The activities in the contemporary business undertakings are varied, complex and enormous. Sometimes it becomes difficult to define the core business of a company. Also; the management’s unnecessary involvement in non-core peripheral tasks adversely affects its performance in the core areas. Having realized the drawbacks in taking up too many peripheral activities, many business houses have resorted to outsourcing of such activities.

Outsourcing involves subcontracting a process, such as manufacturing, advertising, marketing, etc. Many companies also outsource customer support and call center functions like telemarketing, CAD drafting, customer service, market research, manufacturing, designing, web development, content writing, ghostwriting, etc to a third-party company. The process of outsourcing often helps a company in making better use of time and energy costs, redirecting energy to make more efficient use of the factor of production and other resources. Outsourcing has become very popular because of its benefits to the firms. It is fundamentally a division of labor.

Outsourcing may involve expertise related to executing standardized processes or delivering content analysis. The former is known as business process outsourcing (BPO) and the latter is called knowledge process outsourcing (KPO). KPO involves the outsourcing of high-value composite tasks and processes to expert service providers. As compared to conventional BPO, KPO delivers knowledge or content know-how that command advanced analytical and technical skills and some decision-support processes; rather than process expertise that merely involves execution of standardized processes. Training, market research services, network consulting and management, integration and analysis, distance education, data search, website services, research and development services, etc some examples of KPO.

Organizations can enjoy a number of long term benefits through outsourcing process. Outsourcing minimizes costs by reducing the overall cost of the service to the firm. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Outsourcing helps in streamlining cost. Outsourcing changes the balance of the ratio between fixed costs and variable costs by offering a move from fixed to variable cost and also by making variable costs more predictable.

Small business firms invariably benefit through outsourcing. In the initial stage, small scale undertakings can avoid huge outlays by assigning the peripheral tasks to outsourcing agencies. They can pump the available capital direct into revenue generating activities. Moreover, with the help of services provided by these agencies; small firms can enjoy the prerogatives of big companies which can maintain in-house support services. Further, every business involves risk; the fast changing contemporary technological world aggravates the risk of small firms that cannot upgrade their technology instantly and frequently.