What is Outsourcing? - Definition & Benefits - Study.com

Outsourcing occurs when a company retains another business to perform some of its work activities. These companies are usually located in ... forTeachers forSchools forWorkingScholars® forCollegeCredit LogIn SignUp Menu forWorkingScholars® forCollegeCredit Plans Plans Courses Courses FindCoursesbySubject Science Math Business Psychology History English SocialScience Humanities Spanish ProfessionalDevelopment ByEducationLevel College HighSchool MiddleSchool TestPrep PopularTests… PopularTests SAT ACT TOEFL GMAT GRE CLEP GED ASVAB RealEstate TeacherCertification… TeacherCertification AEPA CEOE CSET/CBEST FTCE GACE ILTS MTEL MTLE MTTC MoGEA/MEGA NES NYSTCE OAE Praxis RICA TExES VCLA WEST Nursing… NursingTests HESI TEAS NCLEX PAXRN CNE OtherTests… OtherTests AP ASCP ASWB Accuplacer CHSPE CTEL DSST Finance FSA HSPT ISEE MBLEx NCE PERT PHR SHSAT TASC TECEP UExcel Exploreover 4,600 videocourses BrowseAllCourses SAT ACT TOEFL GMAT GRE CLEP GED ASVAB RealEstate AEPA CEOE CSET/CBEST FTCE GACE ILTS MTEL MTLE MTTC MoGEA/MEGA NES NYSTCE OAE Praxis RICA TExES VCLA WEST HESI TEAS NCLEX PAXRN CNE AP ASCP ASWB Accuplacer CHSPE CTEL DSST Finance FSA HSPT ISEE MBLEx NCE PERT PHR SHSAT TASC TECEP UExcel Credit Credit CreditOptions CreditOptions OnlineCollegeCredit HighSchool&GED CertificatesofCompletion HowitWorks TransferCredit TransferCredit AllTransferCredit FindYourSchool CollegeCoursesforCredit TransferringCredit HowItWorks EarnTransferableCredit&GetyourDegreefast Learnmore ContactSupport LessonTranscript Instructor: ShawnGrimsley Showbio Shawnhasamastersofpublicadministration,JD,andaBAinpoliticalscience. Outsourcingiswhenacompanysubcontractsanothertodosomeofitsworktasks.Learnthedefinitionandbenefitsofoutsourcingandseeanillustrationofthisconceptthroughanexample. Updated:09/15/2021 Createanaccount WhatIsOutsourcing?Outsourcingoccurswhenacompanyretainsanotherbusinesstoperformsomeofitsworkactivities.Thesecompaniesareusuallylocatedinforeigncountrieswithlowerlaborcostsandalessstrictregulatoryenvironment. Anerroroccurredtryingtoloadthisvideo. Tryrefreshingthepage,orcontactcustomersupport. YoumustcCreateanaccounttocontinue watching Registertoviewthislesson Areyouastudentorateacher? Iamastudent Iamateacher CreateYourAccountToContinueWatching Asamember,you'llalsogetunlimitedaccesstoover84,000 lessonsinmath,English,science,history,andmore.Plus,getpracticetests,quizzes,andpersonalizedcoachingtohelpyou succeed. Getunlimitedaccesstoover84,000lessons. Tryitnow Itonlytakesafewminutestosetupandyoucancancelanytime. Alreadyregistered?Loginherefor access  Back WhatteachersaresayingaboutStudy.com Tryitnow Alreadyregistered? Loginhereforaccess Comingupnext: WhatisPayrollTax?-Definition&Example You'reonaroll.Keepupthegoodwork! TakeQuiz Watch NextLesson  Replay Justcheckingin.Areyoustillwatching? Yes!Keepplaying. Yournextlessonwillplayin 10seconds 0:01WhatIsOutsourcing? 0:17Benefits 2:11Example 2:59LessonSummary Save Save Save Wanttowatchthisagainlater? LoginorsignuptoaddthislessontoaCustomCourse. LoginorSignup Timeline Autoplay Autoplay Speed Speed 28Kviews Video Quiz Course 28K views BenefitsOutsourcingcanprovidesomesignificantbenefitsforcompanies.Advantagesofoutsourcinginclude: Lowerlaborcosts.Companiestypicallyoutsourcetobusinessesindevelopingcountrieswherethecostoflaborissignificantlycheaper.Lowerlaborcostswillimprovethecompany'sbottomline. Lessregulations.Developingcountriesoftenhavealowlevelofregulatoryrestrictions,whichcanalsoreducethecostofoperationsandincreaseproductivity.Forexample,theremaynotbelimitsonovertimeoronwork,health,andsafetyissues. Focusoncorecompetencies.Companiesthatoutsourcelower-levelwork,orworkthebusinessisnotoptimizedtoperform,canthenfocusontheworkactivitiesatwhichtheyexcel.Thiswillincreaseproductivity,efficiency,andeffectiveness.Forexample,atechcompanyinSiliconValleymaybebetteroffoutsourcingitsmanufacturingoperationstoacompanyinChinasoitcanfocusonresearchanddevelopment. Reducedoverhead.Outsourcingcanalsoreduceacompany'soverheadcostsbecausetheoutsourcingcompanyusesitsownfacilities,equipment,andpersonneltoperformthework.Infact,it'stheoreticallypossibletoengageinmassivemanufacturingventuresoutofaroomofyourhouseifyououtsourceallthemanufacturingtoafactoryoverseas. Flexibility.Outsourcingmeansthatacompanycanstayleanandmean,whichmakesiteasiertoadapttochange.Forexample,companiesdon'thavetoinvestabunchofmoneyandresourcesintoanewplantandequipmentthatmaybecomeobsoletequickly.Instead,theycanpassthatriskofftotheoutsourcingfirms. Intheend,alloftheseadvantagestendtoleadtothepossibilityofaveryefficientandstreamlinedfirmthatfocusesondoingwhatitdoesbestandoutsourcingactivitiesthatothersdobetter.Thisresultsinlowercosts,greaterproductivity,andincreasesinprofits.ExampleLet'spretendthatyouarethepresidentofacomputermanufacturingcompany.YourproductionfacilityislocatedinNorthernCalifornia,butthedownwardpressureoncomputerpriceshasmadelocallaborcostsimpossibletobear.YoudecidetooutsourceassemblyofyournotebooksanddesktopcomputerstoaforeignmanufacturingfirminadevelopingcountryinSoutheastAsia.You'llsaveover80%onlaborcostsrelatedtomanufacturing.You'llhavetopayanadditionalamountofmoneyfortheshippingofcomponentsfromvarioussuppliersandforthetransportofthecompletedproductsbacktotheStates,butyouwillstillsavequiteasubstantialamountofmoney.Moreover,youareabletofocusthehomeofficeonresearch,development,andmarketing,whicheventuallyresultsinan8%increaseinsales.Inayear'stime,yourcompanyhasbecomemuchmoreprofitable.LessonSummaryLet'sreview.Outsourcingoccurswhenacompanyretainsanotherbusinesstodopartofthecompany'swork.Thecompaniesthatperformtheworkareusuallylocatedindevelopingcountries.Benefitsofoutsourcingincludelowerlaborcosts,lessstrictregulations,flexibility,reducedoverhead,andtheabilityforthehomeofficetofocusonwhatitdoesbestwhilelettingothersdothemorelow-levelwork.Ideally,outsourcingwillleadtolowerexpenses,increasesinproductivity,andgreaterprofits. TounlockthislessonyoumustbeaStudy.comMember. Createyouraccount Registertoviewthislesson Areyouastudentorateacher? Iamastudent Iamateacher UnlockYourEducation Seeforyourselfwhy30millionpeopleuseStudy.com BecomeaStudy.commemberandstartlearningnow. BecomeaMember Alreadyamember?LogIn  Back WhatteachersaresayingaboutStudy.com Tryitnow Alreadyregistered? Loginhereforaccess Createanaccount WhatisOutsourcing?-Definition&Benefits Starttoday.Tryitnow Business / CorporateFinance:Help&Review CorporateFinance:Help&Review 13chapters| 186lessons {{courseNav.course.topics.length}}chapters| {{courseNav.course.mDynamicIntFields.lessonCount}}lessons |{{course.flashcardSetCount}} flashcardset{{course.flashcardSetCoun>1?'s':''}} Ch1. IntroductiontoCorporations:Help&... Goto IntroductiontoCorporations:Help&Review Ch2. Stockholders&Stakeholders:Help&... Goto Stockholders&Stakeholders:Help&Review Ch3. BusinessCapital&Investments:Help&... Goto BusinessCapital&Investments:Help&Review Ch4. RaisingCapitalforBusiness:Help&... Goto RaisingCapitalforBusiness:Help&Review Ch5. CorporateSpending&Taxation:Help&... Goto CorporateSpending&Taxation:Help&Review Ch6. FinancialAccounting:Help&Review WhatIsAccounting?-Purpose,Importance&RelationshiptoBusiness 11:20 WhatIsGAAP?