By definition, outsourcing is the process of engaging in a business transaction through a third party provider. If company A has to make products or provide services, part of it if not the whole can be done by company B, C and/or company D. The end user, client or customer, would perceive the product or service as sold by company A. The term outsource can also be referred to as sub-contracting.

Although the concept of outsourcing has been in evidence for centuries it was not until the emergence of global telecommunications and the internet that outsourcing and offshoring has become commonplace and widely accepted as a viable means of carrying out business with the aim of delivering a high quality product at lower cost.

Outsourcing can be classified according to the industry it serves or by location of the outsourcing provider. 

Categorized by industry, outsourcing can be divided into three – Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO) and Information Technology Outsourcing (ITO).

Business Process Outsourcing (BPO) caters mainly for the established standards of the client. The task in question could range from payroll operations, billing, technical support to graphics design, marketing and multimedia generation. A very good example of a BPO provider would be an Indian call center, where customers of a Western company call in to speak to customer services and are routed through to an Indian call center where employees of a seperate firm act on behalf of the company which you are a customer of, often integration will be seamless and you may not even be aware your call has been routed to India.

Knowledge Process Outsourcing (KPO) involves higher order interaction with the client. The service provided demands analysis and technical knowledge that would allow innovations for the client company. Research and development, legal services and simulation are frontliners for KPO. The output supplied by the provider will be used by the client to improve the quality of service and possibly alter core processes.

The last sector, Information Technology Outsourcing (ITO) is a common trend for companies that opt not to invest on physical equipment for the latest technology. Rather than housing physical equipment such as servers, the whole operation can be done remotely by a third party ITO provider which specializes on applications that the company needs.

On the other hand, outsourcing can also be identified as on-shore, off-shore or home-shore.

On shore means that the third party provider is within the country. Off-shore relates to those workers who are based in another country to the one from which the work is being generated. Home-shore usually relates to outsourcing with an emphasis on the work being retained within the originating country, this is becoming increasingly popular in the United States. Sometimes, homeshoring has been referred to as the process of outsourcing to a home based workforce, whether in the constituent country or overseas.

Home-shore providers are commonly individuals or freelancers that have developed enough skill level to establish private practice. On-shore outsourcing is common between sub-contractors themselves. Off-shore outsourcing however, is very evident and has even become a political issue in the United States due to labor distribution disputes. Other developing countries like India and the Philippines have benefited from off-shore outsourcing since the performance required by clients, such as call center tasks, are delivered in almost the same level as the on-shore providers but with much lower cost. Home-shoring has also blossomed with the advent of freelance management sites like Odesk, PeoplePerHour, vWorker and Elance. These websites create an environment for small business to hire home-shore employees with confidence of high quality and timely delivery.

Outsourcing has proven to be a very effective way in creating solutions to some of the industries difficult problems. Almost anything if not everything may now be outsourced. If your company needs additional profit, look into outsourcing and find treasures your company would never expect.