Understanding Outsourcing

The word “Outsourcing” has catched a lot of interest in the recent years. Despite the increasing trend in companies relying on outsourcing there are still some who do not clearly understand what is meant by the term outsourcing. This article will examine some of the key elements of outsourcing to help the reader develop a better understanding of the concept of outsourcing.

Outsourcing Defined

What is outsourcing? This is the most basic question many have about the subject of outsourcing. They are not yet interested in more complex aspects of the issue because they have not yet grasped the most basic understanding of the process. In the simplest language outsourcing is when a company assigns the accomplishment of certain tasks to an individual not employed by the company directly. This individual may be an independent contractor or an employee of another company who is sub-contracted for the achievement of these assignments. In exchange for the individual’s services, he or his company receives monetary compensation.

This description of outsourcing makes it much straightforward to grasp the matter. Most people falsely assume outsourcing only applies to circumstances where large corporations have products manufactured overseas by a subsidiary and don’t perceive examples of outsourcing can be watched just about everywhere in corporate America.

Domestic Outsourcing

Domestic outsourcing refers to outsourcing where both the primary company and the independent contractor or subsidiary are located in the same country. One of the main reasons for outsourcing is to reduce costs but it is not always necessary to outsource work overseas in order to lessen the costs. Cost savings will be discussed in greater detail in the part on the benefits of outsourcing but essentially outsourcing results in an economy because of the low labor costs.

Overseas Outsourcing

Overseas outsourcing is the type of outsourcing most people already understand. This is where large corporations such as Nike, and even some smaller companies, employ manufacturing plants overseas in third world countries in order to enhance their gains. This is significant because their costs including wages, materials and building lease would be significantly dearer in the United States as compared to other countries.

Benefits of Outsourcing

Now that you have a clearer understanding of the concept of outsourcing, you might wonder why companies would go to the trouble of outsourcing certain tasks. Outsourcing is so admired because there are plenty of benefits to the companies who outsource the work. Some of the benefits include:
* Reduced labor costs
* Increased workforce
* Greater flexibility

One of the main reasons companies resort to outsourcing is it can significantly reduce costs. In the case of overseas outsourcing of manufacturing tasks, costs can be cut drastically because there are lower wages and costs associated with managing and maintaining the manufacturing plants. However, the companies outsource because of the main reason that it dramatically lowers the cost. Lowering down the labor costs is the main source of savings in this case. Independent contractors hired on a contract basis for the purpose of completing specific tasks are often not given benefits such as social security, Medicare and workers compensation.

One of the major advantages of an outsourcing is having a big workforce without actually renting additional employees. Companies who retain networking associations with qualified individuals have more golden opportunities open to them because they are able to rely on these individuals to assist them if they acquire large or complicated projects.

Finally, outsourcing renders company a considerable amount of pliability. Companies who have a substantial workload and backlog of work where the majority of the employees are highly utilized might be hesitant to compete for new work because they do not have a great deal of employee availability. However, with a network of individuals to rely on if the need to outsource arises, the company has more flexibility in pursuing new work.

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