Question

What are the two underlying reasons for outsourcing?

• A. Economies of scale and lower wage costs
• B. Personal benefits and network access
• C. Economies of scope and quality concerns
• D. employment and higher wage costs

Answer 1

Answer: (A)

Economies of scale and lower wage costs

Outsourcing is the process of delegating a company’s business process to the external agency or a third party. Economies of scale which means saving in costs gained by an increased level of production and lower wage costs are primary reasons for outsourcing.

If outsourcing crosses boundaries and is managed by companies located in other countries, outsourcing is called offshoring.