Definition of Outsourcing
February 24, 2017
Outsourcing is becoming a common development among specific industries and services. Outsourcing can be defined as subcontracting a service to a third party company to provide a service that could otherwise be performed by in-house workers. Simply put, outsourcing refers to a transfer of a business function or a service to an external, third party service provider.
Many large scale and medium scale businesses are getting more and more involved in outsourcing as the years go by. An example of jobs being outsourced are call centers who run services such as technical support, credit cards, medical transcription, and even bill payments. These third party companies either handle different jobs or they do offer the same service but cater to a wide range of clients. Most of these jobs are situated overseas or off shore and are usually located in developing countries.
Only recently has outsourcing been used for a lot of specialized services but outsourcing itself has been around for a long while. Specific specialized services like company payrolls, billing and data entry are outsourced in order to have these services done more efficiently. Specializing in a specific process does not only make the service more efficient, it also makes it more cost-effective. Lower operational costs and specialized services are some of the main reasons why foreign companies resort to outsourcing.
Companies have a lot of reasons to outsource their services to other countries but one main reason why they do that is because they save a lot of time and money which is perhaps the most important aspect of it all. One of the reasons why companies want to outsource to developing countries is because the payroll and the benefits are not as expensive compared to the mother location.
The minimum wage of an employee in the Philippines is nowhere near the minimum wage that an employee in the United States has to be paid. Benefits such as health care, bonuses, wages costs much lower if you outsource at developing countries than availing them at the business’ original location.
Information technology outsourcing and business process outsourcing are perhaps the two most popular types out of the several forms of outsourcing. Outsourced information technology services often means the transfer of computer and internet related labor.
On the other hand, business process outsourcing involves call center outsourcing, human resources outsourcing, investment and accounting outsourcing, and claims processing outsourcing. IBM and Accenture are just some of the biggest companies that are involved in business process outsourcing.
Outsourcing also has its disadvantages like many other business models. One of the disadvantages is the severance of direct ties between the company and their client. Services like customer care is one of the highest priority in outsourced services nowadays. Another drawback of outsourcing is the loss of jobs in the developed nations because jobs and opportunities are disappearing abroad.