Outsourcing vs Contracting
Outsourcing has become a common phenomenon in this age of globalization. The desire of the companies to be cost effective in the face of cut throat competition from economies that have cheaper labor and other cheaper competencies has led to outsourcing on a very large scale. There is another concept of contracting that confuses many because of its similarities and overlap with outsourcing. This article takes a closer look at the two concepts to highlight their differences.
The process of handing over noncore operations of an organization earlier performed internally by the employees to an outside company or organization is called outsourcing. This has become an important issue in many western countries where local people are crying foul against it. They feel that their jobs are been given to foreign companies in third world economies to save on money as labor cost is much less in countries like China and India. Though outsourcing does not necessarily mean contracting out one or more of business processes to a company in another country as there is also inland outsourcing, the term today applies to getting work done by companies in foreign countries. The narrower term offshoring clearly refers to this process where a company relocates one or more of business processes to a company in a foreign country.
Contracting is a special type of outsourcing where the buying party owns the complete infrastructure. This means that the company has a stake in the outsourcing company but decides to purchase services or products by giving out contracts. On the other hand, if the outsourcing company is independent of the buyer, it is traditional outsourcing. These days, outsourcing has become such a lucrative business that many companies take orders from foreign companies and pass it on to other smaller companies that actually provide their services or products. This is subcontracting and has become very popular as the foreign company is ultimately interested in the quality of work and low price, and the mediating company gets the work done overseeing the quality of work and the price.
What is the difference between Outsourcing and Contracting?
• Outsourcing, or rather offshoring, is a process where a company gives the contract of some of its noncore business processes to companies in foreign countries to save on money and time.
• Outsourcing has become controversial in recent times with people in western countries feeling their jobs are being given to people in third world countries.
• Contracting is a process where companies have a control of the outsourcing company but decide to purchase goods or services as per a contract that is made in writing.
• When the supplier of the service or product owns the business, then the process is termed as outsourcing, but when the company receiving products or services owns the service providing company, it is termed as contracting.
• In contracting, ownership of the supplier remains with the ordering company, but it instructs the supplier on how to go about providing services