, it became a fundamental part of the business. Let’s get to know more about this technique and its pros and cons.
What is Outsourcing?
According to the Outsourcing definition, it is a technique of appointing another firm or company for a specific task. To simplify, we can say that it is the business practice to set specific third-party to give services previously done by the company’s staff. The foremost cause of doing so is to cut down the costs and increase the company’s profitability. It also involves the distribution of labour so that the company outsourcing can focus on more important subjects. It is a matter of controversy in many countries. Some believe that it causes a decline in domestic jobs, whereas some believe that it allows the business to assign assets to the companies where they can be most effectively used.
Pros of Outsourcing
It has proven to be an effective measure of distributing resources to the companies where they can effectively utilise them, which means allotting tasks to those companies that are specialists. Moreover, it enables the company to complete their tasks for lesser money. Outsourcing allows the companies to focus on more important things after allotting others to the third party. Outsourcing has been an excellent choice for Apple. It only focuses on developing new software and designs and outsources its components to the other parties. Thus, we can say that it can be a very effective technique for business and competition if appropriately managed.
Cons of Outsourcing
It has been a cause of the loss of several domestic jobs, especially in the manufacturing sector. As the outsourced services are not in complete control of the company, it can lead to the production of lower quality products or services. Moreover, there could be a delay in completing projects due to a lack of communication between the company and the third party. Signing agreements for it with other companies take extra effort and time. If the third party has access to confidential information, then it can be a severe threat to the company outsourcing.
Examples of Outsourcing
Many companies outsourced almost all administrative tasks such as database administration or invoicing to other developing nations.
Apple: The renowned company Apple outsourced most of the production of its iPhones to many other firms. A firm named Foxconn is supposed to manufacture the final iPhone. Moreover, Apple also outsources several products such as mobile DRAM from Samsung. Apple can focus on more important things by outsourcing basic tasks, such as developing new software and designs to compete with other competitors.
From the 1990s to the 2000s, there was a significant movement of call centres in several developing nations such as Indonesia, India and the Philippines. The call centres involve basic queries such as technical issues. However, many companies moved back to their call centres after receiving negative feedback from their customers. The non-proficiency of the English language was one of the major causes of doing so.
IT industry also has a great significance in outsourcing. Let’s say that a cement company wants to create an app to connect with its customers directly. However, they didn’t know much about creating an app. In this case, it will be much better to outsource this task to another firm that excels in it.
What is Outsourcing?
It is the method of appointing another company to fulfil the company’s tasks, or simply it is the business practice to select a particular third party to give services previously done by the company’s staff.
Name some of the types of outsourcing?
Some of the types of outsourcing are as follows:
- Operational outsourcing
- Professional outsourcing
- Project outsourcing
- Process outsourcing
- IT outsourcing
- Manufacturing outsourcing
What is the reason behind outsourcing?
It allows the company to focus on a more critical task after appointing another company to outsource other tasks. Moreover, it has proved to be a cost-effective measure. It is an essential practice for running a successful business as there are specific points where a company needs help or guidance from other companies that excel at it. For example, a restaurant owner might want an IT expert to create an app or website for their business.
Which company was the first to start outsourcing?
Computer companies were the first to start it.
State some of the disadvantages of outsourcing?
Some of the disadvantages of outsourcing are as follows:
- Lack of communication
- Delay of the project
- No complete control over the third-party actions
- Language and time zone barriers
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