outsource

Outsourcing is the practice of obtaining goods or services from an external organization rather than producing them internally. It involves transferring management and performance of a business process or function to a third-party provider. Typical outsourced activities include information technology, customer support, human resources, accounting, manufacturing, and logistics. Outsourcing can be domestic (onshore), nearshore (in a nearby country), or offshore (in a distant country). The term is often used in conjunction with offshoring, which refers to geographic relocation, while outsourcing refers to the act of contracting.

Companies choose outsourcing for several reasons, including cost reduction, access to specialized expertise, faster time to market, scalability, and strategic focus on core competencies. Decisions typically consider total cost of ownership, service levels, governance, data security, and regulatory compliance. Risks include reduced control over processes, quality variance, dependency on the vendor, confidentiality and IP concerns, cultural or language barriers, and potential hidden or long-term costs.

Common outsourcing models include business process outsourcing (BPO), IT outsourcing, knowledge process outsourcing (KPO), and manufacturing outsourcing. Engagements may be standalone or part of an ongoing relationship, and can involve captive arrangements (insourcing to a sister organization) as well as third-party providers. Management considerations emphasize vendor selection, contract design with clear performance metrics, risk management, change management, and exit or transition planning.

Historically, outsourcing gained prominence in manufacturing and later in information technology and services. The trend has continued with cloud services, automation, and global delivery ecosystems, shaping labor markets and corporate strategies worldwide.