Can anybody explain clearly, what is Outsourcing?

Outsourcing is simply when you pay another company to do something that could be done internally.

For example, if you pay a tax advisor to do your tax return, then you are 'outsourcing' your tax function to that advisor.

Outsourcing often refers to the process of subcontracting to a third-party. While outsourcing may be viewed as a component to the growing division of labor encompassing all societies, the term did not enter the English-speaking lexicon until the 1980s.

This is clear...kinda long but covers it all :

Overview

A precise definition of outsourcing has yet to be agreed upon. Thus, the term is used inconsistently. However, outsourcing is often viewed as involving the contracting out of a business function to an external provider.[2] In this sense, two organizations may enter a contractual agreement involving an exchange of services and payments. Of recent concern is the ability of businesses to outsource to suppliers outside the nation, sometimes referred to as offshoring or offshore outsourcing (which are odd terms because doing business with another country does not mean you have to go offshore[3][4][5][6][7]) In addition, several related terms have emerged to grasp various aspects of the complex relationship between economic organizations or networks, such as nearshoring, multisourcing[8][9] and strategic outsourcing.[10] Almost any conceivable business practice can be outsourced for any number of stated reasons. The implications of outsourcing objectively and subjectively vary across time and space.
[edit] Reasons

Organizations that outsource are seeking to realize benefits or address the following issues:[11][12][13][14]

* Cost savings — The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Access to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations.[15]
* Focus on Core Business — Resources (for example investment, people, infrastructure) are focused on developing the core business. For example often organizations outsource their IT support to specialised IT services companies.
* Cost restructuring — Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.
* Improve quality — Achieve a step change in quality through contracting out the service with a new service level agreement.
* Knowledge — Access to intellectual property and wider experience and knowledge.[16]
* Contract — Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services.[17]
* Operational expertise — Access to operational best practice that would be too difficult or time consuming to develop in-house.
* Access to talent — Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering.[3][18]
* Capacity management — An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.
* Catalyst for change — An organization can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone. The outsourcer becomes a Change agent in the process.
* Enhance capacity for innovation — Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation.[19][20]
* Reduce time to market — The acceleration of the development or production of a product through the additional capability brought by the supplier.
* Commodification — The trend of standardizing business processes, IT Services, and application services which enable to buy at the right price, allows businesses access to services which were only available to large corporations.
* Risk management — An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation.[21]
* Venture Capital — Some countries match government funds venture capital with private venture capital for start-ups that start businesses in their country.[22]
* Tax Benefit — Countries offer tax incentives to move manufacturing operations to counter high corporate taxes within another country.
* Scalability — The outsourced company will usually be prepared to manage a temporary or permanent increase or decrease in production.
* Creating leisure time — Individuals may wish to outsource their work in order to optimise their work-leisure balance.[citation needed]

[edit] Specific examples of corporate outsourcing

There are situations when a firm may consider outsourcing some of its R&D work to a contract research organizations or universities. In this context, the two most populous countries in the world, China and India, provide huge pools from which to find talent. Both countries produce over 200,000 engineers and science graduates each year. Moreover both countries are low cost sourcing countries.

Outsourcing in the information technology field has two meanings.[23] One is to commission the development of an application to another organization, usually a company that specializes in the development of this type of application. The other is to hire the services of another company to manage all or parts of the services that otherwise would be rendered by an IT unit of the organization. The latter concept might not include development of new applications.
[edit] Negative implications
[edit] Management, the corporation and consumers
[edit] Quality risk

Quality risk is the propensity for a product or service to be defective, due to operations-related issues. Quality risk in outsourcing is driven by a list of factors. One such factor is opportunism by suppliers due to misaligned incentives between buyer and supplier, information asymmetry, high asset specificity, or high supplier switching costs. Other factors contributing to quality risk in outsourcing are poor buyer-supplier communication, lack of supplier capabilities/resources/capacity, or buyer-supplier contract enforceability. Two main concepts must be considered when considering observability as it related to quality risks in outsourcing: the concepts of testability and criticality.

