Outsourcing is the process of hiring an external company to take care of functions that were previously handled in-house.
Outsourcing is usually a part of cost-cutting strategy, and it can be done for any department such as finance, customer service, marketing and so on. While outsourcing can affect jobs, many argue that it also helps organizations to focus their efforts and resources on functions that they are good at.
Example: A small time law firm does not have enough resources to maintain a finance department. Hence they outsource it to a book-keeping firm that will take care of their accounting process entirely.
The major reason for outsourcing is that it helps with cost-cutting. Organizations do not have to worry about compensation, benefits, overheads, etc. The external company would have a different remuneration plan with their own employees, based on which they take up outsourced work from other organizations.
Outsourcing often proves to be faster, and cost effective too, since it offers focussed work. Since it is done mainly for auxiliary functions, organizations can then focus on their core competencies and improve upon it.
There are mainly three types:
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