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Factors Affecting the Decision to Outsource

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  • 0:01 Outsourcing
  • 0:32 Demand
  • 1:42 Company Weaknesses
  • 2:23 Profits
  • 3:26 Lesson Summary
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Lesson Transcript
Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

Watch this video lesson to learn how a business decides whether to outsource or not. Learn the reasons why outsourcing can sometimes be cheaper and thus more profitable for a company.

Outsourcing

When a business decides to outsource, it is deciding to get products or services from an outside source. Most large businesses have some sort of outsourcing system in place. This is because outsourcing saves the company money and allows the company to produce more than it could on its own. Some small companies also outsource so that they can increase the amount of work they can take on. Lets see how the company Bow Bow decides whether to outsource and what to outsource.

Demand

Bow Bow currently makes its own bow ties for grown ups and young children. It does not use anybody outside the company to sew its bow ties. Everything is handmade. Up until this point, Bow Bow has been able to keep up with the demand. It has an online store where people go and choose their bow ties. The company also sells its bow ties at several local brick-and-mortar shops. Today though, the company has just received the news that a very large national retailer wants to stock Bow Bow bow ties. After meeting to discuss the order, the company realizes that it cannot keep up with the demand of this national retailer. Bow Bow really wants to accept this contract though. In order for Bow Bow to accept the contract, the company will need to enlist the help of an outside company or persons to help it sew the bow ties. The company decides to outsource the making of its bow ties to meet the increased demand.

Demand is one criteria that a company uses to decide whether to outsource or not. Increased demand may mean the need to outsource so that more products or services can be produced or given to meet this increased demand.

Company Weaknesses

Another deciding factor is what weaknesses the company has. If the company lacks a certain skill, then perhaps it can outsource this skill to someone who excels in this area.

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