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Describe Outsourcing and Identify the Two Types of Outsourcing Agreements

Outsourcing has become a buzzword in the business world as more and more companies are opting to outsource their non-core business activities to third-party service providers. Outsourcing offers several benefits, including lower costs, increased efficiency, and access to specialized skills and expertise. In this article, we`ll define outsourcing and identify the two types of outsourcing agreements.

What is Outsourcing?

Outsourcing is the act of delegating some of a company`s business processes or services to an external third-party service provider. These processes can range from payroll processing, customer service, human resources, and even IT support. Outsourcing allows companies to focus on their core competencies while leaving non-core business functions to specialized service providers. The outsourcing service provider is responsible for delivering quality services as per the agreed-upon standards and terms of the outsourcing agreement.

The Two Types of Outsourcing Agreements

1. Project-based outsourcing

Project-based outsourcing is a type of outsourcing agreement where the client company outsources a specific project or task to a third-party service provider. Project-based outsourcing is a suitable outsourcing option for companies looking to complete a particular project or task within a specified timeframe without investing in additional resources or hiring full-time employees. The outsourcing agreement between the client and the service provider specifies the scope of work, deliverables, deadlines, and payment terms.

Examples of project-based outsourcing tasks include website development, graphic design, and market research.

2. Managed services outsourcing

Managed services outsourcing is a type of outsourcing agreement where the client company outsources the management and operation of an entire business function or activity to a third-party service provider. The outsourcing service provider is responsible for managing and delivering the outsourced function or activity, including the resources, processes, and technology required.

Examples of managed services outsourcing functions include IT support, financial and accounting services, and customer support.


Outsourcing has become an essential business strategy for many companies looking to increase efficiency, cut costs, and access specialized skills and expertise. Understanding the types of outsourcing agreements available can help companies choose the most suitable outsourcing partner and agreement based on their business needs. Project-based outsourcing is ideal for companies looking to complete a specific project within a particular timeframe, while managed services outsourcing is suitable for companies seeking to outsource the entire management and operation of a business function or activity.

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