-TheGenerallyAcceptedAccountingPrinciples 10:44 UsingtheAccountingEquation:AnalyzingBusinessTransactions 6:25 TypicalProblemswithFinancialInformation 5:24 InternalControlsinAccounting:Definition,Types&Examples 5:52 LimitationsofInternalControlinFinancialReporting 5:57 TheRoleofAuditorsintheAccountingProcess 7:04 YieldCurve:Types&Explanation WhatisDirectPayment?-Methods&Forms WhatIsEquityFinancing?-Definition,Pros,Cons&Examples 13:01 WhatIsEscrow?-Definition&Process WhatisInterestRate?-Definition,Types&History 6:30 WhatIsInventoryTurnover?-Definition,Formula&Calculation 4:24 WhatisLegalTender?-Definition&Laws WhatIsNeedsAssessment?-Definition&Examples 5:33 WhatIsOperatingBudget?-Definition&Examples 4:52 WhatisOutsourcing?-Definition&Benefits 3:34 4:22 NextLesson WhatisPayrollTax?-Definition&Example WhatisPerCapitaIncome?-Definition&Example 3:46 WhatIsResidualIncome?-Definition,Model&Formula 4:19 WhatisRetailSelling?-Techniques&Process 4:36 CFACodeofEthics CFAStandardsofProfessionalConduct WhyEthicalInvestingisImportant WhatistheDifferenceBetweenLegal&EthicalStandards? 3:53 WhatisEBITDA?-Definition&Formula 4:12 RelatedPartyTransactions:Definition&Examples 6:56 EnterpriseValue:Definition&Formula EquityValue:Definition&Formula MarketCapitalization:Definition&Formula 3:57 LBOModel:Steps&Example Time-WeightedRateofReturn:Definition&Formula Risk-AdjustedReturn:Definition&Formula Risk-AdjustedReturnonCapital(RAROC) 8:49 FloatingExchangeRate:Definition&Examples CashFlowHedge:Example&Effectiveness CashFlowHedgevs.FairValueHedge 5:33 FairValueHedge:Definition&Example WhatisCostSaving?-Definition&Examples DifferentialRevenue:Definition,Formula&Example DifferentialIncome:Definition&Formula ActivityAnalysisinAccounting:Definition&Example TotalLandedCostvs.TotalCostofOwnership TotalCostofOwnership:Definition,Components&Examples TotalCostofOwnership:Importance&Benefits Goto FinancialAccounting:Help&Review Ch7. FinancialStatements:Help&... Goto FinancialStatements:Help&Review Ch8. AnalyzingFinancialStatements:Help&... Goto AnalyzingFinancialStatements:Help&Review Ch9. Government-BusinessRelations:Help&... Goto Government-BusinessRelations:Help&Review Ch10. Securities&Anti-TrustLaws:Help&... Goto Securities&Anti-TrustLaws:Help&Review Ch11. AccountingRisk&Return:Help&... Goto AccountingRisk&Return:Help&Review Ch12. Options,Bankruptcy&Corporate... Goto Options,Bankruptcy&CorporateFinance Ch13. Reform&EmergingGlobalMarkets Goto Reform&EmergingGlobalMarkets WhatisOutsourcing?-Definition&BenefitsRelatedStudyMaterials RecommendedLessonsandCoursesforYou RelatedLessons RelatedCourses RelatedLessons FactorsAffectingtheDecisiontoOutsource StrategiesforMaintainingBusinessRelationships ThePoliticsofBalkanization DistributionOutsourcing:Advantages&Disadvantages Under-orOver-AppliedManufacturingOverhead Fiscalvs.MonetaryPolicy|WhatisFiscalPolicy? SweatshopsandChildLabor WhatIsOffshoring?-Definition,Advantages&Disadvantages CanadaLessonforKids:PhysicalRegions&Map MaterialsPlanning:Process,Overview Globalization,Outsourcing&Insourcing:ImpactofTechnologyonCareers MajorTrends&DevelopmentsinInternationalBusiness WarehouseManagementSystems:Types&Benefits LogisticPostponement:Definition&Purpose StepsintheMaterialRequirementsPlanningProcess FrederickHerzberg'sTheoryofMotivation:Overview WhatAreCommodities?