Question

Write short answers for the following questions:

What is outsourcing? Illustrate with one example.

Answer 1

Outsourcing refers to the process of contracting out less important (i.e., non-core) business activities to external agencies. These external agencies are highly specialised and enjoy expertise in specific business activities such as advertisement and promotion of products and post-sale services. The basic rationale behind outsourcing is that it allows a company to focus on its core functions, leaving less important activities to specialised agencies. Thus, we can say that outsourcing increases a company’s efficiency in its important or core activities and reduces its overall cost of production.

Example: A company may outsource a number of activities such as customer services and the task of recruitment and training of employees to other companies in underdeveloped or developing countries.