The origins of the concept of outsourcing go way back in history to the textbook economics publication The Wealth of Nations, Adam Smith's famous treatise that is today the basis for classical economic theory. In essence, what Adam Smith proposed was that if a country can provide goods or services at a cheaper rate than another can produce themselves, it makes complete economic sense to buy it off them instead of trying to produce it themselves. The concept of outsourcing that we know today is essentially an extension of this very primitive concept. Today the outsourcing industry has grown to such an extent that small business too can outsource some of their operations abroad or hire cheap labor in developing countries to do specialized work that would cost much more in their home countries. In fact, today, more and smaller businesses are turning to outsourcing to enable them to compete more effectively with larger, more established corporations. But why outsource? What are the benefits and do these benefits outweigh the costs involved?
One of the key terms used in the outsourcing business world is 'core competencies'. This word is used to denote those activities which a company or corporation conducts that are vital for the functioning of the company or those activities that make the corporation what it is. For example, General Motor's core competency is manufacturing cars. The actual process of manufacturing cars, however, is much more complex. Accounting must be taken care. So must inventory. Handling and coordinating suppliers is another activity that is not directly related with the manufacturing of cars. If General Motor can find a way to get these subsidiary (important but not core) activities done, it can focus on its core competency of making cars. This is where outsourcing comes in. Outsourcing does not necessarily mean off-shoring (the difference being that off-shoring is essentially outsourcing to a foreign country). By outsourcing its subsidiary activities, General Motors can focus on doing what it does best.
A related point is that by focusing on your core competencies, you as company do not have your fingers in too many jars, so to speak. Someone that handles finance very well will handle your finance. Someone that handles supply chain management very well will handle your supply chain management. Not only do you get to do what you do best, other people doing what they do best enhance your business in tremendous ways. You have access to services from other corporations that are specialized in those services. As a result, the world economy, through outsourcing, has become a giant web of corporations servicing each other's needs.
The advantages in terms of customer service are immense as well. Many corporations will specifically outsource their customer care to a third party, the main reason being they do not have the capacity to do it well themselves. By outsourcing their customer care to a corporation specialized in customer care, they ensure that their customers receive the best service. The same applies to delivering of goods to customers. More efficient players at each step of the delivery chain ensure that goods, services and products get delivered to customers on time, every time. At the end of the day, the clear winners are the customers.
Source: EzineArticles
