Outsourcing Paper Outsourcing has been defined in many ways. According to one definition, outsourcing is defined as, "... A practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally" (Dictionary.com, 2010, para. 1). In this paper I will discuss the rationale and challenges of outsourcing business functions to low-cost countries or firms. Many reasons can be attributed to outsourcing problems but the primary reason is cost.
Rationale
A strong rationale for outsourcing “…is that organizations have one or more non-core business functions” (Belcourt, 2009, p. 1). Of course, cost savings is a primary reason for outsourcing business functions. For example, in situations involving payroll, studies show outsourcing payroll can result in savings ranging from 10 to 20% more than two years or longer. Outsourcing also is helpful when there is an irregular need for a particular service (Belcourt, 2009). Outsourcing can keep from acquiring a full-time employee. Since employers cannot always “pursue excellence in all areas, many will focus on core competencies, such as customer service or innovation, and outsource secondary functions, such as benefits administration. Studies show that companies that outsource report reducing administrative tasks by more than half and increasing their strategic focus by 40%” (Belcourt, 2009, p. 1). Another outsourcing driver is technology. This can help especially in areas in which it is difficult to find or retain technical talent. Human Resources service is another area that lends itself to outsourcing because of the process of repetition. “Outside specialists know employment legislation and workplace law better than anyone and can assure clients in which all their practices comply with legislation” (Belcourt, 2009, p. 2). Challenges Outsourcing