outsourcing

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Outsourcing

Purchasing a significant percentage of intermediate components from outside suppliers.

Outsourcing

The practice of a company hiring a different company to supplement its services at a lower cost. For example, a company may outsource its accounting to another firm, which would then prepare and provide appropriate statements for the company. Likewise, an automobile manufacturer may buy auto parts from another company and use them to make its own cars. Companies outsource in order to reduce their costs and thereby reduce the prices they charge for their goods and services. The practice is somewhat controversial, especially as some companies in the developed world outsource to firms in other, often developing nations. Critics contend that this drives jobs out of the home country, while proponents argue that this benefits consumers.

outsourcing

the buying-in of components, finished products and services from outside the firm rather than self supply from within a firm. In some cases this is done because it is more cost-effective to use outside suppliers or because outside suppliers are more technically competent or can supply a greater range of items. For example, in 2000 the Bank of Scotland signed a 10 year outsourcing agreement with IBM which involves IBM taking over the Bank of Scotland's computer systems and operating them. The deal will enable the Bank of Scotland to ‘save’ up to £150 million on its information technology (IT) costs as well as being able to draw on IBM's expertise to create a more technically advanced IT infrastructure than it could have achieved on its own. On the debit side, however, reliance on outside suppliers may make the firm vulnerable to disruptions in supplies, particularly missed delivery dates, problems with the quality of bought-in components, and ‘unreasonable’ terms and conditions imposed by powerful suppliers. See SOURCING, INTERNALIZATION, MAKE OR BUY, VERTICAL INTEGRATION, VIRTUAL CORPORATION.

outsourcing

the buying-in of components, finished products and services from outside the firm rather than self-supply from within the firm. In some cases this is done because it is more cost-effective to use outside suppliers or because outside suppliers are more technically competent or can supply a greater range of items. For example, in 2000 the Bank of Scotland signed a 10-year outsourcing agreement with IBM that involved IBM taking over the Bank of Scotland's computer systems and operating them. The deal enabled the Bank of Scotland to ‘save’ up to £150 million on its information technology (IT) costs as well as being able to draw on IBM's expertise to create a more technically advanced IT infrastructure than it could have achieved on its own.

On the debit side, however, reliance on outside suppliers may make the firm vulnerable to disruptions in supplies, particularly missed delivery dates, problems with the quality of bought-in components, and ‘unreasonable’ terms and conditions imposed by powerful suppliers. The decision to produce internally or outsource will depend upon the combined production costs and TRANSACTION COSTS of the alternative supply source. See TRANSACTION, INTERNALIZATION, MAKE OR BUY, VERTICAL INTEGRATION.

References in periodicals archive ?
According to Jupiter Communications, more than one in four companies will shift at least 20% of their budgets from in-house IT expenditures to netsourcing expenditures.
In the case of the messaging and collaboration application example, the value proposition of the netsourcing model is straightforward and translates easily to other business applications.
Intira does not subcontract any component of its Netsourcing solutions to a third party; thereby maintaining direct accountability over the entire Netsourcing infrastructure.
The agreement enables S4R to offer customers a complete messaging solution as part of the company's comprehensive netsourcing services.
S4R's technology relationship with Mirapoint is part of the company's strategy to expand its comprehensive netsourcing solution including complete infrastructure design and implementation, system upgrades, data backup, multi-layer security services and true 24/7 on-site service and support.
Mi8's Netsourcing services focus on applications that are not part of a companies core business, such as advanced messaging and groupware; companies can then focus their internal resources onto IT projects that are part of their core business functions.
a world-leading provider of e-business Internet security solutions, who recently entered into a definitive merger agreement with Symantec Corporation (NASDAQ: SYMC), and Intira Corporation, a pioneer and leader in Netsourcing, today announced that AXENT's leading-edge security offerings, Enterprise Security Manager(TM) (ESM) and Intruder Alert(TM), are being added to Intira's Netsourcing platform, enhancing the platform's existing multi-tiered security architecture.