-Definition,Types&Examples Procurement&SupplierSelectionProcess SourcesofLong-TermFinancing WhatisSoleProprietorship?AdvantagesandDisadvantages RelatedCourses ILTSBusiness,Marketing,andComputerEducation(171):TestPracticeandStudyGuide HumanResourceManagement:HelpandReview CollegeMacroeconomics:HomeworkHelpResource IntroductiontoMacroeconomics:HelpandReview UExcelBusinessEthics:StudyGuide&TestPrep CollegeMacroeconomics:TutoringSolution BusinessManagement:Help&Review NYSTCEBusinessandMarketing(063):PracticeandStudyGuide MarketingforHospitalityandTourism TimeManagementforLawyers TECEPPublicRelationsThought&Practice:StudyGuide&TestPrep Finance301:CorporateFinance Business100:IntrotoBusiness FTCEBusinessEducation6-12(051):TestPractice&StudyGuide ILTSSocialScience-Economics(244):TestPracticeandStudyGuide SupplementalBusiness:StudyAid PrinciplesofMarketing:HelpandReview UExcelOrganizationalBehavior:StudyGuide&TestPrep DSSTHumanResourceManagement:StudyGuide&TestPrep IntroductiontoHumanResourceManagement:CertificateProgram Related RecentlyUpdated Popular ExploreSubjects HomeworkHelp BrowsebyCourses BusinessCourses FinanceCourses TransferableCreditCourses CertificatesCourses StudyCourses Business106:HumanResourceManagement QuantitativeAnalysis PrinciplesofMarketing:CertificateProgram PrinciplesofManagement:CertificateProgram APMacroeconomics:ExamPrep SupplementalBusiness:StudyAid Economics101:PrinciplesofMicroeconomics Accounting101:FinancialAccounting Business100:IntrotoBusiness HumanResourceManagement:HelpandReview CollegeMacroeconomics:HomeworkHelpResource IntroductiontoMacroeconomics:HelpandReview UExcelBusinessEthics:StudyGuide&TestPrep BrowsebyLessons MakingConnectionsinHistory AnalyzingHistoricalDocuments&Images IdentifyingCause&EffectinHistoricalDocuments FundamentalPrinciplesofAccountingInformationSystems WhatIsaSemiconductor?-Devices,Properties&Fundamentals Quiz&Worksheet-SupplyChainManagementPros&BestPractices Quiz&Worksheet-ProjectQualityManagementProcess&Metrics Quiz&Worksheet-ComponentsofStrategicPlansinBusiness Quiz&Worksheet-CharacteristicsofRegionalIntegration Quiz&Worksheet-Resource-Allocators Business-GovernmentRelations Business'InfluenceonthePoliticalEnvironment CorporateSocialResponsibility&Citizenship Business&theCommunity TheMedia'sImpactonBusiness LatestCourses NextGenNCLEX-PNStudyGuide&Practice NextGenNCLEX-RNStudyGuide&Practice TExESCoreSubjectsEC-6(391):Practice&StudyGuide TExESSchoolCounselor(252):Practice&StudyGuide VirginiaSOL-USHistory1865toPresent:TestPrep&Practice EducationalTechnologyOverview SocialPsychology&theInternet Diseases,Infections&YourImmuneSystem InverseTrigonometricFunctionsandSolvingTrigonometricEquations Computer&InformationSecurity RoleofStudentSupportinOpen&DistanceLearning TExESPrincipalExamRedesign(068vs.268) TeacherSalarybyState ESLResourceGuideforTeachers WhatisaHomeschoolCo-op? HowtoStartHomeschoolingYourChildren AddressingCulturalDiversityinDistanceLearning LatestLessons WhatisMemoryAccessViolation? WhatIsBooleanLogic?-Definition,Diagram&Examples AggregateExpenditure:Definition,Function,Components&Formula BrainAnatomy:LessonforKids NetworkLogging:Definition&Tools LessThanZerobyBretEastonEllis:Plot&Quotes ArabesqueDesigns&Patterns:Islamic&Western Quiz&Worksheet-ChristopherMarlowe'sHeroandLeander Quiz&Worksheet-NormalCosting Quiz&Worksheet-WilliamHerschelFacts Quiz&Worksheet-SomethingChildishButVeryNaturalOverview Flashcards-RealEstateMarketingBasics Flashcards-PromotionalMarketinginRealEstate TeachingStrategies|InstructionalStrategies&Resources CommonCoreELAStandards|AGuidetoCommonCoreELA PopularCourses PrenticeHallPhysicalScience:OnlineTextbookHelp PrenticeHallPhysicalScience:OnlineTextbookHelp CollegePreparatoryMathematics:HelpandReview PublicSpeakingSyllabusResource&LessonPlans AlgebraIICurriculumResource&LessonPlans ElementsofGrammar:HelpandReview Earth'sClimateandComposition Quiz&Worksheet-SamueldeChamplain Quiz&Worksheet-NullificationCrisisof1832 Quiz&Worksheet-Integrative&DistributiveBargainingStrategies Quiz&Worksheet-CompoundAntecedents Quiz&Worksheet-LISP(ListProcessing)Language PopularLessons GeospatialDataAnalysis:Definition&Example