What is Outsourcing?

Nov 28, 2011: Outsourcing is the process of contracting out of certain non core or non essential business function of a business to a third party, who has expertise in the field of the outsourced function. Outsourcing is very much similar to offshoring, even though both differ on some grounds. In offshoring the business function is outsourced to an outsourcing service provider located outside the country. For example companies in the US offshores business functions to companies in India, China etc.

What is BPO?

Outsourcing does not necessarily mean offshoring. It may or may not involve offshoring. The term outsourcing is more general in nature, whereas offshoring is specific.

The important driver behind companies going for outsourcing is the huge cost reduction they enjoy as a result of outsourcing their non core business activities. By outsourcing companies are able to focus on their core business functions where they have expertise, while the non essential functions are performed by a third party who are experts in their field.

Outsourcing help companies in turning their fixed cost into variable cost and reduces their effort in maintaining and managing their own workforce and providing them with different benefits. Majority of the companies outsource their business activities to low cost destinations such as India, which help them to attain cost reduction, while not compromising on quality and time lines.

In addition to getting their work done by outsourcing service provider, companies gets the opportunity to enter into new markets with the help of service providers, setting up new offices, and getting an idea of the market.

Types of Outsourcing

Outsourcing can be of different types, and the most important types are Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO), and Finance and Accounts Outsourcing.

In Business Process Outsourcing, companies outsource their non core business functions such as data backup, customer service, and maintenance activities. Other activities that are outsourced include product design, software development, software testing, marketing, and inside sales.

Knowledge Process Outsourcing is a relatively new form of outsourcing where company’s knowledge process related work is given to a third party outsourcing service provider, with specialization and expertise in the field. The outsourced work may include providing technical support, domain expert services, etc.

Finance and Accounts Outsourcing involves outsourcing financial aspects which includes account keeping, reconciliation, auditing etc to professional service providers.

The present global outsourcing industry is worth USD 20 billion, and is growing quite rapidly with the growth of developing economies such as India and China.

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