Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Outsourcing

What it is:

Outsourcing is the process of contracting a portion of a company's activities to third-party providers.

How it works (Example):

Outsourcing involves subcontracting parts of a company's value-chain, (i.e.  steps in the design, supply, production, marketing, sales, and services processes) to other companies or contractors that specialize in those activities. Through outsourcing agreements, the client company hires separate companies to perform specific tasks in the value-chain on its behalf.  Often, the work is performed under the name of the client. 

The kinds of outsourcing work performed vary widely across industry sectors.  Some common outsourcing activities include: human resource management, facilities management, supply chain management, accounting, customer support and service, marketing, computer aided design, research, design, content writing, engineering, diagnostic services, and legal documentation.
 

Why it Matters:

The decision to outsource usually stems from a focus on lowering costs and improving the efficient allocation of resources within a company.  Outsourcing allows a company to redirect its attention to its own competencies and hire outside resources to handle other tasks.   However, outsourcing requires a high degree of standardization and management control in order to be effective.    

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...