This post is about explanation of outsourcing, offshoring and business process outsourcing. You will also get to know about benefits associated with outsourcing and offshoring. I have explained these terms with the help of straightforward examples for better understanding.
What is Outsourcing
Outsourcing simply means getting your work done by someone other. It is done due to variety of benefits associated with it which we will see afterwards. Let’s understand what is Outsourcing through an example. Let there be a car company – ANN Motors, ANN Motors is new in market and they don’t have human resource and budget to manufacture infotainment systems for their cars. But if they will debut their cars in market without infotainment systems then most likely, nobody will be interested in their products as people prefer cars with feature rich infotainment systems.
So, Now, what’s the solution? The solution is Outsourcing. Now, ANN Motors will contact some good infotainment system manufacturers and discuss its demands and problems with them. After this, ANN Motors will compare solutions and quotes from all the contacted manufacturers. ANN will choose one and get infotainment systems for their cars by the selected entity.
So, what is happening between ANN Motors and that infotainment system manufacturer? ANN Motors is outsourcing its work to that manufacturer, which specializes in manufacturing information systems.
We can also say outsourcing is getting your work or a part of your work done by any outside specialist of that work through a deal often involving monetary benefits for both parties.
What is Business Process Outsourcing
In the Business Industry, Two kinds of work are outsourced: 1) Core activities of a business and 2) Non-Core activities of a business.
Let’s understand these new terms first:
A business organisation’s core activities or core services are those main activities, and business is done on that. Non-core activities are those that are additional and necessary to do but do not get counted in the intellectual properties of a business. For example – If there is a shampoo company, then research and development for making that shampoo is one core activity of that business firm While Maintaining accounts, Payroll Administration, etc., are non-core activities of that business.
Most business firms outsource such non-core business activities to an external agency. Collectively, these non-core activities are known as business processes, which include components such as accounting, human resources, procurement, IT support, etc. and outsourcing these processes gave birth to a new term known as Business Process Outsourcing or BPO.
Some renowned companies in BPO sector are:
- Accenture
- IBM Global Process Services
- Concentrix
- Sitel Group
- Genpact
What is Offshoring
Offshoring is when any company develops its own ancillary in another country and sends its work for processing to the opened ancillary in another country. For example – ANN Motors USA opened ANN Motors India and sent all its business processing work to get done in ANN Motors India. This is offshoring.
Benefits of Outsourcing and Offshoring
Outsourcing
- Concentrate on your primary business activities.
- Minimize workforce expenses.
- Enhance operational efficiency.
- Manage capital expenditures.
Offshoring
- Advantages in terms of cost.
- Temporal variations.
- Flexibility in staffing levels and skill sets.
- Diverse dimensions.
After reading this article, I hope you understand the meaning of offshoring and outsourcing. Thank you for visiting my website.
