What is Outsourcing?


The word ‘Outsourcing’ comes from a combination of two words – out & sourcing – meaning thereby that any task one cannot do oneself is getting accomplished from an outsider, that is sourcing from outside. It has a wide ramification and plays a vital role in domestic, commercial as well as in industrial applications.


What is Outsourcing at Domestic and Commercial Fronts?

At domestic level, outsourcing can be defined as an activity similar to engaging a servant to get the cleaning, washing and related tasks accomplished. At the commercial level, office cleaning, printing of documents, getting the implements like air-conditioning and refrigeration systems, heating systems and other delicate office equipment serviced, repaired in case of their malfunctioning come under outsourcing.  In many organizations, unless there is sufficient manpower and equipment to get the aforesaid tasks which invariably is not, outsourcing is the only option. It saves considerable time besides giving opportunity for other organizations or business establishments to thrive by rendering such services.


What is Outsourcing at Industrial Front?

At the industrial level, especially in large engineering and manufacturing industries, the technical staff will be busy in building the machinery or equipment and hence there may not be provision for carrying out production of small components or machining and allied tasks or such activity may not be found to be cost effective when outsourcing is the only solution available. Hence, the industries will scrutinize the capability of a number of small units and shortlist them to provide such services on regular contracts.


Reasons for Outsourcing by Organizations

From the foregoing, we see that outsourcing is an activity carried out by an external source – it can be an individual or an organization depending on the nature of work involved. Organizations into manufacturing and selling products/services deploy sales personnel to market which is outsourcing since organizations with employees other than those in selling and marketing cannot sell what it produce.


Outsourcing is not limited to domestic  level for manufacturing or marketing; rather it can be even at international level where clearing and forwarding activities from the sea ports, airports or rail heads invariably have to be carried out by external agencies. When a case is fought in a court of law, one cannot do on one’s own; rather one has to go through a lawyer or advocate which is again outsourcing. Outsourcing has become a major subject in everyday life of individuals or business magnates and it is a task which cannot be avoided or substituted.


Necessities of Outsourcing

With globalization of businesses, any overseas organization unwilling to start its own operations by setting up branch in other countries for various reasons, will invariably resort to outsource their requirement to other organizations in the overseas countries to meet their requirements.


Contractors are one among the many considered to be outsourced agencies. They provide multiple services to the organizations which may be doing only a fraction thereof simply for the reasons that the organizations are required to pay only for the services taken out of them with no statutory benefits which are to be paid in case  the organizations choose to get the services done by themselves  by deploying manpower. Any rejection in the supply due non compliance of the terms or products/services not matching the job specifications are borne by the contractors with no loss to the organizations while if the organizations get the same tasks done by their own staff, have to bear the loss though in certain cases, the employee/s responsible for causing damage/loss may be asked to make good the loss. Thus, it can be seen that financial losses and burdens can be minimized by outsourcing several tasks to outside contractors/agencies specializing in such activities.


Even small organizations with handful of employees can hardly function without outsourcing. From accounting to payroll preparation in the absence of any software, preparation of final accounts and payment of taxes in the absence of proper qualified personnel require outsourcing to complete such statutory obligations.


Disadvantages of Outsourcing

When we have talked favorably enough about outsourcing, it has also its own disadvantages. While organizations rely on external agencies or contractors to get their requirement in the form of supply of goods or services, non-compliance, wholly or partially, by such agencies may have adverse effects in various ways which may even result in earning a bad reputation from their clients. Supply of substandard quality raw materials/components may end in turning out inferior quality products and its repercussion may be disastrous to the image of the organizations resulting in sustaining huge loss.


Therefore, organizations have to exercise adequate cautions while outsourcing to contractors for their requirements and for this, the organizations will do well by imposing stringent measures besides insisting heavy security deposits so as to safeguard themselves by getting compensated from such losses besides switching to alternative source/s. Also read the difference between outsourcing and offshoring