What is outsourcing?: Advantages and Disadvantages

What is Outsourcing?

Outsourcing is the process of contracting a business function to specialized agencies. In doing so, the company benefits in two ways:

• It reduces its own cost.
• It uses the expertise of the firm which specializes in a particular kind of service.

Many organizations outsource their requirements to a third party. Outsourcing is a contract between an organization and a specialized agency to perform some tasks on behalf of the organization. The examples are:

• Outsourcing of canteen facilities in hospitals, industrial canteen, etc.
• Outsourcing of after-sale services in case of consumer durables, office equipment, etc.
• Outsourcing of business processes.

Advantages of Outsourcing

1. It leads to better efficiency and effectiveness.
2. The companies are able to focus their attention on improving the quality of their product.
3. Outsourcing leads to cost reduction for the company. The cost of outsourcing services is much less than keeping such a large workforce on the rolls of the company.
4. Manpower through outsourcing is available at a lower cost.
5. The investment requirements of the company are reduced.
6. Outsourcing helps in knowledge sharing between organizations.
7. It stimulates entrepreneurship, employment, and exports in the country from where outsourcing is done.

Disadvantages of Outsourcing

1. There is always a danger of the misuse of company information by the contractor or by the third party.
2. Many companies compromise on the quality of outsourcing in order to cut costs. This is especially seen in the IT sector where companies try to get cheap manpower from other countries.
3. In some cases, companies ignore ethical issues related to outsourcing.
4. The quality of the outsourced service is sometimes not up to the mark / not good.

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