MemoryReconsolidation:Definition,Theory&Example WhatareProfessionalReferences? AncientHistoryDocumentaries NCBTMBRecertificationRequirements HowMuchDoestheLSATCost? HowtoLearnJava NCBTMBExamInformation UnrestinVietnamDuringtheEisenhowerYears:LearningObjectives&Activities AveragePSATScore USMLEStep3Registration ReadingComprehensionQuestionsontheLSAT Math Math-Videos Math-Quizzes Math-Questions&Answers SocialSciences SocialSciences-Videos SocialSciences-Quizzes SocialSciences-Questions&Answers Science Science-Videos Science-Quizzes Science-Questions&Answers Business Business-Videos Business-Quizzes Business-Questions&Answers Humanities Humanities-Videos Humanities-Quizzes Humanities-Questions&Answers Education Education-Videos Education-Quizzes Education-Questions&Answers History History-Videos History-Quizzes History-Questions&Answers ArtandDesign ArtandDesign-Videos ArtandDesign-Quizzes ArtandDesign-Questions&Answers TechandEngineering TechandEngineering-Videos TechandEngineering-Quizzes TechandEngineering-Questions&Answers HealthandMedicine HealthandMedicine-Videos HealthandMedicine-Quizzes HealthandMedicine-Questions&Answers Whattypesoforganizationalactivitiesdoyoubelievearemostlikelytobeoutsourced?Whattypesareleastlikely?Howcan/shouldabiblicalworldviewbeapplied? BKF.comprovidesbanksaccesstosophisticatedfinancialinformationandanalysisviatheweb,enablingthemtoinstantlyevaluatebothpersonalandcommercialloanapplications.Tobetterfocusonit Identifyareal-lifeoutsourcingdecisionthathasbeenmade.Identifythespecificreasonsfortheoutsourcing.Ifinformationisavailable,discusstheresultsoftheoutsourcingdecision(jobslo PenagosCorporationispresentlymakingpartZ43thatisusedinoneofitsproducts.Atotalof5,000unitsofthispartareproducedusedeveryyear.Thecompany'sAccountingDepartmentreportsthe StanFawcett'scompanycurrentlypurchasesagearassemblyfromSaltLakeSupply,Inc,at$3.80perunitwithaminimumorderof3000units.Stanisconsideringinsteadofproducingthegearassembly StanFawcett'scompanycurrentlypurchasesagearassemblyfromSaltLakeSupply,Inc,at$4.20perunitwithaminimumorderof3,000units.Stanisconsideringinsteadproducingthegearassemblyhi JupiterComputerCompanyhasbeenpurchasingcarryingcasesforitsportablecomputersatapurchasepriceof$67perunit.Thecompany,whichiscurrentlyoperatingbelowfullcapacity,chargesfacto Toyota?ssafetyrecalls?Aretheyindicatorsofproblemsassociatedwithqualitymanagement,outsourcingorsimplyindicatorsofsettinginconsistentcompetitiveprioritiesinoperationsstrategy?To Theaccountingdepartmentofalargecreditcardcompanyhasassembledthefollowingdataforits"CallCenter"becauseitisconsideringoutsourcingthecenter.Currently,10,000sq.ftofspaceisr VernonCompanymakesandsellslawnmowersforwhichitcurrentlymakestheengines.Ithasanopportunitytopurchasetheenginesfromareliablemanufacturer.Theannualcostsofmakingtheengines Createanaccounttostartthiscoursetoday Usedbyover30millionstudentsworldwide Createanaccount Likethislesson Share Exploreourlibraryofover84,000 lessons Search Browse Browsebysubject CollegeCourses Business English ForeignLanguage History Humanities Math Science SocialScience SeeAllCollegeCourses HighSchoolCourses AP CommonCore GED HighSchool SeeAllHighSchoolCourses OtherCourses College&CareerGuidanceCourses CollegePlacementExams EntranceExams GeneralTestPrep K-8Courses SkillsCourses TeacherCertificationExams SeeAllOtherCourses Upgradetoenroll × Enrollinginacourseletsyouearnprogressbypassingquizzesandexams. Trackcourseprogress Takequizzesandexams Earncertificatesofcompletion Youwillalsobeableto: CreateaGoal Createcustomcourses Getyourquestionsanswered UpgradetoPremiumtoaddallthesefeaturestoyouraccount! UpgradeNow UpgradetoPremiumtoaddallthesefeaturestoyouraccount!