What is Outsourcing? Definition How the System Works

You may have been familiar with the term of outsourcing, especially in the practice of a business. But, what is outsourcing actually? An outsourced employee is a worker who has been trained by a labor supplier. This practice is often used by large companies that prefer to have trained workers.

What is Outsourcing?

Outsourcing is a business practice in which a third party outside the company handles the company’s tasks. This practice is usually done to cut the company’s operational cost since outsourcers are paid less than the company’s employees. It also helps the company to focus more on their core business.

Definitions of Outsourcing by Experts

There are pros and cons of outsourcing. It is believed that outsourcing can eliminate jobs from the domestic workforce while, at the same time, it can maintain the free-market economies on a global scale. Here are some economics experts’ responses toward the concept of outsourcing.

1. Brown dan Wilson (2005)

They define outsourcing as a step to get services done by a party outside a company. In other words, outsourcing is about handing over tasks to a third party.

2. Jehani (2008)

Jehani said that outsourcing is a process to reduce a company’s workload by having a third party to handle it.

3. Gamble (2015)

What is outsourcing to Gamble is a strategy involving a chain value contract of a certain process production. This activity is done by an alliance.

Systems of Outsourcing

Outsourcing is a business practice, where in its process, there are three parties involved: a worker, outsourced supplier, and company.

There’s no significant differences between the recruitment process for an outsourced worker and the other employees. But, there are some dissimilarities between them, e.g. the outsourced worker is not hired by the company, but a third party who provides outsourcing services. For further information, you can read the system stages of outsourcing below.
1. The company will be the client of the third party (the provider of outsourcing services)

2. The provider will find a candidate that fits the company’s qualifications

3. The provider will hire the best candidate as an outsourced employee

4. The outsourced employee will handle the project of the company under control of the third party.

How is the Payroll System of an Outsourced Employee?

The provider will pay the outsourced employee. Then, the provider will send the bill to the company.

Differences Between Outsourcing and Contract

Outsourcing and contracts are different. However, a lot of people still see them as the same thing. It is outsourcing when the employee works for a company which is the client of the outsourcing provider.But, contracts are when the employee works for a company without any other parties involved in the process.

To define outsourcing in a simpler way, you know it is outsourcing if there is an intermediary between the employee and company. While a contract employee works directly for the company.

Benefits of Outsourcing

No only the company, but also the employee himself will get the benefits of outsourcing.

Benefits of Outsourcing for the Company

If a company has an outsourced employee, these are several benefits that the company will get.

– Not the company, but the third party is responsible for the employee management

– Reduce the business risks related to the outsourced employee- Less operational cost

– Can focus on the company’s business

– Increase the productivity and efficiency of the business’ decision making

Benefits of Outsourcing for the Employee

Being an outsourced employee is beneficial. The following advantages are the ones that you will get once you become an outsource worker.

– Many companies look for an outsource worker

– Let you develop your skill

– Gain a lot of experiences and relations

– The employee is not bound by the company

– There are more chances to grow

Disadvantages of Outsourcing

There are also some advantages and disadvantages of outsourcing, but now let’s focus on the disadvantages of outsourcing first.

Leaks of Company Information

There are always risks to face when you involve third parties and people outside the company to work together, for example information leaks. Therefore, it would be better if the outsourced employee does not handle the company’s main business.

Company Contract Renewal

Since they usually have a very short period of time contract, the company will need to renew the contract between the outsourcing provider and company itself from time to time even though that process is quite complex.

Advantages of Outsourcing

Outsourcing is not always bad, there are advantages that the company will get. Some of them are:

Reduce Employee Training Cost

An outsourced employee is a competent worker who is qualified to work in a certain field and does not need a training facility. In other words, the company can reduce employee training costs by hiring an outsourced employee.

Works are Done by Experts

The recruitment of outsourcing goes through a series of strict selection processes to find the best of the best talents. The chosen talents are the ones who have great quality of work or expertise in a particular field.

Greater Focus on the Core Business

An outsourced employee is only responsible for non-core tasks. So, the company can focus on the core production more without being interrupted by other tasks.

Which is the Best Example of Outsourcing?

The best example of outsourcing can be seen in some big companies such as Google, Whatsapp, Alibaba, and Skype. Those companies do outsourcing mostly because they want to maximize their budget utilization but, at the same time, have skilled talents to do the job so the company can focus on core business. This strategy works on them until now.

In Indonesia, the example of outsourcing is regulated in article 66 section 1 of the constitution Number 13 Year 2003:

1. Security sector (security)

2. Cleaning sector (office boy)

3. Consumption sector to provide food to employee (catering)

4. Transportation sector (driver)

5. Mining and oil sector

Keep in mind that although outsourcing can perform secondary work, reduce operational costs, and is one of the most searched jobs nowadays, there are several risks of this system that need to be considered.

Last but not least, if you want the recruitment process to go efficiently, Clockster lets you manage everything, related to the needs of human resources, online using smartphones. You can also check our blog for more interesting information.