When a company contracts with another sometimes in another country to do some of its functions?

A concession agreement is a contract that gives a company the right to operate a specific business within a government's jurisdiction or on another firm's property, subject to particular terms. Concession agreements often involve contracts between the nongovernmental owner of a facility and a concession owner, or concessionaire. The agreement grants the concessionaire exclusive rights to operate their business in the facility for a stated time and under specified conditions.

• A concession agreement is a contract that gives a company the right to operate a specific business within a government's jurisdiction or on another firm's property, subject to particular terms.
• Concession agreements cover mining concessions valued in the hundreds of millions of dollars, as well as small food and beverage concessions in a local movie theater.
• At their best, concession agreements are a form of outsourcing that allows all parties to benefit from comparative advantage.
• Concession agreements are sometimes used to take advantage of other nations.

Also referred to as concession arrangements, concession agreements span various industries and come in many sizes. They include mining concessions valued in the hundreds of millions of dollars, as well as small food and beverage concessions in a local movie theater. Regardless of the type of concession, the concessionaire usually has to pay the party that grants it the concession fees. These fees and the rules under which they may change are generally described in great detail in the contract.

Concession agreements usually define the period of operation and insurance requirements, as well as fees. Payments to a property owner may include rent for the location, a percentage of sales revenue, or a combination of the two. Any additional expectations can also be spelled out in the agreement. For instance, the agreement can specify which of the parties is responsible for utilities, maintenance, and repairs.

The terms of a concession agreement depend in large part on its desirability. For example, a contract to operate a food concession in a popular stadium may not offer much to the concessionaire in the way of incentives. On the other hand, a government looking to attract mining companies to an impoverished area may offer significant inducements. These incentives could include tax breaks and a lower royalty rate.

The more attractive and profitable a concession is, the less likely a government will be to offer tax breaks and other incentives.

A common area for concession agreements between governments and private businesses involves the right to use certain pieces of public infrastructure, such as railways. Rights may be granted to individual businesses—resulting in exclusive rights—or to multiple organizations. As part of the agreement, the government may have rules regarding construction and maintenance, as well as ongoing operational standards.

At their best, concession agreements are a form of outsourcing that allows all parties to benefit from comparative advantage. Often, a country or company will own resources that it lacks the knowledge or capital to use effectively. By outsourcing the development or operation of those resources to others, it is possible to earn more than they could alone. For example, a country might lack the capital and technical skills to utilize offshore oil reserves. A concession agreement with a multinational oil company can generate revenue and jobs for that country.

Concession agreements may also be used to manage risk. Suppose a country invests a significant amount in the production of a single commodity. Then, that country will have a high idiosyncratic risk related to the price of that commodity. For example, the governments of Brazil and Mexico invested substantially in state oil companies. The value of their assets and their revenues declined significantly when the price of oil dropped in 2020. Countries that grant concessions stand to lose revenues from concession fees, but they do not risk nearly as much capital.

Concession agreements are sometimes used to take advantage of other nations. For example, foreign countries and companies forced China to grant various concessions during the 19th century and the early 20th century. These concessions gave foreign entities the rights to develop and operate railways and ports within China. Furthermore, citizens of other countries often enjoyed extraterritoriality within their concessions. Extraterritoriality meant that foreign laws and courts settled legal disputes between the Chinese and foreigners in the concessions. Naturally, the decisions of these courts tended to go against Chinese businesses and consumers.

For example, a concession agreement exists between the governments of France and the U.K. and two private companies regarding the Channel Tunnel. The British Channel Tunnel Group Limited and the French France-Manche S.A. operate the Channel Tunnel, often referred to as the "Chunnel" under this agreement. The tunnel connects the two countries and allows for passenger and freight rail traffic between them. It is 31.5 miles long, with 23.5 miles running beneath the English Channel. That makes the Channel Tunnel the world's longest underwater tunnel, as well as a major piece of public infrastructure.

On a smaller scale, vendors operate under concession agreements that have been granted by local governments, corporations, or other property owners. This activity can include restaurants and retail stores located in large airports, vendors at state fairs, or the selling of food and beverages from stands within state parks.

Outsourcing is the business practice of hiring a party outside a company to perform services or create goods that were traditionally performed in-house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.

