Outsourcing companies provide a range of specialized services to other companies. They document client requirements, outline the work process, estimate the completion time frame and costs involved, and complete and deliver the work. In the early years of outsourcing, the outsourced services were centered around business process outsourcing and information technology outsourcing. Increased modes of communication and improved technologies have now made outsourcing a viable option in a variety of other sectors as well.
The services offered by outsourcing companies can range from business process outsourcing and information technology outsourcing to customer relations management, human resources management, and finance and accounts management. Aside from these, outsourcing companies may undertake outsourcing projects in research and design, raw materials and manufacturing, sales and marketing, and packing and shipping. Other outsourced areas include health and pharmaceutical business process outsourcing, and animation and creative industry outsourcing.
There are inshore, near shore and offshore outsourcing companies. Inshore outsourcing companies are located in the same country as the outsource company, and may be local, regional or national companies. Near shore companies are located in a neighboring country and may have a common language and work culture with the company that outsources the outsourcing project. Offshore companies may be located in another continent and may have a different language and work culture.
Offshore companies are often located in developing countries where production and labor costs are generally lower as compared to those in the developed nations. These low costs increase the profit margins for the companies outsourcing the work and this is one of the main reasons why outsource contracts are favored in business. Another reason is the skilled and high quality specialization provided by the outsourcing companies.
Many companies do not have the economic resources to invest in expensive technologies and training that would be needed if the outsourced projects were to be done in-house. The outsourcing companies, on the other hand, usually have the technological capabilities as well as the specialized skills to concentrate on particular work aspects and give world-class results. Another issue is the time saved by the company outsourcing the work; they can direct that time and their resources towards developing other important business aspects. They can also make use of their contacts and business know-how in the developing countries to expand their company on an international scale.
On the negative side, cultural and language differences may often put a spanner in the smooth working of a business relationship; a problem in communication, for instance, could lead to work delays. The initial costs of setting up and starting an outsourcing project may be high, and there may be several hidden costs that only surface later. There may be an issue of fluctuating currency conversion rates leading to profit loss. Another concern is work integrity and data security maintenance. Careful planning and clear communication between both parties can mitigate these issues to a large extent.