What is insourcing?

Insourcing refers to the practice of assigning work to an individual or department within an organization instead of contracting it out to a third party. That is, the company uses its own resources to perform the work rather than those provided by another entity.

Understanding insourcing

Insourcing is a process where work that would otherwise be outsourced is carried out internally.

Insourcing may be the preferred option for several reasons:

Increased responsiveness

In today’s dynamic global market, businesses must be more agile than ever.

Outsourcing work is normally a slower process which can hinder a company’s responsiveness.

In fact, insourcing is more expensive in the short-term, yet might turn into a much more viable strategy in the long run.

However, it’s always critical to ask whether you’re trying to insource a critical function of the organization or not.

In many cases, if you need to test something quickly, which is outside of the core of the organization and yet worth undertaking, outsourcing might be a great way to start testing that out.

Take the case of how companies like Amazon “outsources” product discovery to third-party stores on top of Amazon.

As finding out new products might be quite expensive, Amazon hosts third-party stores on top of it, and for the third-party stores that turned out to be more successful, Amazon might buy them out or launch their own version.

While, of course, this might turn into a predatory tactic on the part of Amazon, when done in a more strategic way, it might be actually a win-win.

There are also other companies like, which have built a whole business on top of Amazon’s third-party sellers.

thrasio-business-model follows an acquisition entrepreneurship template, by surfing the Amazon third-party ecosystem. The company acquires Amazon sellers’ businesses and it scales them up. It follows a fast acquisition template to offer an exit to Amazon sellers. also follows a multi-brand and multi-product strategy, focused on consumer-brands.

In other words, it’s important to balance out outsourcing and insourcing to build competitive moats.

In some cases, it makes sense to insource right on (especially when the function is very close to the core of the business).

In some other cases, it makes sense to outsource (especially when the function is far from the core), to kick off fast experimentation, and plan the insource if the experiment works out.

Knowledge and social capital

In the most successful organizations, social capital fosters collaboration between ambitious employees who are motivated to reach their objectives.

Insourcing keeps this knowledge in-house, where it can be utilized with the greatest impact.

For some companies, insourcing is part of the culture. Whereas those organizations try to develop most of the processes in-house.

For other organizations, it’s the opposite, where they use primarily outsourcing as a way to develop the business.

It’s worth highlighting that most companies, as they scale, they use outsourcing to quickly expand (as insourcing all the business processes right on might be too expansive and slow).

As we’ll see, a hybrid way is to use an outsourcing process where you rely on strategic partners.

Which work almost as if they were internal to the organizations, this enables the company to move faster and yet make sure that the outsourcing partner understands the specifics of the core of the business.

Lack of control

In some cases, poor-quality work is produced by the outsourcing company, which results in significant financial losses.

Insourcing can be more desirable since the company has more control over decision-making and the final product.

Also, here, it’s worth highlighting that while in-sourcing brings control, it also increases costs, for the organization.

Thus, it’s always critical to ask, whether insourcing makes sense and if it’s close enough to a strategic side of the business.

Wanting to insource, as a rule of thumb, makes sense as long as it does not increase the cost of doing business, to the point of making the organization too expensive and inefficient to run.

How does insourcing work?

Before insourcing can take place, the company must first identify a need, project, or area where it is otherwise lacking that could benefit from professional guidance.

The company may then transfer one or more specialists to an existing team or create a new team subject to resource constraints.

Insourced staff may work for a predetermined period or until certain KPIs or objectives have been met.

Some may establish new company-wide processes and procedures and/or remain in their new roles indefinitely.

Insourcing Strategies

Let’s look at three models for insourcing.

Insourcing only the strategic units

In this case, the organization only brings in projects that are very close to the core.

Take the case of a fashion e-commerce company, which over time, decides to bring in-house clothes manufacturing, to improve quality and control over the creative process drastically.

Insourcing it all

Some organizations have in their DNA the willingness to insource most parts. of the process.

An example is how Tesla started early on to go direct while trying to, over time, bring all production processes in-house.

Tesla is vertically integrated. Therefore, the company runs and operates the Tesla plants where cars are manufactured and the Gigafactory which produces the battery packs and stationary storage systems for its electric vehicles, which are sold via direct channels like the Tesla online store and the Tesla physical stores.

