Offshore outsourcing

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Offshore outsourcing is the practice of hiring an external organization to perform some business functions ("Outsourcing") in a country other than the one where the products or services are actually developed or manufactured ("Offshore"). It can be contrasted with offshoring, in which a company moves itself entirely to another country, or where 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.

Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another.

In marketing, a product is an object or system made available for consumer use; it is anything that can be offered to a market to satisfy the desire or need of a customer. In retailing, products are often referred to as merchandise, and in manufacturing, products are bought as raw materials and then sold as finished goods. A service is also regarded to as a type of product.

Service (economics) intangible offering inseparable from its creators labor, which brings utility value to their buyer

In economics, a service is a transaction in which no physical goods are transferred from the seller to the buyer. The benefits of such a service are held to be demonstrated by the buyer's willingness to make the exchange. Public services are those that society as a whole pays for. Using resources, skill, ingenuity, and experience, service providers benefit service consumers. Service is intangible in nature.

Contents

Types

There are four basic types of offshore outsourcing:

Criteria

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

Internet Global system of connected computer networks

The Internet is the global system of interconnected computer networks that use the Internet protocol suite (TCP/IP) to link devices worldwide. It is a network of networks that consists of private, public, academic, business, and government networks of local to global scope, linked by a broad array of electronic, wireless, and optical networking technologies. The Internet carries a vast range of information resources and services, such as the inter-linked hypertext documents and applications of the World Wide Web (WWW), electronic mail, telephony, and file sharing. Some publications no longer capitalize "internet".

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.

Countries involved

Some of the major countries/districts that provide such services, among many others, are:-

Algeria country in North Africa

Algeria, officially the People's Democratic Republic of Algeria, is a country in the Maghreb region of North Africa. The capital and most populous city is Algiers, located in the far north of the country on the Mediterranean coast. With an area of 2,381,741 square kilometres (919,595 sq mi), Algeria is the tenth-largest country in the world, the world's largest Arab country, and the largest in Africa. Algeria is bordered to the northeast by Tunisia, to the east by Libya, to the west by Morocco, to the southwest by the Western Saharan territory, Mauritania, and Mali, to the southeast by Niger, and to the north by the Mediterranean Sea. The country is a semi-presidential republic consisting of 48 provinces and 1,541 communes (counties). It has the highest human development index of all non-island African countries.

Argentina federal republic in South America

Argentina, officially the Argentine Republic, is a country located mostly in the southern half of South America. Sharing the bulk of the Southern Cone with Chile to the west, the country is also bordered by Bolivia and Paraguay to the north, Brazil to the northeast, Uruguay and the South Atlantic Ocean to the east, and the Drake Passage to the south. With a mainland area of 2,780,400 km2 (1,073,500 sq mi), Argentina is the eighth-largest country in the world, the fourth largest in the Americas, and the largest Spanish-speaking nation. The sovereign state is subdivided into twenty-three provinces and one autonomous city, Buenos Aires, which is the federal capital of the nation as decided by Congress. The provinces and the capital have their own constitutions, but exist under a federal system. Argentina claims sovereignty over part of Antarctica, the Falkland Islands, and South Georgia and the South Sandwich Islands.

Bangladesh Country in South Asia

Bangladesh, officially the People's Republic of Bangladesh, is a sovereign country in South Asia. It shares land borders with India and Myanmar (Burma). The country's maritime territory in the Bay of Bengal is roughly equal to the size of its land area. Bangladesh is the world's eighth most populous country as well as its most densely-populated, to the exclusion of small island nations and city-states. Dhaka is its capital and largest city, followed by Chittagong, which has the country's largest port. Bangladesh forms the largest and easternmost part of the Bengal region. Bangladeshis include people from a range of ethnic groups and religions. Bengalis, who speak the official Bengali language, make up 98% of the population. The politically dominant Bengali Muslims make the nation the world's third largest Muslim-majority country. Islam is the official religion of Bangladesh.

Impact of the Internet

The widespread use and availability of the Internet has enabled individuals and small businesses to contract freelancers from all over the world to get projects done at a lower cost due to lower wages and property prices. Crowdsourcing systems such as Mechanical Turk and CrowdFlower have added the element of scalability, allowing businesses to outsource information tasks across the Internet to thousands of workers.

A freelancer or freelance worker, is a term commonly used for a person who is self-employed and is not necessarily committed to a particular employer long-term. Freelance workers are sometimes represented by a company or a temporary agency that resells freelance labor to clients; others work independently or use professional associations or websites to get work.

Cost value of money that has been used up to produce something

In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this case, money is the input that is gone in order to acquire the thing. This acquisition cost may be the sum of the cost of production as incurred by the original producer, and further costs of transaction as incurred by the acquirer over and above the price paid to the producer. Usually, the price also includes a mark-up for profit over the cost of production.

