Outsourcing

Outsourcing

The goal of this paper is to examine the trends in outsourcing. Newspapers, magazines, television, and the internet have been buzzing about the significant numbers of jobs going offshore. It is estimated that America has lost anywhere between 600,000 to 995,000 jobs out of 130 million jobs in the last three years. (cnet.com) Although it's only a fraction compared to the total number of jobs, still it is startling and needs to be looked at. The first part of the paper discusses outsourcing in general. The second part discusses the current situation and trends in outsourcing. The third part of the paper covers insights about what we can expect in future.

Outsourcing is the delegation of tasks or jobs from internal production to an external entity (such as a subcontractor). Most recently, it has come to mean the elimination of native staff to staff overseas, where salaries are marked lower. Although the majority of outsourcing that occurs today is within our country. Outsourcing is defined as the management and/or day-to-day execution of an entire business function by a third party service provider.

With the rise of Globalization, many companies are turning to outsourcing or off shoring. Off shoring can be defined as relocation of business processes

(including production/manufacturing) to a lower cost location, usually overseas. Offshore outsourcing is the practice of hiring an external organization to perform some or all business functions in a country other than the one where the product will be sold or consumed. The client is usually free to choose who provides the outsourced business processes, while stock markets press the company to do more for less. This requires that manager's search out the cheapest sources they can find. In countries like India and China (primarily Bangalore in India), companies like IBM, Microsoft, and Hewlett Packard choose to get services from sub-contractors in these countries or move many development and support jobs there. Smaller businesses can also take advantage of freelancing on the Internet to get smaller projects done by offshore developers at minimum cost.

Struggling to do more with less, companies looked for less expensive avenues of development and support. For the United States, India seemed like a perfect resource for these needs since most nationals spoke English--a side effect of several decades of British colonial rule. A company can hire an engineer in India, for example, for $10,000 a year where an equally qualified engineer in the U.S. could cost $60,000-$90,000 a year. A side effect of this practice led to the domestic unemployables of thousands of high-tech professionals, many of whom were new college graduates. Many of these new graduates studied high-tech fields specifically because a few years earlier, they were told there was an earnest need for people with the skills they actively acquired. Many companies required their employees to train their offshore replacements, after which they were downsized (laid off). Outsourcing is not just related to the services sector. A lot of manufacturing of products is also outsourced to countries like China and Taiwan. Consumer products including clothes and computer hardware are manufactured in these countries due to cheap labor. These products in turn lead to cheaper prices in the consuming nations.

There are many factors involved in the outsourcing equation, and the importance given to them will depend on the circumstances of each case. Cost Saving Outsourcing can reduce both fixed and recurrent costs. The vendor can save on IT hardware and software costs through consolidation of operations and through operating from a stronger bargaining, bulk purchaser position in the market for both products and support services. They can gain access to skills, and client organizations they require as and when they are required, and can call on resources of the supplier for highly specialized skills. Access to Technology, many organizations find keeping up with technical developments in computing and communications very difficult. Operational decisions in regard to computing and communications are often adversely effected by a lack of in-depth knowledge of the full range of technical options available. This can lead to using inappropriate technology and/or inappropriately using technology. Furthermore, many organizations find that they bear high fixed costs to cover an unbalanced workload. Maintaining the level of equipment and human resources required to cover workload peaks can leave an organization with unfertilized resources for a significant proportion of the time. Outsourcing the workload peaks can bring considerable savings. Another outcome of outsourcing can be a greater focus on service quality, and a consequent quality improvement.

While there can be advantages in outsourcing there are a number of things that can go wrong. It is important to ask several questions: what are the organization's intentions, what problems is it intended to solve questions, do vendor's have solutions to these problems? Then you need to look at Transaction Costs, outsourcing involves considerable costs in the administration of tendering and in the ongoing supervision and management of contracts. One potential disadvantage is the existence of hidden or additional costs. One of the hidden costs in an outsourcing contract can be the erosion of staff skills. Contracts generally provide for IT staff to move to the outsource