Outsourcing

AAA

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.

INVESTOPEDIA EXPLAINS '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.

VIDEO

Loading the player...
RELATED TERMS
  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 ...
RELATED FAQS
  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 >>
Related Articles
  1. Economics

    How does Outsourcing Work?

    Outsourcing is the business practice of hiring people outside a company to perform services that traditionally were performed within the company, by the business’s own employees. Companies typically ...
  2. Markets

    Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.
  3. Investing Basics

    Broadening Your Portfolio's Borders

    Find out what type of international fund might suit your needs in gaining exposure to foreign markets.
  4. Professionals

    Advance Your Career With A Finance Job Overseas

    Many finance jobs have moved overseas, creating exciting opportunities. Find out how to get in on the trend.
  5. Economics

    Globalization: Progress Or Profiteering?

    Proponents of globalization argue that it helps the economies of developing nations and makes goods cheaper, while critics say that globalization reduces domestic jobs and exploits foreign workers. ...
  6. Economics

    Cashing In On Macroeconomic Trends

    Learn to identify the things that may impact your investments down the road.
  7. Economics

    What Is An Emerging Market Economy?

    Emerging markets provide new investment opportunities, but there are risks - both to residents and foreign investors.
  8. Professionals

    Top 10 Ways To Avoid Burnout In Corporate Finance

    Burnout rates in the corporate finance field are extremely high. Find out some of the most common causes, and how to prevent them.
  9. Investing

    Can Europe’s QE Be A Stimulus For U.S. Investors?

    Finding value in today’s markets has been difficult, so many investors are turning to opportunities outside of the U.S. But where should they look?
  10. Economics

    Benefits From A Tango Of China-US Trade and Debt

    China has been accumulating US debt for many decades. Here's why it continues to do so, and the risks and benefits of this for both the US and China.

You May Also Like

Hot Definitions
  1. Loan-To-Value Ratio - LTV Ratio

    A lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage.
  2. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  3. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  4. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  5. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  6. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
Trading Center