Crowdsourcing is a sourcing model in which individuals or organizations obtain goods and services, including ideas and finances, from a large, relatively open and often rapidly-evolving group of internet users; it divides work between participants to achieve a cumulative result. The word crowdsourcing itself is a portmanteau of crowd and outsourcing, and was coined in 2005. As a mode of sourcing, crowdsourcing existed prior to the digital age.

This trend runs in parallel with the tendency towards outsourcing in larger corporations, and may serve to strengthen small business' capacity to compete with their larger competitors (who are capable of setting up offshore locations) or arrive at major contracts with offshore companies.

Small business privately owned corporations, partnerships, or sole proprietorships

Small businesses are privately owned corporations, partnerships, or sole proprietorships that have fewer employees and/or less annual revenue than a regular-sized business or corporation. Businesses are defined as "small" in terms of being able to apply for government support and qualify for preferential tax policy varies depending on the country and industry. Small businesses range from fifteen employees under the Australian Fair Work Act 2009, fifty employees according to the definition used by the European Union, and fewer than five hundred employees to qualify for many U.S. Small Business Administration programs. While small businesses can also be classified according to other methods, such as annual revenues, shipments, sales, assets, or by annual gross or net revenue or net profits, the number of employees is one of the most widely used measures.

On the other hand, according to Gartner, it also helped with accessibility to labor resources across the world, regardless of company size. [1] It gave rise to business models such as Remote In-Sourcing that allow companies to tap into resources found abroad, without losing control over security of product quality. The resulting ability to work remotely and online, will continue to have a huge impact on the overall development of the global economy, for small companies and for large corporations.

Source of conflict

There are different views on the impact of offshore outsourcing on the various societies affected, which reflects the attitude of Protectionism versus Free Trade. Some see it as a potential threat to the domestic job market in the developed world and ask for government protective measures (or at least closer scrutiny of existing trade practices), while others, including the countries who receive the work, see it as an opportunity. In fact, offshore outsourcing has led to Domestic factories and companies closing down leaving tens of thousands of U.S. workers jobless while underdeveloped countries such as Brazil, Turkey, etc. begin to flourish. [2] Free-trade advocates suggest economies as a whole will obtain a net benefit from labor offshoring, but it is unclear if the displaced receive a net benefit.

Many companies offshore outsource because the wages are cheaper in other areas. This is beginning to create a conflict because many wages overseas are raising. For example, a study by the U.S. Bureau of Labor Statistics found that Chinese wages were almost tripled in the seven years following 2002. The wage increases could change the set up of offshore outsourcing in years to come. [3]

One issue offshoring of technical services has brought more attention to is the value of education as an alleged solution to trade-related displacements. Education may no longer be a comparative advantage of high-wage nations because the cost of education may be lower in the nations involved in the controversy. While it is true that education is usually considered helpful to competitiveness in general, an "education arms race" with low-wage nations may not pay off.

See also

Further reading


Related Research Articles

Offshoring is the relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Typically this refers to a company business, although state governments may also employ offshoring. More recently, technical and administrative services have been offshored.

HCL Technologies information technology consulting, outsourcing services and software development company

HCL Technologies Limited is an Indian multinational technology company, headquartered in Noida, Uttar Pradesh, India. It is a subsidiary of HCL Enterprise. Originally a research and development division of HCL, it emerged as an independent company in 1991 when HCL ventured into the software services business.

Knowledge process outsourcing (KPO) describes the outsourcing of core information-related business activities which are competitively important or form an integral part of a company's value chain. KPO requires advanced analytical and technical skills as well as a high degree of specialist expertise.

Business process outsourcing in the Philippines

One of the most dynamic and fastest growing sectors in the Philippines is the information technology–business process outsourcing (IT-BPO) industry. The industry is composed of eight sub-sectors, namely, knowledge process outsourcing and back offices, animation, call centers, software development, game development, engineering design, and medical transcription. The IT-BPO industry plays a major role in the country's growth and development.

Farmshoring is the shifting of employment from abroad into rural communities across the United States. It is conceptually similar to onshoring which can be defined as "the act of transferring some of a company's recurring interval activities and decision rights to outside providers, as set in a contract". Farmshoring refers to a specific variety of outsourcing where, as well as services being sourced outside of the contracting company, they are outsourced from urban to rural locations.

Business process outsourcing to India refers to the business process outsourcing services in the outsourcing industry in India, catering mainly to Western operations of multinational corporations (MNCs).

