Outsourcing is the business practice of contracting work out to an external provider instead of performing it with a company's own staff. The work can be a single task, a complete function such as payroll, IT support, or customer service, or an entire business process, and the provider can be located in the same country or overseas. When the client and the provider are in different countries, outsourcing becomes part of international services trade, which the World Trade Organization classifies under the General Agreement on Trade in Services (GATS).
The word is younger than the practice. The term entered business usage in 1981 as a contraction of "outside resourcing," according to the reference literature on the subject. It also helps to separate two ideas that are often mixed up. Outsourcing describes who does the work: an external provider rather than your own employees. Offshoring describes where the work is done: in another country, whether by a third party or by your own foreign subsidiary. A US bank that opens its own service center in Manila is offshoring without outsourcing. The two overlap in offshore outsourcing, which is the model most people picture when they hear the word.
