Understanding Oursourcing

Over the next few days you will receive several lessons that will help you learn the ins and outs of outsourcing and how it can help your business productivity.

In this first lesson let's talk a little about what outsourcing is, how it works and what it can do for your business. We will examine some of the key elements of outsourcing to help you develop a better understanding of the concept of outsourcing.

Outsourcing is a term that has received a great deal of attention lately. Despite the increasing trend in businesses relying on outsourcing there are still some who don't clearly understand what the term actually means.

This is the most common question that many people have about the subject of outsourcing. Before you can dive into the more complex aspects of this business strategy it is important to have a basic understanding of the process.

In the simplest form outsourcing is when a company delegates the completion of certain tasks to an individual not employed directly by the company. This individual may be an independent contractor or an employee of another company who is subcontracted to complete these tasks. In exchange for the individual’s services, he or his company receives monetary compensation.

This description of outsourcing makes it far easier to understand the concept. Most people incorrectly assume outsourcing only applies to situations where large corporations have products manufactured overseas by a subsidiary and don’t realize examples of outsourcing can be seen just about everywhere in corporate America.

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 to reduce costs. Cost savings will be discussed in greater detail in the section on the benefits of outsourcing but essentially outsourcing results in a savings as a result of a reduction of labor costs.

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 to upsize their profits. This is significant because their costs including wages, materials and building lease would be considerably higher in the United States than they are in these other countries.

Now that you have a clearer understanding of the concept of outsourcing let's go over some of the main benefits of outsourcing. You may still be wondering why companies would go to the trouble of outsourcing certain tasks. Outsourcing is popular because there are a great deal of benefits to the companies who outsource the work.

Some of the benefits include:

1. Reduced labor costs
2. Reduced workload
3. Increased workforce
4. Greater flexibility

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