Today, Tesla is a vertically integrated organization.

To be sure, it took fifteen years for Tesla to achieve that, yet its “insourcing mindset” led the company to look for all possible ways to bring in-house most of the business processes.

This was an extremely expensive strategy, yet it might turn successful in the long-


An interesting example is Apple.

The company managed to successfully build iPhone’s manufacturing processes outside the US and mostly in China, and yet keep the iPhone as one. of the most expensive tech devices on the market.

It costs Apple $501 to make an iPhone 14 Pro Max, and the company sells it at a base price of $1099. This makes Apple’s base markup on the latest iPhone model at 119% Apple is the only tech company able to sell its tech products at a such a premium, thanks to a combination of hardware, software and marketplace.

How did Apple do that?

It balanced outsourcing with insourcing.

Indeed, while Apple outsourced the manufacturing side, it kept tight control over the design part, which is one of the core tenets of Apple’s business model.

And it kept tight control over the demand side with its branding and expensive store strategy, which is the core of Apple’s distribution strategy.

In 2022, most of Apple’s sales (62%) came from indirect channels (comprising third-party cellular networks, wholesalers/retailers, and resellers). These channels are critical for sales amplification, scale, and subsidies (to enable the iPhone to be purchased by many people). In comparison, the direct channel represented 38% of the total revenues. Stores are critical for customer experience, enabling the service business, and branding at scale.

This hybrid model, enabled Apple to completely unleash its manufacturing capabilities outside the US, thus making the iPhone extremely cheap to make.

While the company kept tight control of strategic assets, such as design (UX) and demand (owned stores strategy).

Insourcing examples

Let’s conclude by describing two insourcing examples that will provide clarity on the practice.

Breakfast cereal company

Consider a British breakfast cereal company that wants to expand its marketing and promotional activities to France and Spain.

Since its ads have only been run in English, the cereal maker requires French and Spanish speakers.

Many companies who have found themselves in a similar position have contracted the creation of the ads to a third party in the relevant country.

The cereal company, however, uses insourcing to recruit native French and Spanish speakers who then build their own internal teams.

In addition to translating existing promotional materials, the new staff play a pivotal role in the creation of culturally-sensitive and relevant ads for French and Spanish audiences.

Agricultural machinery company

In the next example, we have a company that designs and manufactures heavy machinery for agricultural purposes such as combine harvesters, tractors, and balers. 

In preparation for the release of a new harvester, the company recruits its in-house engineers to write the owner’s manual instead of looking for assistance externally.

Sensing that it would be more cost-effective than outsourcing, the company pays for its engineers to enroll in a technical writing course.

With more internal control over the process, the manuals are more likely to be of a sufficient standard.

Key takeaways:

  • Insourcing is a process where work that would otherwise be outsourced is carried out internally. Benefits include increased responsiveness, improved knowledge and social capital, and more control over the final product.
  • Before insourcing can take place, the company must first identify a need, project, or area where it is otherwise lacking that could benefit from professional guidance.
  • A cereal company can use insourcing to hire French and Native speakers as part of an international expansion effort. A manufacturer of heavy machinery can also use it to avoid having to hire external technical writers.

Connected Economic Concepts

Market Economy

The idea of a market economy first came from classical economists, including David Ricardo, Jean-Baptiste Say, and Adam Smith. All three of these economists were advocates for a free market. They argued that the “invisible hand” of market incentives and profit motives were more efficient in guiding economic decisions to prosperity than strict government planning.

Positive and Normative Economics

Positive economics is concerned with describing and explaining economic phenomena; it is based on facts and empirical evidence. Normative economics, on the other hand, is concerned with making judgments about what “should be” done. It contains value judgments and recommendations about how the economy should be.


When there is an increased price of goods and services over a long period, it is called inflation. In these times, currency shows less potential to buy products and services. Thus, general prices of goods and services increase. Consequently, decreases in the purchasing power of currency is called inflation. 

