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Outsourcing

Outsourcing for the company is contracting with an outside vendor for perfomance of a function (whole project, part of it, or even some tasks) that was prevoiusly perfomed inside the company.

Outsourcing involve transferring a significant amount of management control to the supplier. Buying products from another entity is not outsourcing or out-tasking, but merely a vendor relationship. Likewise, buying services from a provider is not necessarily outsourcing or out-tasking. Outsourcing always involves a considerable degree of two-way information exchange, co-ordination, and trust.

Benefits of Outsourcing

That many large businesses outsource and continue to outsource suggests that in many cases outsourcing is successful in that it increases product quality, lowers costs substantially, or both. Some economists have argued that outsourcing is a form of technological innovation analogous to machines on a car assembly line. Others economists argue that machines on the car assembly line must have a higher quality to cost ratio than workers because, if they didn’t, there would be no incentive for the firm to replace workers with machines. Some argue that greater profits to the labor owners lead to higher consumption, which leads to further job creation, allowing those who lost jobs to gain jobs in other sectors of the economy. A firm’s motivation for replacing workers with machines is identical to the motivation for outsourcing, i.e. the firm is trying to maximize the quality of its product given cost (its productivity). Because outsourcing allows for lower costs, even if quality reduces slightly or not at all, productivity increases, which benefits the economy on aggregate.

Weakness of outsourcing

Quality of Service

Because “outsourced” workers are not actually paid agents of the company, it has been argued that there is less incentive for the agent to show loyalty or work ethic in its representation of said company. It has been therefore argued that quality levels of customer service and technical support of outsourced tasks are lower than where they have remained ‘in-house’.

Security

There are also security issues concerning companies giving outside access to sensitive customer information or probability that insider information can leak outside the company.