Why Do Companies Outsource - The Answers

Outsourcing can be described as the strategy of hiring outside help to carry out tasks that were traditionally performed in house. Many companies are opting to outsource a number of their functions. The most commonly outsourced functions include data entry, bookkeeping, recruitment services, some IT functions, training and secretarial services. A question that is asked sometimes is why do companies outsource?

One answer to the question why do companies outsource is the reduction of cost. There are major cost reductions in labor costs, for instance when labor is outsourced to countries with lower wages. A country like India is a major outsourcing destination. Wages there tend to be a fraction of labor costs in the United States.

Labor is not the only cost that can be reduced by outsourcing. Cost of materials and legal costs are also some of the costs companies hope to reduce by outsourcing. Manufacturing companies benefit greatly by moving their manufacturing plants to locations with lower production costs. Also, the United States has relatively high regulation costs that many companies hope to avoid in other locations.

Why do companies outsource? Another answer to this question is so that they can concentrate on their core business. Outsourcing non-core functions allows a company to focus its resources on its raison d’être. Many companies that outsource do so for this specific reason. When the company is focused, it becomes more flexible and is able to better do what is its main reason for existing.

Another answer to - why do companies outsource - is so as to find resources that are not available locally. It is sometimes necessary to outsource to fill a position in your company, and the requirements of the particular job cannot be met by applicants locally. You may therefore need to hire an expatriate to come in and work for. Outsourcing widens the pool of skilled professionals as you can hire from any country.

Outsourcing also enables companies to achieve economies of scale. This arises from the volumes a company specializing in a particular service or product is able to achieve. This specialization not only results to lower costs per unit, but also to better products or services.

Americans do ask the question why companies outsource offshore particularly during this period of economic downturn. A lot of offshore outsourcing has countries like the Philippines and India being the biggest beneficiaries.

Job losses for Americans are a direct result of outsourcing offshore and this makes them very nervous about job security, particularly for workers in fields that are being outsourced more and more. However, the American economy is growing even in the face of ever increasing offshore outsourcing. Economic growth results in the creation of more jobs. So, never ask why do companies outsource, it has more benefits than disadvantages.