Asymmetric Information

Asymmetric information as a concept has probably existed for thousands of years, but it became mainstream in 2001 after Michael Spence, George Akerlof, and Joseph Stiglitz won the Nobel Prize in Economics for their work on information asymmetry in capital markets. Asymmetric information, otherwise known as information asymmetry, occurs when one party in a business transaction has access to more information than the other party.


Autarky comes from the Greek words autos (self)and arkein (to suffice) and in essence, describes a general state of self-sufficiency. However, the term is most commonly used to describe the economic system of a nation that can operate without support from the economic systems of other nations. Autarky, therefore, is an economic system characterized by self-sufficiency and limited trade with international partners.

Demand-Side Economics

Demand side economics refers to a belief that economic growth and full employment are driven by the demand for products and services.

Supply-Side Economics

Supply side economics is a macroeconomic theory that posits that production or supply is the main driver of economic growth.

Creative Destruction

Creative destruction was first described by Austrian economist Joseph Schumpeter in 1942, who suggested that capital was never stationary and constantly evolving. To describe this process, Schumpeter defined creative destruction as the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” Therefore, creative destruction is the replacing of long-standing practices or procedures with more innovative, disruptive practices in capitalist markets.

Happiness Economics

Happiness economics seeks to relate economic decisions to wider measures of individual welfare than traditional measures which focus on income and wealth. Happiness economics, therefore, is the formal study of the relationship between individual satisfaction, employment, and wealth.


An oligopsony is a market form characterized by the presence of only a small number of buyers. These buyers have market power and can lower the price of a good or service because of a lack of competition. In other words, the seller loses its bargaining power because it is unable to find a buyer outside of the oligopsony that is willing to pay a better price.

Animal Spirits

The term “animal spirits” is derived from the Latin spiritus animalis, loosely translated as “the breath that awakens the human mind”. As far back as 300 B.C., animal spirits were used to explain psychological phenomena such as hysterias and manias. Animal spirits also appeared in literature where they exemplified qualities such as exuberance, gaiety, and courage.  Thus, the term “animal spirits” is used to describe how people arrive at financial decisions during periods of economic stress or uncertainty.

State Capitalism

State capitalism is an economic system where business and commercial activity is controlled by the state through state-owned enterprises. In a state capitalist environment, the government is the principal actor. It takes an active role in the formation, regulation, and subsidization of businesses to divert capital to state-appointed bureaucrats. In effect, the government uses capital to further its political ambitions or strengthen its leverage on the international stage.

Boom And Bust Cycle

The boom and bust cycle describes the alternating periods of economic growth and decline common in many capitalist economies. The boom and bust cycle is a phrase used to describe the fluctuations in an economy in which there is persistent expansion and contraction. Expansion is associated with prosperity, while the contraction is associated with either a recession or a depression.

Paradox of Thrift

The paradox of thrift was popularised by British economist John Maynard Keynes and is a central component of Keynesian economics. Proponents of Keynesian economics believe the proper response to a recession is more spending, more risk-taking, and less saving. They also believe that spending, otherwise known as consumption, drives economic growth. The paradox of thrift, therefore, is an economic theory arguing that personal savings are a net drag on the economy during a recession.

Circular Flow Model

In simplistic terms, the circular flow model describes the mutually beneficial exchange of money between the two most vital parts of an economy: households, firms and how money moves between them. The circular flow model describes money as it moves through various aspects of society in a cyclical process.

Trade Deficit

Trade deficits occur when a country’s imports outweigh its exports over a specific period. Experts also refer to this as a negative balance of trade. Most of the time, trade balances are calculated based on a variety of different categories.

Market Types

A market type is a way a given group of consumers and producers interact, based on the context determined by the readiness of consumers to understand the product, the complexity of the product; how big is the existing market and how much it can potentially expand in the future.

Rational Choice Theory

Rational choice theory states that an individual uses rational calculations to make rational choices that are most in line with their personal preferences. Rational choice theory refers to a set of guidelines that explain economic and social behavior. The theory has two underlying assumptions, which are completeness (individuals have access to a set of alternatives among they can equally choose) and transitivity.

Conflict Theory

Conflict theory argues that due to competition for limited resources, society is in a perpetual state of conflict.

