What is outsourcing of business? how does it works?

Answer 1

Outsourcing (or contracting out)
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The concept of taking internal company functions and paying an outside firm to handle them. Outsourcing is done to save money, improve quality, or free company resources for other activities. Outsourcing was first done in the data-processing industry and has spread to areas, including telemessaging and call centers. Outsourcing is the wave of the future.

In computing, outsourcing can take many forms. A company, for instance, may outsource its whole IT operation, so that another outsourcing firm provides the hosting and maintenance of its servers and ensures that the system runs smoothly and runs its application development. This would be a "total outsourcing" solution, although many companies will often just pick elements of such a package.

A subset of the term (offshoring) also implies transfering jobs to another country, either by hiring local subcontractors or building a facility in an area where labour is cheap.

Answer 2

There are certain aspects of business which are not exactly strategic and very generic in nature like accounting, customer service, etc... these functions can be handled by anybody and not necessarily employees on the organisation's payroll. When such an arrangement is arrived at, it is termed as outsourcing.

The major advantages for doing so are cost benefits, better output and optimization of management time in core activities.