Quality fade is the deliberate and secretive reduction in the quality of labor in order to widen profit margins. The downward changes in human capital are subtle but progressive, and usually unnoticeable by the out sourcer/customer. The initial interview meets requirements, however, with subsequent support, more and more of the support team are replaced with novice or less experienced workers. Some IT shops[who?] will continue to reduce the quality of human capital, under the pressure of drying up labor supply and upward trend of salary, pushing the quality limits. Such practices are hard to detect, as customers may just simply give up seeking help from the help desk. However, the overall customer satisfaction will be reduced greatly over time[citation needed]. Unless the company constantly conducts customer satisfaction surveys, they may eventually be caught in a surprise of customer churn, and when they find out the root cause, it could be too late. In such cases, it can be hard to dispute the legal contract with the outsourcing company, as their staff are now trained in the process and the original staff made redundant. In the end, the company that outsources may find that it is worse off than before it outsourced its workforce.
[edit] Quality of service

Quality of service is measured through a service level agreement (SLA) in the outsourcing contract. In poorly defined contracts there is no measure of quality or SLA defined. Even when an SLA exists it may not be to the same level as previously enjoyed. This may be due to the process of implementing proper objective measurement and reporting which is being done for the first time. It may also be lower quality through design to match the lower price.

There are a number of stakeholders who are affected and there is no single view of quality. The CEO may view the lower quality acceptable to meet the business needs at the right price. The retained management team may view quality as slipping compared to what they previously achieved. The end consumer of the service may also receive a change in service that is within agreed SLAs but is still perceived as inadequate. The supplier may view quality in purely meeting the defined SLAs regardless of perception or ability to do better.

Quality in terms of end-user-experience is best measured through customer satisfaction questionnaires which are professionally designed to capture an unbiased view of quality. Surveys can be one of research.[24] This allows quality to be tracked over time and also for corrective action to be identified and taken.
[edit] Productivity

Offshore outsourcing for the purpose of saving cost can often have a negative influence on the real productivity of a company. Rather than investing in technology to improve productivity, companies gain non-real productivity by hiring fewer people locally and outsourcing work to less productive facilities offshore that appear to be more productive simply because the workers are paid less. Sometimes, this can lead to strange contradictions where workers in a developing country using hand tools can appear to be more productive than a U.S. worker using advanced computer controlled machine tools, simply because their salary appears to be less in terms of U.S. dollars.

In contrast, increases in real productivity are the result of more productive tools or methods of operating that make it possible for a worker to do more work. Non-real productivity gains are the result of shifting work to lower paid workers, often without regards to real productivity. The net result of choosing non-real over real productivity gain is that the company falls behind and obsoletes itself overtime rather than making investments in real productivity.
[edit] Staff turnover

The staff turnover of employee who originally transferred to the outsourcer is a concern for many companies. Turnover is higher under an outsourcer and key company skills may be lost with retention outside of the control of the company. In outsourcing offshore there is an issue of staff turnover in the outsourcer companies call centers. It is quite normal for such companies to replace its entire workforce each year in a call center.[25] This inhibits the build-up of employee knowledge and keeps quality at a low level.[citation needed]
[edit] Language skills

In the area of call centers end-user-experience is deemed to be of lower quality when a service is outsourced. This is exacerbated when outsourcing is combined with off-shoring to regions where the first language and culture are different. The questionable quality is particularly evident when call centers that service the public are outsourced and offshored.[citation needed]

The public generally find linguistic features such as accents, word use and phraseology different which may make call center agents difficult to understand. The visual clues that are present in face-to-face encounters are missing from the call center interactions and this also may lead to misunderstandings and difficulties.[26] In addition to language and accent differences, a lack of local social and geographic knowledge is often present, leading to misunderstandings or mis-communications.[citation needed]
[edit] Failure to deliver business transformation

