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Outsourcing is a business practice in which a company hires another company or an individual to perform tasks, handle operations or provide services that are either usually executed or had previously been done by the company's own employees.
The outside company, which is known as the service provider or a third-party provider, arranges for its own workers or computer systems to perform the tasks or services either on site at the hiring company's own facilities or at external locations.
Companies today can outsource a number of tasks or services. They often outsource information technology services, including programming and application development as well as technical support. They frequently outsource customer service and call service functions. They can outsource other types of work as well, including manufacturing processes, human resources tasks and financial functions such as bookkeeping and payroll. Companies can outsource entire divisions, such as its entire IT department, or just parts of a particular department.
Outsourcing business functions is sometimes called contracting out or business process outsourcing.
Outsourcing can involve using a large third-party provider, such as a company like IBM to manage IT services or FedEx Supply Chain for third-party logistics services, but it can also involve hiring individual independent contractors and temporary office workers.
REASONS FOR OUTSOURCING:
Companies often outsource as a way to lower costs, improve efficiencies and gain speed. Companies that decide to outsource rely on the third-party providers' expertise in performing the outsourced tasks to gain such benefits. The underlying principle is that because the third-party provider focuses on that particular task, it is able to do it better, faster and cheaper than the hiring company could.
Given such benefits, companies often decide to outsource supporting functions within their businesses so they can focus their resources more specifically on their core competencies, thereby helping them gain competitive advantages in the market.
However, some companies decide to outsource for other reasons.
For example, they outsource because they're unable to hire in-house workers with the specialized skills and experience needed to perform certain jobs.
Companies sometimes opt to outsource as a way to shift meeting regulatory requirements or obligations to the third-party provider.