Stripped of its technical terms, outsourcing is basically the practice of one company to contract another company to provide the services that could have been performed by their own staff. There are many reasons why companies are now on the bandwagon of having some of their services done by others. (It had been an old practice, really.) These outsourced services passed on to other companies are usually call center services, e-mail services, and payroll. These particular jobs are part of the outsourcing trend practiced by many companies these days.
One of the main reasons why companies are into outsourcing is diminished company resources, both in financial terms and in manpower costs. When a company expands (which can be sudden), the growth can start to eat up on the companies resources.
Financially, the company might not be able to match the growth with the needed infusion of money to sustain the expansion. This holds true with their human resources as well.
With the growth, manpower might be sucked up with the new growth and diminish the company's productivity in its core areas. The service-providing companies can do the work for less costs (so not over-stretching most of the company's resources), and has the manpower to do it.
Efficiency sometimes suffers once there is a sudden expansion that can not be absorbed by the company's present staff setup and other resources. If, for instance, there is a huge demand for huge number of their products, other departments may not be up to it.
The procurement department may need so many men to do the buying of raw materials, for instance. Outsourcing the purchasing department is a good move and costs less.
Other reasons could be that overhead costs might be disastrous to the company's budget and current plans. Or, perhaps an offshoot to its growth is impossible to meet. If the company had grown to such an amount that it needs a bigger office, outsourcing the functions of the planned new additional staff is cheaper. (Transfer of the whole office to someplace bigger is definitely expensive in time, effort and money values.)
Companies are also bound to experience production demands that come and go in cycles within a year. Outsourcing additional resources during times of so much demand can ease up the company's problems.
The good part of the deal is that the contracted periods of having these extra jobs outsourced can follow the cyclical production demands. (A toy company's production department might need more manpower in the middle months of the year to produce the goods needed for, say, Christmas or some holidays.)
On the other hand, this new business model of parceling some important work aspects of a company to another had sparked a mini-controversy which had not been thoroughly resolved even until now. Definitely, there are those who are not fully convinced of the viability of such an arrangement.
The largest argument against this deal is actually focused on the relationship of the company and its clients. In short, it may invite dissatisfaction from client side. Reasons could range from lower quality of work output, unnecessary dilution of company-client trade secrets, etc.
Control is also put to the test. Some aspects of the company are in danger of spinning out of the company's control since the outsourced company conducts the decisions that would have been better handled by the parent company.
Some clients are not fully convinced that the outsourced company can function as efficiently as the original contracted company. If they do (most companies can, in practice), clients feel it might be better to deal with the new company rather than their old supplier or contracted business partner.
Riding on this threat is the mounting danger of delayed communications that causes delayed implementation. Without proper management and apportioning of responsibilities, there is tension that confusion might set in.
Outsourcing had also allowed a political issue to float around – social responsibility. It is said that with more and more companies allocating jobs to foreign countries, the people of the parent company will have reduced opportunities. While this debate and questions are still up in the air, more and more companies are outsourcing some of their work. Offhand, companies and their managers think the current trend is the result of the current situation in commerce and trade all over the world. At the moment, outsourcing looks like it will stay for a while.