• Cost savings. The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Access to lower cost economies through offshoring called “labor arbitrage” generated by the wage gap between industrialized and developing nations.
• Focus on Core Business. Resources (for example investment, people, infrastructure) are focused on developing the core business. For example often organizations outsource their IT support to specialised IT services companies.
• Cost restructuring. Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.
• Improve quality. Achieve a step change in quality through contracting out the service with a new service level agreement.
• Knowledge. Access to intellectual property and wider experience and knowledge.
  Contract. Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services.
• Operational expertise. Access to operational best practice that would be too difficult or time consuming to develop in-house.
• Access to talent. Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering.
• Capacity management. An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.
• Catalyst for change. An organization can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone. The outsourcer becomes a Change agent in the process.
• Enhance capacity for innovation. Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation.
• Reduce time to market. The acceleration of the development or production of a product through the additional capability brought by the supplier.
• Commodification. The trend of standardizing business processes, IT Services, and application services which enable to buy at the right price, allows businesses access to services which were only available to large corporations.
• Risk management. An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation.
• Venture Capital. Some countries match government funds venture capital with private venture capital for startups that start businesses in their country.
• Tax Benefit. Countries offer tax incentives to move manufacturing operations to counter high corporate taxes within another country.

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article “Outsourcing”.

It can be contrasted with offshoring, in which the functions are performed in a foreign country by a foreign subsidiary. Opponents point out that the practice of sending work overseas by countries with higher wages reduces their own domestic employment and domestic investment. Many customer service jobs as well as jobs in the information technology sectors (data processing, computer programming, and technical support) in countries such as the United States and the United Kingdom – have been or are potentially affected.

Criteria

The general criteria for a job to be offshore-able are:

• There is a significant wage difference between the original and offshore countries;
• The job can be telework;
• The work has a high information content;
• The work can be transmitted over the Internet;
• The work is easy to set up;
• The work is repeatable;

The driving factor behind the development of offshore outsourcing has been the need to cut costs while the enabling factor has been the global electronic internet network that allows digital data to be accessed and delivered instantly, from and to almost anywhere in the world.

One of the main factors influencing the beginnings of the offshore outsourcing movement were a combination of pressures to reduce labor costs, save on operational cost such as payroll, administrative cost, utilities and to improve productivity, and an expanding, economical labor in other countries. When companies outsource the idea is to save money if they can keep the prices of their product lower than competitors.

Countries involved

Some of the major countries/districts that provide such services are India ( Full Spectrum Services ), Ukraine (Programming and R&D), Brazil (Web & Software Programming,Game Development,IT Support,Network Solutions,Offshore Outsourcing Service), Argentina (Web & Software Programming,Game Development,IT Support,Network Solutions,Offshore Outsourcing Service),Indonesia (Programming, Data Entry, Customer Support), China (Programming, Data Entry, Customer Support, F&A), Philippines (Customer Support, IT Support, Programming, Animation, Transcription), Russia (Programming and R&D), Pakistan (Programming, Customer Support), Panama (Programming, Customer Support), Nepal (Programming, Customer Support), Bangladesh (Web & Software Programming,Game Development,IT Support,Network Solutions,Offshore Outsourcing Service), Bulgaria (Programming and R&D), Belarus (Programming, R&D), Romania (Programming and IT), the Philippines (Programming, R&D, Data Entry and Customer Support), Egypt (Customer Support and Programming), Malaysia (Customer Support and R&D), Mauritius (ITO and BPO) and many others.

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article “Offshore outsourcing”.

The term is in use in several distinct but closely related ways. It is sometimes used broadly to include substitution of a service from any foreign source for a service formerly produced internally to the firm. In other cases, only imported services from subsidiaries or other closely related suppliers are included. A further complication is that intermediate goods, such as partially completed computers, are not consistently included in the scope of the term.

Offshoring can be seen in the context of either production offshoring or services offshoring. After its accession to the World Trade Organization (WTO) in 2001, the People’s Republic of China emerged as a prominent destination for production offshoring. After technical progress in telecommunications improved the possibilities of trade in services, India became a country leading in this domain though many parts of the world are now emerging as offshore destinations.

The economic logic is to reduce costs. If some people can use some of their skills more cheaply than others, those people have the comparative advantage. The idea is that countries should freely trade the items that cost the least for them to produce.

Services offshoring

The growth of services offshoring is linked to the availability of large amounts of reliable and affordable communication infrastructure following the telecommunication and Internet expansion of the late 1990s. This was seen all the way up to the year 2000. Coupled with the digitization of many services, it was possible to shift the actual production location of services to low cost countries in a manner theoretically transparent to end-users.

India first benefited from the offshoring trend as it has a large pool of English speaking people and technically proficient manpower. India’s offshoring industry took root in low-end IT functions in the early 1990s and has since moved to back-office processes such as call centers and transaction processing. In the late 1990s, India’s abundant and cheap software engineering talent combined with massive demand from the Y2K problem helped to move India up the value chain to attract large-scale software development projects for US based customers. This spawned the neologism Bangalored, used to indicate a layoff, often systemic, and usually due to corporate outsourcing to lower wage economies – derived from Bangalore in India, where some of the first outsource centers were located.

Currently, India’s engineering talent has made India the offshoring destination of American high-tech firms, led by HP, IBM, Intel, AMD, Microsoft, Oracle Corporation, and Cisco. Each of these companies has promised or is in the process of investing at least $1 billion in India, to supposedly retain market share in the face of competition and cost-cutting measures of rivals and industry in general.

As a result of the offshoring boom, India has seen double-digit wage growth for much of the 2000s. Consequently, Indian’s operations and firms are concerned that they are becoming too expensive in comparison with competition from the other offshoring destinations listed below. They are now attempting to branch out and diversify to other high-end work in addition to software and hardware engineering. These jobs include research and development, equity analysis, tax-return processing, radiological analysis, medical transcription, and more.

The choice of offshoring destination is often made according to cultural concerns. Japanese companies are starting to outsource to China, where large numbers of Japanese speakers can be found — particularly in the city of Dalian, which was Japanese-occupied Chinese territory for decades (this is discussed in the book The World is Flat). German companies tend to outsource to Poland and Romania, where proficiency in German is common. French companies outsource to North Africa for similar reasons.

Other offshoring destinations include Mexico, Central and South America, the Philippines, South Africa and Eastern European countries.

The Central America Free Trade Agreement (CAFTA) made nearshoring more attractive between the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic and the US.

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article “Offshoring”.