Outsourcing

Companies outsource activities for several reasons: to reduce costs, to access specialist expertise, to focus on their core business, to scale up or down more flexibly, and to take advantage of technology or capacity they do not have.

Commonly outsourced functions include manufacturing, information technology, customer service, payroll, accounting, logistics, cleaning and security. Outsourcing to another country is often called offshoring.

For example, a clothing brand might design its products in-house but outsource manufacturing to factories in other countries, while a bank might outsource its IT infrastructure to a specialist technology company.

Outsourcing has potential drawbacks. A company may lose control over quality, delivery times and data security. It may become dependent on suppliers, face communication difficulties or suffer reputational damage if a supplier treats workers badly or breaks the law. Hidden costs, such as managing contracts and switching suppliers, can reduce savings.

Disruptions to global supply chains in recent years have led some companies to reconsider outsourcing, bringing some activities back in-house or closer to home, a trend sometimes called reshoring or nearshoring.