Peer-to-Peer Economy

The peer-to-peer (P2P) economy is one where buyers and sellers interact directly without the need for an intermediary third party or other business. The peer-to-peer economy is a business model where two individuals buy and sell products and services directly. In a peer-to-peer company, the seller has the ability to create the product or offer the service themselves.


The term “knowledge economy” was first coined in the 1960s by Peter Drucker. The management consultant used the term to describe a shift from traditional economies, where there was a reliance on unskilled labor and primary production, to economies reliant on service industries and jobs requiring more thinking and data analysis. The knowledge economy is a system of consumption and production based on knowledge-intensive activities that contribute to scientific and technical innovation.

Command Economy

In a command economy, the government controls the economy through various commands, laws, and national goals which are used to coordinate complex social and economic systems. In other words, a social or political hierarchy determines what is produced, how it is produced, and how it is distributed. Therefore, the command economy is one in which the government controls all major aspects of the economy and economic production.

Labor Unions

How do you protect your rights as a worker? Who is there to help defend you against unfair and unjust work conditions? Both of these questions have an answer, and it’s a solution that many are familiar with. The answer is a labor union. From construction to teaching, there are labor unions out there for just about any field of work.

Bottom of The Pyramid

The bottom of the pyramid is a term describing the largest and poorest global socio-economic group. Franklin D. Roosevelt first used the bottom of the pyramid (BOP) in a 1932 public address during the Great Depression. Roosevelt noted that – when talking about the ‘forgotten man:’ “these unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power.. that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.”


Glocalization is a portmanteau of the words “globalization” and “localization.” It is a concept that describes a globally developed and distributed product or service that is also adjusted to be suitable for sale in the local market. With the rise of the digital economy, brands now can go global by building a local footprint.

Market Fragmentation

Market fragmentation is most commonly seen in growing markets, which fragment and break away from the parent market to become self-sustaining markets with different products and services. Market fragmentation is a concept suggesting that all markets are diverse and fragment into distinct customer groups over time.

L-Shaped Recovery

The L-shaped recovery refers to an economy that declines steeply and then flatlines with weak or no growth. On a graph plotting GDP against time, this precipitous fall combined with a long period of stagnation looks like the letter “L”. The L-shaped recovery is sometimes called an L-shaped recession because the economy does not return to trend line growth.  The L-shaped recovery, therefore, is a recession shape used by economists to describe different types of recessions and their subsequent recoveries. In an L-shaped recovery, the economy is characterized by a severe recession with high unemployment and near-zero economic growth.

Comparative Advantage

Comparative advantage was first described by political economist David Ricardo in his book Principles of Political Economy and Taxation. Ricardo used his theory to argue against Great Britain’s protectionist laws which restricted the import of wheat from 1815 to 1846.  Comparative advantage occurs when a country can produce a good or service for a lower opportunity cost than another country.

Easterlin Paradox

The Easterlin paradox was first described by then professor of economics at the University of Pennsylvania Richard Easterlin. In the 1970s, Easterlin found that despite the American economy experiencing growth over the previous few decades, the average level of happiness seen in American citizens remained the same. He called this the Easterlin paradox, where income and happiness correlate with each other until a certain point is reached after at least ten years or so. After this point, income and happiness levels are not significantly related. The Easterlin paradox states that happiness is positively correlated with income, but only to a certain extent.

Economies of Scale

In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and increase production, a subsequent decrease in the costs associated with it will help the organization scale further.

Diseconomies of Scale

In Economics, a Diseconomy of Scale happens when a company has grown so large that its costs per unit will start to increase. Thus, losing the benefits of scale. That can happen due to several factors arising as a company scales. From coordination issues to management inefficiencies and lack of proper communication flows.

Economies of Scope

An economy of scope means that the production of one good reduces the cost of producing some other related good. This means the unit cost to produce a product will decline as the variety of manufactured products increases. Importantly, the manufactured products must be related in some way.

Price Sensitivity

Price sensitivity can be explained using the price elasticity of demand, a concept in economics that measures the variation in product demand as the price of the product itself varies. In consumer behavior, price sensitivity describes and measures fluctuations in product demand as the price of that product changes.

Network Effects

In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 

Negative Network Effects

In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 

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