MIA: Encyclopedia of Marxism: Glossary of Terms
Out-sourcing is the practice of buying labour on the market, rather than it being carried out within an organisation, by one’s own employees.
Out-sourcing is therefore a form of commodification which, in general, replaces the purchase of labour power (variable capital) for use in producing goods or services, with the purchase of the same goods or services as commodities (constant capital).
Out-sourcing has been a popular type of restructure since the mid-1980s and has been closely aligned with corporatisation – breaking up a large organisation into parts, getting rid of some by out-sourcing the service, and corporatising others. Apart from the usual hidden agenda of union-busting and cost-cutting, the benefit of out-sourcing is that, on one side, it allows the out-sourcing organisation to “focus” on its key business, what it does best, and on the other, facilitates the growth of new industries providing the out-sourced functions. For example, a manufacturer might out-source its canteen, its distribution arm and its salary department, focusing all its energies on manufacture as such; meanwhile, large firms which do nothing else but run factory canteens, deliver goods, or run salary systems grow up, with large concentrations of specialised staff and equipment.
In other words, the popularity of out-sourcing marked a huge leap in the development of the social division of labour, analogous to the early days of the industrial revolution. When driven by “ideology” or a hidden agenda, as is frequently the case, out-sourcing can lead to a loss of quality (frequently the service providers don't in fact have the expertise which is the only rationale for out-sourcing in the first place, and they're only selling a product after all, and often don't care about the quality), increased costs (the out-sourcing organisation can find themselves prisoners of suppliers who have a monopoly on the services they need, and also, can spend as much time quality-checking and supervising the outside labour as they used to spend doing the work in the first place). Out-sourcing only makes sense if there is a developed industry genuinely able to provide the out-sourced function in a quality way.
To the workers of the out-sourced department, out-sourcing comes as a frontal assault, often entailing getting sacked. Often however, it turns out to be also an opportunity, once the new service industry gets organised.