Explain the importance of Outsourcing to an an international firm.

Outsourcing refers to the third party production process undertaken by large, international firms. Rather than producing a product internally, firms will look to external manufacturers. An advantage of Outsourcing is that it often leads to reduced manufacturing costs. Opposed to investing in expensive, large production units, firms can instead outsource to specialised firms, leading to long term cost reductions. These cost savings can then be re-invested into the firm elsewhere, prompting further potential growth. However, a disadvantage of outsourcing is the loss of control in the production process. Managers of the outsourcing firm can provide product templates and specifications, but the third party outsourced firm may produce the final good in a different manner in the eyes of the manager. This can increase wastage costs if the final products are inadequate, increasing overall costs, reducing net profit margins.