Outsourcing is a business practice or a process of transferring certain corporate operations, processes, and business segments to a third party contractor. This may be considered subcontracting but outsourcing is a broader concept that could encompass not just a single project but also an entire business operation. Outsourcing has been practiced for many decades now. Today almost every major company is outsourcing parts of their business operations mostly to offshore companies.
Outsourcing first started as an IT solution. Some companies are finding it more difficult to provide in-house IT service support and development. The profitability of the IT segment is diminishing if it remains an in-house operation. This development pushed many companies to outsource their IT requirements which include important programming and software development. With this practice, companies observed marked improvement in their corporate financials. Specifically, companies experience greater cost benefits through outsourcing. It significantly reduced operational and maintenance expenses and improved profitability. Until today the IT sector is the most outsourced business operation. It dominates the outsourcing industry by getting 28% market share.
On the other hand, outsourcing has become a viable solution for companies to offload some of their business operations not related to IT segment. Back office operations, accounting, administration, financials, and human resources are being outsourced to third party entities. This further boosted the global demand for service providers that can absorb redundant operations of companies. Today, outsourcing providers continue to post significant growth rates. But because of increasing demand, competition is also getting stiffer in the outsourcing market.