Reasons for outsourcing

Cost savings- The overall lower cost of service for business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Access to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing countries.

Focus on Core Business- Resources (eg, investment, people, infrastructure) focus on developing the core business. For example, organizations often outsource their support services, specialized firms.

Restructuring costs- Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this relationship, providing a step of fixed and variable costs more predictable by making variable costs.


Knowledge- Access to intellectual property and wider experience and knowledge .


Contract- Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case of internal services.


Operational expertise- Consumer access to operational best practices that would be too difficult or time to develop at home.

Access to talent- Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering.

Management capacity- An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.

Catalyst for change- An organization can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone. The buyer becomes a change agent in the process.
Increasing capacity for innovation- Companies are increasingly using external service providers to supplement the limited knowledge of the internal capacity for product innovation

Reduce time to market- Accelerating the development or production of a product through the additional capacity provided by the supplier.


Commodification- The trend of standardizing business processes, IT services and application services that enable buy at the right price, allows businesses to access services that were available only to large corporations.

Risk management- An approach to risk management of some types of risks is associated with an external supplier who is able to provide mitigation

Tax Benefit- The countries provide tax incentives to move manufacturing operations to meet high corporate taxes in another country.