On-demand outsourcing is a trend in outsourcing wherein major internal operations processes of a company are being shifted to a provider that is paid for by the number of transactions involved. The business transferring the services pays for the quality, special skills and the competence of the service provider's employees. There has been an expansion of the outsourcing concept to include on-demand outsourcing. This refers to the process undertaken by business managers to adopt an outsourcing policy that ensures that the specific business and supplies including technical manpower are accessed as the need arises. It focuses a business strategy to improve its goods and services and to drive a business towards quality improvement.

In software engineering, offshore custom software development consists in offshoring the software development process in a country where production costs are lower, thus decreasing budget spending.

Global sourcing is the practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. These efficiencies include low cost skilled labor, low cost raw material and other economic factors like tax breaks and low trade tariffs. A large number of Information Technology projects and Services, including IS Applications and Mobile Apps and database services are outsourced globally to countries like Pakistan and India for more economical pricing.

Softtek Mexican private company of IT services

Softtek is a Mexican-based information technology company, operating in North America, Latin America, Europe and Asia. As of 2010 it was the largest private IT vendor in Latin America. Headquartered in Monterrey, Mexico, the company has 12,000 associates in Mexico and abroad. The company offers application software development, testing, security and support; business process outsourcing (BPO); and IT infrastructure management, security and support to more than 400 corporations in more than 20 countries. It also acts as a value added reseller (VAR) for SAP SE, Informatica, Cognos, Business Objects and other software products. The company has trademarked the term "nearshoring" to describe the provision of outsourced services to customers in other countries that are in proximity.

Dalian Software Park

Dalian Software Park, also called DLSP, is an industrial zone, created in 1998 in the western suburbs of Dalian City, Liaoning Province, China, where many of the world's large and medium-sized IT-related companies have set up shop to do software development and information services. It is part of Dalian Hi-Tech Zone in the broader sense. While American and European companies typically have gone to Bangalore and other cities in India because of the English language capability, Japanese companies have gone to Dalian and other cities in China due to the Japanese language capability.

Software Testing Outsourcing is software testing carried out by an independent company or a group of people not directly involved in the process of software development.

Outsource Partners International (OPI) was acquired by EXL in June 2011. The acquisition marked the end of F&A outsourcing of OPI. OPI was a multinational company with headquarters in New York, NY and Los Angeles, CA. It operates from more than a dozen global locations throughout the US, UK, India, Bulgaria, and Malaysia. OPI was formed in 2002 through the acquisition of big four accounting firm's Business Process Outsourcing (BPO) division and itAccounts, a finance and accounting BPO company with an offshore F&A outsourcing facility in Bangalore, India. It offers finance, accounting and tax outsourcing services.

The Offshoring Research Network is an international network of researchers and practitioners studying organizations in their transition to globalizing their business functions, processes and administrative services. The ORN conducts annual surveys tracking global sourcing strategies, drivers, concrete implementations and plans across all business functions and processes.

Banking business process outsourcing or banking BPO is a highly specialized sourcing strategy used by banks and lending institutions to support the business acquisition and account servicing activities associated with the customer lending lifecycle. These specific BPO services are usually offered through multi-year service-level agreements for all or portions of the credit card lending, consumer lending or commercial lending segments of the financial services market. Some larger financial services organizations choose to extend their sourcing strategy to include other outsourced services such as ITO systems and software, human resources outsourcing and benefits services, finance and accounting outsourcing (FAO) services, procurement or training outsourcing.

Backsourcing is the process of bringing previously outsourced jobs back under the roof of the company to be performed internally.

The term robotic automation or robotization refer to the automation of industrial and business processes using robots, of various guises. Robotic automation software refers to a class of software products used in that latter, clerical, context.

Robotic process automation is an emerging form of business process automation technology based on the notion of software robots or artificial intelligence (AI) workers.

Information Technology in Sri Lanka refers to the business process outsourcing, knowledge process outsourcing, software development, IT Services and IT education in Sri Lanka. Sri Lanka is ranked among the top 50 outsourcing destinations by AT Kearney, and Colombo is ranked among "Top 20 Emerging Cities" by Global Services Magazine. The export revenue of this industry grew from USD 213 million in 2007 to an estimated USD 720 million in 2013.

The business process outsourcing industry in China including IT and other outsourcing services for onshore and export markets surpassed 1 trillion yuan in 2016 according to the Ministry of Commerce (MOC).

References

  1. ↑ Gartner Outlines the Top 10 Forces to Impact Outsourcing and IT Services Industry. Sep. 2010. http://www.gartner.com/newsroom/id/1433214
  2. ↑ Kupchan, C. (2012, January 1). The Democratic malaise: Globalization and the threat to the West, 62-67.
  3. ↑ Plunkett Research Group, https://www.plunkettresearch.com/industries/outsourcing-offshoring-bpo-market-research/
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