Definition of outsourcing by simple analogy
Outsourcing is a very simple concept – if you remove all the distracting detail.
Defining outsourcing with different contextual analogies
There are a few different perspectives on outsourcing, depending on what framework you’re working from. I’ll try and condense some of them into a simple analogy for each.
An outsourced person is functionally the same as an in-house person (i.e. they are effectively recruited, trained and managed the same), except that they will be legally employed by the outsourcing supplier, and not direct.
An outsourced person is functionally the same as your own employee, except that they are sitting in a different location.
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Companies have been outsourcing certain tasks for centuries – such as accounting, marketing or legals. Companies outsource this because they don’t have enough work requirement or sufficient skillsets to do it in-house. Offshore outsourcing is really no different, it just allows different companies with different advantages to help you get to your goal more efficiently.
Warren Buffet says that business is obligated to find the most efficient means of production. Outsourcing and offshoring are about finding a workforce that can produce the same output, for less cost (mainly due to the lower wages and cheaper cost of living in those countries). Put simply: getting the same job done for less.
Capitalist (Ayn Rand?) context
All businesses rely on people (human capital) to generate output. There is no business without people. So to some extent, the functions of a company are ‘outsourced’ to the individually specialized roles/people that ‘get the job done’. (This was the argument of Marxist communism that business owners ‘unfairly’ benefited (in profits) from the output of the workers (so the business owner effectively outsourced the production requirement of the business to workers.)