Sometimes, an organization might not be in a position to complete all its operations within its internal environment. This could be a result of a lack of the required resources and a cheaper cost of getting services externally, among other factors. In such instances, a company prefers to outsource or offshore its product or services. Outsourcing refers to when a company contracts a third party to perform a defined function. On the other hand, offshoring refers to when a country or company sends in-house operations to be performed in another country. The company must evaluate the benefits and costs of outsourcing or offshoring.
Depending on the needs of a business or organization, they outsource for several reasons. The primary reason for outsourcing is to reduce or control the cost of operation. For instance, a company may prefer to outsource an expert to perform a service in the organization. This decision may be arrived at after comparing the cost of training the existing employees to the cost of outsourcing the expertise. If the service is required only once or occasionally, they may find outsourcing the service to be cheaper.
Moreover, a company may outsource to give better focus to its core operations. The organization may find it unnecessary to divert from its primary operations to perform single or several tasks for a short while. For example, a financial institution such as a bank may find it unnecessary to establish a software development department to change their existing system. In case they need to change or get a new system, they would prefer to outsource the service.
An example of a company that outsources its services is Apple. The multi-billionaire company specializes in designing technological equipment such as computers, mobile phones, and accessories. Although the company is large, they outsource some services such as manufacturing hardware and supply chain services. The company outsources some services from Asia, the USA, and Far East countries. By outsourcing these manufacturing processes, the company is able to focus on its core business which is designing upgraded technology.
- Concept of Outsourcing and Risks Associated With Outsourcing
- The Business Process: Description of Outsourcing
- The Economist: Report on Outsourcing and Offshoring
- Companies Outsourcing in Developing Countries
- Offshoring Strategies Implementation
- The Economist: Report on Outsourcing and Offshoring
- Policy Risk and Offshoring in International Business