Let us start at the beginning with a definition of what is outsourcing. Outsourcing can be described in many ways, but at its simplest it is allocating work to a third party. Outsourcing has applications in several industries. However in the case of IT outsourcing, you can either outsource the entire management of all your IT requirements or a small, simple part at the other end of the spectrum. For instance it is quite common for companies to outsource services like data storage or disaster recovery to service providers specializing in these.
Outsourcing or Offshoring?
Many people mix up the terms outsourcing and offshoring. For them, both terms mean the same, but this is not very accurate. Outsourcing can be either offshore or within your country. In other words, offshore outsourcing is a sub set of outsourcing. Offshore outsourcing is often a way to avail the cost benefits of the country to which work is outsourced.
This is a controversy-ridden topic in the political circles. When companies outsource work to offshore locations, it often results in layoffs. Thus there has been a lot of debate on the desirability of offshore outsourcing.
Each company that considers outsourcing has its own specific business situations, but these could be categorized into the following reasons.
Cost savings. This could be either due to low labor rates (especially in the case of offshore outsourcing) or the economies of scale.
A decision to focus on core competencies and get peripheral tasks accomplished by a third party
The possibility of having variable capacities
Inadequate resources within the company to meet a sudden requirement
Increased effectiveness or efficiency by allocating tasks to specialist outfits
Costs become more predictable
No need to continue investing on internal infrastructure
Immediate access to newer technologies and ways of doing things without having to invest huge amounts to own them
The Outsourcing Hubs
Think outsourcing/offshoring and most of us come up with India as "the place". Of course, there is a lot of truth to this perception. However we need to make some discrimination based on nature of work, the reasons and whether the company can manage the relationship in-house.
The A.T. Kearney Global Services Location Index of 2005 pitches the United States as the topmost location for people skills and IT services. According to this report, Philippines and Ghana are the topmost financial structures in support of outsourcing. Singapore wins the medal for the best IT services business environment.
In the Asian region, India and China are the most dominant players for IT services. However these regions are not without their problems, one important concern being rising wages. China also faces intellectual property issues, while India presents turnover hassles. Eastern Europe and Central Europe have joined the bandwagon too, but cost factors are posing problems in these regions. Outsourcing to Africa and the Middle East is on the rise too, political instability being the bane in this case.
Evidently, there is no such thing as the problem-free place for outsourcing. What is clear is that offshore outsourcing is a major decision for any organization, with long term ramifications. A sensible approach would be to figure out the requirements, the whys and the wherefores, before choosing one destination over the others.
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