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There are a number of reasons that drive companies to outsource some or many of the work activities. The list of reasons include:

  • Lower costs (or lower total costs). Sometimes achieved through lower wages costs, but also through economies of scale by providing the same service to multiple companies.
  • Improve service. Often, better educated or skilled people perform the task, and thus perform it better.
  • Obtain expert skills. An outsource firm is an expert in that particular activity, and thus should be able to do it better than the customer.
  • Improve processes. Given that outsourcers are very experienced at a particular set of processes, they can help the customer to improve their processes.
  • Improve focus on core activities. Outsourcing frees management from having to worry about the inner-workings of a non-core activity. The customer focuses on their core competence, the outsourcer focuses on theirs.
  • Outsourcers often can gain economies of scale that result in savings to the customer.

Make no mistake about it. Except for two or three very specific examples, the number one reason that companies outsource is to reduce their costs for the same or better service or product.