Outsourcing

Outsourcing became part of the business lexicon during the 1980s and refers to the delegation of non-core operations from internal production to an external entity specializing in the management of that operation.

The process of outsourcing formalises the description of the non-core operation into a contractual relationship between the client and the supplier. Under the new contractual agreement the supplier acquires the means of production which may include people, processes, technology, intellectual property and assets. The structure of the client organisation changes as the client agrees to procure the services of the outsourcer for the term of the contractual agreement.

The decision to outsource is often made in the interest of lowering firm costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of labor, capital, technology and resources.

Outsourcing involves the transfer of the management and/or day-to-day execution of an entire business function to an external service provider. The client organization and the supplier enter into a contractual agreement that defines the transferred services. Under the agreement the supplier acquires the means of production in the form of a transfer of people, assets and other resources from the client. The client agrees to procure the services from the supplier for the term of the contract. Business segments typically outsourced include information technology, human resources, facilities and real estate management, and accounting. Many companies also outsource customer support and call center functions, manufacturing and engineering.

Outsourcing and offshoring are used interchangeably in public discourse despite important technical differences. Outsourcing involves contracting with a supplier, this may or may not involve some degree of offshoring. Offshoring is the transfer of an organizational function to another country, regardless of whether the work is outsourced or stays within the same corporation. With the globalisation of outsourcing companies the distinction between outsourcing and offshoring will become less clear over-time. This is evident in the increasing presence of Indian outsourcing companies in the US and UK. The globalisation of outsourcing operating models has resulted in new terms such as nearshoring and rightshoring that reflect the changing mix of locations. This is seen in the opening of offices and operations centers by Indian companies in the US and UK