What does Outsourcing Mean?

Outsourcing can be identified as an activity where a business or a firm hires a specialized professional or a team of professionals or a firm itself of such professionals to take care of their functional departments; it may be accounting, marketing or even HR. In general terms it is also known as “Freelancing”.

Organizations or firms which hire or outsource as such an entire functional department usually have their presence and existence in the foreign lands. It comes to high economical benefit for these firms to outsource certain functional department of their organizations, which makes the tasks easier and convenient to coordinate with.

Outsourcing – The Origin

Late 1980s and the beginning of the 1990s was when the concept of “Outsourcing” started to gain importance at the strategic levels of management. Earlier, the idea of outsourcing was limited only to a certain limited activities and complex skills like data entry or data processing or data analytics.

With time being, Outsourcing became highly convenient and procedural in terms of operations and started gaining conceptual and strategic importance in the corporate world. The process of Outsourcing activities became more systematic and started covering a wide range of business processes and activities.

Focusing particularly on the financial purview, the firms have started outsourcing a wide portfolio of services, including, Bookkeeping, Accounts Payables & Receivables’, Processing of the Payrolls, Auditing Services, Reviewer Services along with Tax Returns’ Filings and many more.

 The basket of financial services that the outsourcing firms offer and serve globally are wide and diverse with every firm. It may be the quality, coordination, professionalism or the time of deliverance the Outsourcing firm can create its niche in!

Reasons Firms opt for Outsourcing

The reasons, why a company outsources certain departments are innumerable, each firm having its own stance of motive. One of the most common reasons why a company opts to outsource is the “economical benefit”.  Other reasons to support the idea of Outsourcing are to free up the core capitals, advance the business, expertise, professionalism and many more.

Outsourcing benefits the time of the organization as the entire department and the levels within are outsourced and the report of the same is received within a given frame of time. It reduces the pressure of controlling and coordinating within the departments.

Additional benefits of resources like technology and even expertise can be gained, if a certain department is outsourced. The coordination might seem to be a cumbersome task between the two firms, but if managed effectively, this strategic process is really beneficial. It enables numerous projects to gain ascendance and acceleration simultaneously, thus increasing the efficacy of the businesses.

Major Countries who Outsource

USA holding the maximum share, is the country that outsources the largest share of services, of different kinds and types. Another fact to be noticed here is that the country from which the largest share of services is outsourced to the USA is from India. Some other countries that avail outsource services include Canada, Australia, European Nations and many more.

The Indian View

In the Indian context, Outsourcing forms a major source of economic benefit today. As mentioned in the earlier context, India is the biggest exporter of services to the USA itself, which is the largest importer of services.

This states that the Indian workforce is developing and expanding the portfolio of services they offer, especially the quality, professionalism and expertise they deliver, which remains unmatched in the global markets.

The Indian Economy, in the future is expected to hold “Outsourcing” at the heart of export business, where the skills, expertise and talents will compete in the Global Market rather than any raw material or products.

Authored by:

CA Yash Shah

Chief Operations Officer,

Arham Consultancy Solutions Ltd.