Outsourcing means hiring a third-party to undertake a non-critical business function to free up in-house resources. The main benefit of outsourcing is allowing businesses to focus on their core business areas – firms will inevitably lack strengths in non-core business areas and so time spent in these areas will be relatively inefficient.
Other proposed benefits of outsourcing including avoiding uncompetitive regulatory environments, high energy and raw material costs and internal savings which can be redistributed into growth of the core business.
Depending on the complexity of the outsourcing arrangements, there may be some degree of formal or legal transfer of assets, staff and intellectual property from one company to another.
The opposite of outsourcing is insourcing, which means taking processes that are currently run by third parties in-house.
Offshoring, or the practice of moving a business process (often manufacturing) to another country to benefit from reduced labour costs, is an example of outsourcing. A related term is co-sourcing, which refers to services performed partly by in-house staff and party by a third-party organisation.
Companies are increasingly using socially responsible outsourcing, which aims to ensure ethical distribution of jobs and association with ethical companies in the outsourcing process.