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Outsourcing in the Business Environment

OUTPUT
SEE Operations Management

OUTSOURCING IN THE
BUSINESS
ENVIRONMENT
Outsourcing (or contracting out) is a procedure involving
the delegation of noncore operations or jobs from internal
production to an outside resource. Outsourcing is a busi-
ness decision that is often made to focus on core compe-
tences. A subset of the term, offshoring, also implies
transferring jobs to another country, either by hiring local
subcontractors or building a facility in an area where labor
is cheap.
At one time, companies used outsourcing as a way to
solve problems of high costs, redundant positions, and
poor job skills. In the 1990s the reasons for outsourcing
changed. Companies started to outsource to gain an
advantage over their competitors. They wanted to
improve their processes and build long-term relationships
with their overseas partners. Currently, many companies
see outsourcing as an indispensable business practice
engrained in their corporate philosophy. Research has
found that the next wave of globalization will be focused Employees at a call center in Bangalore, India, provide service
on outsourcing information technology (IT) depart- support to international customers. © SHERWIN
ments. CRASTO/REUTERS/CORBIS
When an organization decides that more personnel
are needed, it must consider whether to hire more
employees, contract workers, or outsource the functions.
The focus is on efficiency and cost-effectiveness when their venture investors, were turning to outsourcing just
deciding whether to outsource. This decision-making like some big multinational companies. While 15 percent
process involves internal analysis and evaluation, needs of the 145 large companies surveyed by Forrester Research
assessment and vendor selection, and implementation and Inc. early in the twenty-first century revealed that out-
management. sourcing was a permanent part of the offshore strategy, an
The procurement of services or products from an informal survey of venture capitalists suggested 20 to 25
outside supplier or manufacturer in order to cut costs, percent of the companies invested had a comparable com-
outsourcing is one of the hottest emerging trends in busi- mitment.
ness. Public and private sector agencies, lacking a clear, The changing face of business and the need to stay
accurate way to measure the number of jobs in the United ahead in the game forced companies to look for ways to
States that have been lost to outsourcing, or how many reduce costs. As a result, outsourcing has become the solu-
might be lost in the future, have yet to agree on the num- tion for both the private and public sectors. The growing
ber of jobs that have been or will be affected. According to
market and the globalization of business at the start of the
the Center for American Progress in 2004, the variation in
twenty-first century have resulted in many changes for
the estimates shows the uncertainty and the difficulty in
measuring these numbers. businesses all over the world. In 2004 Toyia Bulla wrote
that the information age has created an increased level of
As white-collar jobs move away with increasing regu-
larity, a debate that once focused on the loss of manufac- competition in response to competitive pressures. Both
turing to foreign outsourcing once again became rampant. private and public sector institutions have turned their
As companies rush to shed costs, outsourcing remains one attention to the core competencies relevant to their busi-
of the fastest-growing solutions. Start-ups, encouraged by ness or industry.

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 573