Outsourcing was first recognized as a business strategy in 1989 and became an integral part of business economics throughout the 1990s. The practice of outsourcing is subject to considerable controversy in many countries. Those opposed argue that it has caused the loss of domestic jobs, particularly in the manufacturing sector. Supporters say it creates an incentive for businesses and companies to allocate resources where they are most effective, and that outsourcing helps maintain the nature of free-market economies on a global scale.

• Companies use outsourcing to cut labor costs, including salaries for their personnel, overhead, equipment, and technology.
• Outsourcing is also used by companies to dial down and focus on the core aspects of the business, spinning off the less critical operations to outside organizations.
• On the downside, communication between the company and outside providers can be hard, and security threats can amp up when multiple parties can access sensitive data.
• Some companies will outsource as a way to move things around on the balance sheet.
• Outsourcing employees, such as with 1099 contract workers, can benefit the company when it comes to paying taxes.

Outsourcing can help businesses reduce labor costs significantly. When a company uses outsourcing, it enlists the help of outside organizations not affiliated with the company to complete certain tasks. The outside organizations typically set up different compensation structures with their employees than the outsourcing company, enabling them to complete the work for less money. This ultimately enables the company that chose to outsource to lower its labor costs.

Businesses can also avoid expenses associated with overhead, equipment, and technology.

In addition to cost savings, companies can employ an outsourcing strategy to better focus on the core aspects of the business. Outsourcing non-core activities can improve efficiency and productivity because another entity performs these smaller tasks better than the firm itself. This strategy may also lead to faster turnaround times, increased competitiveness within an industry, and the cutting of overall operational costs.

Companies use outsourcing to cut labor costs and business expenses, but also to enable them to focus on the core aspects of the business.

Outsourcing's biggest advantages are time and cost savings. A manufacturer of personal computers might buy internal components for its machines from other companies to save on production costs. A law firm might store and back up its files using a cloud-computing service provider, thus giving it access to digital technology without investing large amounts of money to actually own the technology.

A small company may decide to outsource bookkeeping duties to an accounting firm, as doing so may be cheaper than retaining an in-house accountant. Other companies find outsourcing the functions of human resource departments, such as payroll and health insurance, as beneficial. When used properly, outsourcing is an effective strategy to reduce expenses, and can even provide a business with a competitive advantage over rivals.

Outsourcing does have disadvantages. Signing contracts with other companies may take time and extra effort from a firm's legal team. Security threats occur if another party has access to a company's confidential information and then that party suffers a data breach. A lack of communication between the company and the outsourced provider may occur, which could delay the completion of projects.

Outsourcing internationally can help companies benefit from the differences in labor and production costs among countries. Price dispersion in another country may entice a business to relocate some or all of its operations to the cheaper country in order to increase profitability and stay competitive within an industry. Many large corporations have eliminated their entire in-house customer service call centers, outsourcing that function to third-party outfits located in lower-cost locations.

First seen as a formal business strategy in 1989, outsourcing is the process of hiring third parties to conduct services that were typically performed by the company. Often, outsourcing is used so that a company can focus on its core operations. It is also used to cut costs on labor, among others. While privacy has been a recent area of controversy for outsourcing contractors, it has also drawn criticism for its impact on the labor market in domestic economies.

Consider a bank that outsources its customer service operations. Here, all customer-facing inquiries or complaints with concern to its online banking service would be handled by a third party. While choosing to outsource some business operations is often a complex decision, the bank determined that it would prove to be the most effective allocation of capital, given both consumer demand, the specialty of the third-party, and cost-saving attributes. 

The disadvantages of outsourcing include communication difficulties, security threats where sensitive data is increasingly at stake, and additional legal duties. On a broader level, outsourcing may have the potential to disrupt a labor force. One example that often comes to mind is the manufacturing industry in America, where now a large extent of production has moved internationally. In turn, higher-skilled manufacturing jobs, such as robotics or precision machines, have emerged at a greater scale.

While outsourcing can be advantageous to an organization that values time over money, some downsides can materialize if the organization needs to retain control. Outsourcing manufacturing of a simple item like clothing will carry much less risk than outsourcing something complex like rocket fuel or financial modeling. Businesses looking to outsource need to adequately compare the benefits and risks before moving forward.