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Meaning & Definition

Outsourcing

Outsourcing is the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.

Outsourcing can help businesses reduce labor costs significantly. The outside organizations typically set up different compensation structures with their employees than the outsourcing company, enabling them to complete the work for less money.

In addition to cost savings, companies can employ an outsourcing strategy to better focus on the core aspects of the business. Outsourcing non-core activities can improve efficiency and productivity because another entity performs these smaller tasks better than the firm itself.

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