Business transformation promised by outsourcing suppliers often fails to materialize. In a commoditised market where many service providers can offer savings of time and money, smart vendors have promised a second wave of benefits that will improve the client’s business outcomes. According to Vinay Couto of Booz & Company “Clients always use the service provider’s ability to achieve transformation as a key selection criterion. It’s always in the top three and sometimes number one.” While failure is sometimes attributed to vendors overstating their capabilities, Couto points out that clients are sometimes unwilling to invest in transformation once an outsourcing contract is in place.[27][unreliable source?]
[edit] Security

Before outsourcing an organization is responsible for the actions of all their staff and liable for their actions. When these same people are transferred to an outsourcer they may not change desk but their legal status has changed. They no-longer are directly employed or responsible to the organization. This causes legal, security and compliance issues that need to be addressed through the contract between the client and the suppliers. This is one of the most complex areas of outsourcing and requires a specialist third party adviser.

Fraud is a specific security issue that is criminal activity whether it is by employees or the supplier staff. However, it can be disputed that the fraud is more likely when outsourcers are involved, for example credit card theft when there is scope for fraud by credit card cloning. In April 2005, a high-profile case involving the theft of $350,000 from four Citibank customers occurred when call center workers acquired the passwords to customer accounts and transferred the money to their own accounts opened under fictitious names. Citibank did not find out about the problem until the American customers noticed discrepancies with their accounts and notified the bank.[28]
[edit] Qualifications of outsourcers

The outsourcer may replace staff with less qualified people or with people with different non-equivalent qualifications.[29]

In the engineering discipline there has been a debate about the number of engineers being produced by the major economies of the United States, India and China. The argument centers around the definition of an engineering graduate and also disputed numbers. The closest comparable numbers of annual graduates of four-year degrees are United States (137,437) India (112,000) and China (351,537).[30][31]
[edit] Company knowledge

Outsourcing could lead to communication problems with transferred employees. For example, before a transfer the staff has access to broadcast company e-mail that informs them of new products, procedures etc. An outsourcing organization may not have the same e-mail access available to them. To reduce costs, outsourced employees may have new information delivered to them in team meetings.
[edit] Public opinion

There is a strong public opinion in the United States against outsourcing (especially when combined with offshoring) because it leads to job displacement.[citation needed] It is difficult to dispute that outsourcing has a detrimental effect on individuals who face job disruption and employment insecurity.[citation needed] However, outsourcing supporters[who?] draw on mainstream economics to argue that outsourcing should bring down prices, providing greater economic benefit to all. There are legal protections in the European Union regulations called the Transfer of Undertakings (Protection of Employment). Labor laws in the United States are not as protective as those in the European Union.[32] On June 26, 2009, Jeff Immelt, the CEO of General Electric, called for the United States to increase its manufacturing base employment to 20% of the workforce commenting that the U.S. has outsourced too much and can no longer rely on consumer spending to drive demand.[33]
[edit] Standpoint of labor

From the standpoint of labor outsourcing may represent a new threat, contributing to rampant worker insecurity, and reflective of the general process of globalization.[34] While the "outsourcing" process may provide benefits in some form and to some degree it may undermine the ability of labor to resist unwanted changes in the workplace. For example, a corporation may outsource a division of the company to a service provider, that may retain the workforce on worse conditions or discharge them in the short term. The affected workers thus often feel they are being "sold down the river." Outsourcing is thus often criticized for violating the American Dream.
[edit] By country
[edit] United States

'Outsourcing' became a popular political issue in the United States during the 2004 U.S. presidential election. The political debate centered on outsourcing's consequences for the domestic U.S. workforce. Democratic U.S. presidential candidate John Kerry criticized U.S. firms that outsource jobs abroad or that incorporate overseas in tax havens to avoid paying their "fair share" of U.S. taxes during his 2004 campaign, calling such firms "Benedict Arnold corporations".

