Business Law – What Is Outsourcing?
Outsourcing is the process of contracting with a third party and is often called sub-servicing. This contracting is usually performed in-house to an external provider. Therefore two companies will enter into a contractual agreement generally involving an exchange of services and payment. One problem that has arisen in business today is the ability for companies to outsource to supplies outside the United Kingdom which is commonly referred to as offshoring or offshore outsourcing. There are also other words relating to outsourcing such as strategic outsourcing, nearshoring and multisourcing.
Companies usually get involved with outsourcing when wanting to have the benefits of certain things or address specific issues that may arise. Cost savings which is the decreasing of costs of services to the company can be done through offshoring. This involves outlining quality levels, re-negotiation, lowering the scope, cost re-structuring and re-pricing. Often companies outsource their IT support to specific companies that are experts in IT services, which shows the focus on core business. Outsourcing helps with cost restructuring which changes can offer a move from fixed costs to variable costs which makes variable costs more foreseeable. It can improve quality of service through contracting out the service the company has provided and as well improves knowledge through access to intellectual property, and wider experience.
Outsourcing enables a company to focus on what the company specialises in, become more cost effective, be flexible and manage and maintain the growth of the company sufficiently. It enables the company to gain access to other companies technologies and expertise. If outsourcing is managed productively, it can really assist a company to reduce costs and develop effective ways of using knowledge and resources from other companies. However, a company must think about whether the advantages of outsourcing will outweigh the costs of the outsourcing process. It is important that the outsourcing process is properly managed and monitored and that anything done to the company will reflect directly on the company.
Outsourcing is very common now for companies outsourcing non-strategic or complex tasks to enable admission to the best practices and new technology. Outsourcing will mean that the company will benefit from businesses economies of scale and investment in expert employees whilst still concentrating on specific business activities. Outsourcing endeavour such as payroll, secretarial services and recruitment will give a business entry to specific skills, but will only be paid for when you need to use these services. You could even outsource for non-business tasks such as catering and cleaning.