Benefits of Outsourcing Companies

Outsourcing is when a company uses a third party to carry out some of its work. This usually involves work other than the company's own core activities. The potential benefits of outsourcing include lower costs, access to greater skills and experience and more efficient scaling of the company's own business activities.

Specialization

Outsourcing a specific activity can be effective if the third-party firm specializes in that activity. Then it will almost certainly have greater experience, better contacts and better-trained staff for that activity than the company using outsourcing. This is true of many areas of business that don't relate to a company's own products and services. For example, a butcher, a baker and a candlestick maker could all benefit from the same firm performing accounting or marketing services on an outsourced basis.

Economies of Scale

In many cases a company offering outsourcing services will be larger than its clients. Even when this isn't the case, the company offering the services will be dedicating more resources to the specific activity in question. For example, the butcher, baker and candlestick maker might each have to hire an in-house accountant at full-time rates but not really have enough work for the accountant to fill her hours. If all three firms outsourced their accountancy, the outsourcing company might be able to assign two accountants to carry out the work needed for all three firms.

International Savings

With some areas of work, a company may be able to outsource some elements of its business to an overseas company. It may therefore save on costs as a result of lower wages in the foreign country. This can be particularly effective in areas such as communications where the physical location of a person carrying out work does not affect the ability to perform the required task.

Scaling

Outsourcing business activities can help a company respond quickly and efficiently to increases in demand. For example, a candlestick maker may own a van to deliver candles to clients. If the van is running on a full schedule and then sales rise by 10 percent, the candlestick maker has a problem: either he turns down the extra business, or he has to buy a new van that will only be used for a short time each day. Outsourcing deliveries would mean that an increase in sales won't present this problem: The outsourcing company could combine the extra candles with the products of other clients to produce a full load for the van and driver.

References

• Information Week: Outsourcing's Benefits May Be More Than Monetary
• Businessweek: Outsourcing Benefits U.S. Workers, Too