Criticism of outsourcing, from the perspective of U.S. citizens, by-and-large, revolves around the costs associated with transferring control of the labor process to an external entity in another country. A Zogby International poll conducted in August 2004 found that 71% of American voters believed that “outsourcing jobs overseas” hurt the economy while another 62% believed that the U.S. government should impose some legislative action against companies that transfer domestic jobs overseas, possibly in the form of increased taxes on companies that outsource.[35] One given rationale is the extremely high corporate income tax rate in the U.S. relative to other OECD nations,[36][37][38] and the practice of taxing revenues earned outside of U.S. jurisdiction, a very uncommon practice. However, outsourcing is not solely a U.S. phenomenon as corporations in various nations with low tax rates outsource as well, which means that high taxation can only partially, if at all, explain US outsourcing. For example, the amount of corporate outsourcing in 1950 would be considerably lower then today, yet the tax rate was actually higher in 1950.[39]

It is argued that lowering the corporate income tax and ending the double-taxation of foreign-derived revenue (taxed once in the nation where the revenue was raised, and once from the U.S.) will alleviate corporate outsourcing and make the U.S. more attractive to foreign companies. However, while the US has a high official tax rate, the actual taxes paid by US corporations may be considerably lower due the use of tax loopholes, tax havens and attempts to "game the system".[40] Rather than avoiding taxes, outsourcing may be mostly driven by the desire to lower labor costs (see standpoint of labor above). Sarbanes-Oxley has also been cited as a factor for corporate flight from U.S. jurisdiction. Policy solutions to outsourcing are also criticized.
[edit] Outsourcing to the Philippines

Awarded as the top outsourcing destination for the years 2007 and 2009,[41] the Philippine government has implemented several laws that will grant tax holidays and other benefits to multinational companies who wish to setup operations in the country. It has export processing zones all over the country and is currently the host of several manufacturing firms including Texas Instruments, MOOG and Microsoft.

The country also boasts of a high literacy rate, thereby providing a large base of skilled workers. Also, most citizens are fluent in speaking English so foreigners do not have trouble communicating. Most outsourced work to the Philippines consists of customer support services, web development and website design.
[edit]

Taking your stick and shoving it firmly in all your loyal emplyee's asses.

Company A sub-contracts Company B to perform a specific function for Company A.

It is done to avoid employing someone to do that specific job so that they do not have to take responsibility for that employee even though that person is working for them.

A company that is located in your home country but they have their customer support service located in another country. I was with a broadband provider in 2007, it gave me a lot of problems so when I phoned up customer support to get it fixed, I was talking to a guy in India.

Having one or more processes of a business executed at a different location (usually by a third party service provider).

Having outside people come in to do a job that was once done by a companies own employees

outsourcing processes related not only to business such as payroll, inventory and the like. But now, it reaches to a lot of functions and behavior that can benefit not only the business itself but also the employees. And also, the use of outsourcing can now adopt in terms of financial and administration (F&A)processes, human resources(HR), and costumer care activities. By this actions, it considered as a main business strategy to achieve the mission and goal of the business.

Outsourcing is an online industry that caters the company's needs. From the marketing , sales, finance etc. Those are the departments that the outsourcing company needs to work for.

Outsourcing is an organization that entering into a contract with another organization to operate and manage one or more of its business processes. It is the giving back the information through web. As matter of fact there ar ealot of outsource companty in the world. Well, I've tried this site once and it help a lot on how to solve some errors in my business. This site outsourceit2philippines.com will help you for your clarifications.

Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. It reaches to a lot of functions and behavior that can benefit not only the business itself but also the employees. And also, the use of outsourcing can now adopt in terms of financial and administration (F&A)processes, human resources(HR), and costumer care activities. By this actions, it considered as a main business strategy to achieve the mission and goal of the business. The most common form of outsourcing is information technology outsourcing(ITO) and business process outsourcing (BPO).