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Definition - What does Outsourcing mean?

Outsourcing is a business practice in which certain functions required by the business are performed by outside parties on a contract basis rather than the business’s employees. Outsourcing is often perceived as referring to contract work being done overseas, but it refers to all contract work. Many companies outsource important functions, including IT work, as a way to control costs.

Techopedia explains Outsourcing

Outsourcing in the IT industry used to be a rare occurrence due to security concerns. However, it has now become commonplace as Web-based project management software has made managing contract workers much less time consuming. Relatively monotonous tasks such as data entry, basic coding and customer management are increasingly done by contract workers in nations with lower labor costs. Higher-level tasks may still be outsourced, but the contractor is as likely to be within the same country as overseas. As with any emerging trend, outsourcing has pros and cons that make it a controversial subject.

The benefits of outsourcing may be many and varied depending on the company, the economy, the type of business and the services involved. Generally, however, outsourcing reduces the cost of services, supplies and labor. A company may also experience increased efficiency by outsourcing operational expertise that would be too difficult or time-consuming to conduct in-house.

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