Outsourcing is related to subcontracting a process in which a company located at different location provides services to another company that might otherwise be performed by their own employees. In other words we can say that outsourcing takes place when a company transfers the ownership of a business process to another company. It possess business co-ordination between two companies (one which outsource its service and other which work for first company) and two way exchange of trust and information.

When we think about why companies outsource their services, we find that there are many reasons behind it such as cost-effective services, reduced operating costs, increased productivity, shared risks, increased efficiency, increased quality, better services and more time to focus on core competencies. Today India, China, Russia and Philippines are the favorite destinations where most of the companies around the globe, like to outsource.
Organizations outsource various kinds of services related to:

Software development
Software maintenance
E-learning solutions
Web design and development
E-Commerce solutions
SEO (Search Engine Optimization) services
BPO (Business Process Outsourcing)
KPO (Knowledge Process Outsourcing)
CMS
Transcription services and many more...

Benefits of outsourcing are enormous. Lets see some of the benefits of outsourcing:

Low operating cost: It is one of the biggest reasons behind outsourcing. Outsourcing lowers operating cost. Companies outsource their production and customer services to the countries which is labor abundant so that these countries provide quality services at very low cost, in this way multinational companies save a lot of money and improve their profit margin.
No infrastructure investment: When company outsource then they dont need any investment in infrastructure and it also reduce training cost and dependency upon internal resources.
Improve company focus: Outsourcing also helps companies to focus on their core business as it save time in devoting energy to areas that are not in their expertise.
Outsourcing makes it possible to gain access to world class capabilities as it provides a wider pool of talent and knowledge.
Outsourcing also reduces risk associated with the investments an organization makes.

But Organizations need to take care in selecting the company where they would outsource their services as their wrong selection would result in poor service which would ultimately hurt the reputation of the company.