DEFINITION of 'Outsourcing'

A practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.


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BREAKING DOWN 'Outsourcing'

Outsourcing is an effective cost-saving strategy when used properly. It is sometimes more affordable to purchase a good from companies with comparative advantages than it is to produce the good internally. An example of a manufacturing company outsourcing would be Dell buying some of its computer components from another manufacturer in order to save on production costs. Alternatively, businesses may decide to outsource book-keeping duties to independent accounting firms, as it may be cheaper than retaining an in-house accountant.

  1. Fragmentation

    The use of different suppliers and component manufacturers in ...
  2. Right-Shoring

    The placement of a business' components and processes in localities ...
  3. Outside Sales

    The sale of products or services by sales personnel who go out ...
  4. Insourcing

    Assigning a project to a person or department within the company ...
  5. Explicit Cost

    A business expense that is easily identified and accounted for. ...
  6. Opportunity Cost

    1. The cost of an alternative that must be forgone in order to ...
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  1. When is outsourcing a bad alternative to vertical integration?

    Outsourcing is a bad alternative to vertical integration when there are capacity balancing issues. For example, if a business ... Read Full Answer >>
  2. What's the difference between outsourcing and subcontracting?

    Business leaders often blur the lines between outsourcing and subcontracting, but both practices are distinct, and each is ... Read Full Answer >>
  3. What factors in a business most affect its core competencies?

    A business's core competencies are the capabilities that give it an advantage over its competitors. Businesses can maximize ... Read Full Answer >>
  4. What effect has globalization had on international investments?

    Globalization has resulted in greater interconnectedness among markets around the world and increased communication and awareness ... Read Full Answer >>
  5. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>
  6. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>

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