| In the 1800s and early 1900s, companies were | | | | process of moving work to a foreign country to |
| vertically integrated organisations that would | | | | take advantage of lower labour costs. This might |
| handle every element of taking their product or | | | | involve the work being outsourced, but just as |
| service to market. That would often involve | | | | often the company will continue to carry out the |
| manufacturing from raw materials to finished | | | | work in-house. |
| products, shipping, marketing and often selling the | | | | Below are some of the reasons that might |
| goods in their own retail outlets. They would also | | | | prompt a company to choose to outsource. |
| handle the human resourcing, legal and accounting | | | | Some of these are outright benefits, whilst others |
| responsibilities in house as well. These organisations | | | | are ways of overcoming certain problems that |
| were very unwieldy to run and therefore | | | | might be experienced by the company. |
| cost-inefficient, and so it is understandable that | | | | Benefits of outsourcing |
| their structure would change as more focus was | | | | * Improved quality: Contracting out a service with |
| put on the efficient management of company | | | | a new SLA (Service level agreement) can lead to |
| resources. | | | | quality improvements |
| Over the second part of the 20th Century, | | | | * Knowledge: Wider experience, knowledge and |
| manufacturers began contracting out the | | | | even intellectual property can be accessed |
| production of components to smaller, specialised | | | | through contracting to third parties |
| suppliers and this trend continued over the 1970s | | | | * Contract: Financial rebates or legal redress are |
| and 1980s when accounting services, payroll, billing, | | | | possible where standards of work and other |
| and word processing all began to be outsourced | | | | criteria are not met |
| by Western organisations. At the turn of the | | | | * Change agent: An outsourcing agreement can |
| millennium, with improvements in technology and | | | | be used as a catalyst for major step change that |
| the ability to communicate quickly and easily over | | | | would not be possible otherwise. |
| vast distances information technology, design | | | | * Reduced time to market: Development or |
| engineering and call center operations became the | | | | production of a particular product can be |
| latest candidates to be outsourced. | | | | accelerated by bringing in third party capacity |
| Recently, outsourcing has often been used | | | | Overcoming problems by outsourcing |
| interchangeably with offshoring, although the two | | | | * Cost savings: Often achieved by exploiting the |
| are actually distinct processes. Outsourcing always | | | | differential in wages in different countries |
| involves sub-contracting work to a third party | | | | (off-shoring), but also through increased efficiency |
| company, which may or may not be located in | | | | due to specialisation available in the outsourcer. |
| the same country or region. Offshoring is the | | | | |