Woman doing business over the Internet

Many companies, in an effort to focus their resources on their core competencies, outsource certain internal business processes or other peripheral or specialized processes to third-party contractors. Many companies engage in offshore outsourcing in order to avoid high labor costs, high production costs, and/or regulatory issues. Outsourcing processes that are peripheral to the company, such as landscaping or janitorial duties, allow a company to only pay for the services that they need, when they need them, as opposed to having permanent or semi-permanent staff assigned to those duties. As such, outsourcing can refer to both domestic and foreign contracting.


There are many benefits to outsourcing. Offshore outsourcing to avoid high taxes, high labor costs, energy costs, and production costs is common, especially in the manufacturing industry. Outsourcing to a third-party contractor allows companies a great deal of budgetary control, while reducing the need to hire additional staff to fulfill specialized rolls. Peripheral support positions are often amongst the most common roles outsourced to third-parties, but companies may also choose to outsource important functions, like payroll processing, to third-party contractors. Furthermore, the emergence of world-wide internet connectivity can allow companies to outsource their website design and maintenance, customer support, and marketing services to third-party contractors, often based offshore, and significantly reduce capital expenditure. Companies may also seek to outsource certain processes that require special skills or expertise, which the company itself may not have access to, such as specific engineering specialties.


There are several important implications to outsourcing, with attitudes towards the practice depending heavily on the position of the stakeholder. From a management perspective, outsourcing increases the distance (both physical and psychological) between management and production floor employees. In manufacturing or service-based environments, physical inspections of the processes are often more limited, and it may be necessary to adopt new communication methods with on-site supervisors and managers, such as instant messaging or video conferencing. By allowing third-parties, often in varying locations, access to confidential information (which may be necessary for them to do their job), protection of intellectual property becomes more difficult, but also more important. Furthermore, there can be concerns about the qualifications of offshore third-parties, especially those that provide specialized expertise in areas such as engineering. Differing educational standards between countries mean that a university graduate from one country may or may not have the same competencies as a graduate from another country. From a labor perspective in developed economies, offshore outsourcing can represent a threat to workers in low-skill positions, limiting the prospect of upward economic mobility and contributing to workplace anxieties. Governments in developed economies have taken steps to assist workers in low-skill positions, often by offering subsidized employment training programs.


Another trend related to outsourcing is that of co-sourcing, where a service is performed by both a third-party and by staff from within an organization, side-by-side. This strategy is often deployed to augment special operations, such as internal audits, risk management, or quality control, in an effort to increase control over operations and increase transparency (especially in regards to fraud investigations and process evaluations). Co-sourcing is also common with regards to information technology infrastructure, where external service providers may work closely with internal staff to support on-site servers or databases, and may also support off-site servers, repositories, and databases (as with a cloud computing infrastructure).