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Global outsourcing is the process of contracting for services and the manufacturing of goods to countries typically offshore. The U.S. is the worlds biggest buyer of outsourced services spending billions of dollars each year.
The New Global Economy
This term as been around for years, but within the last few years the impact of global outsourcing has come full circle. On the one hand organizations choosing to outsource, do so to save money. Especially for companies located within the U.S. having access to top level highly skilled IT and BPO workers for a fraction of what it would cost to hire an American employee is too good to pass up. On the other hand workers in other countries have over time, begun to feel exploited.
American workers dealing with an economy on life support, are unemployed and angry about millions of jobs going to non-U.S. workers over seas.
The majority of the world’s outsourcing is contracted to providers or vendors in India. The tide however is beginning to shift a bit. India, while still the leader in outsourced services is getting increased competition from China, Malaysia , Brazil and The Philippines. From a cost perspective, outsource providers based in India that were once offering substantial savings to companies contracting their services, are beginning to ask for more, and are less willing to negotiate lower fees.
Common examples include contracting providers in China for example to handle the manufacturing of computer parts. Along with cheap labor provided by Chinese workers. Another example are U.S. companies hiring an offshore provider to handle customer support and via call centers. Again, because the costs to run the same call center in the U.S. is substantially higher, companies opt to set up over seas call centers instead. The 800 hundred number an American consumer calls is seamlessly routed to a call center in a foreign country like India for example.
Outsourcing Pro And Cons
Choosing to participate in global outsourcing has advantages outside of just saving money. Although that is the most common reason for doing so. But as technology continues to evolve at a break neck pace, this kind of outsourcing gives any organization the opportunity to learn how to conduct business on an entirely new level. Business can tap into other economies and talent faster. It gives organizations more options than they have domestically. Which could make a company much more competitive within their industry.
The need to constantly find ways to reduce operating overhead makes outsourcing a viable and in many case a necessary option. Domestically, companies have fewer options to cut costs. But buying services offshore means the options to save money increase significantly due to the abundance of lower cost providers.
When looking for the disadvantages, many organizations not savvy about how global outsourcing works can and do end up spending a lot more money than they initially planned. This happens more often than not, when a company is not aware of hidden costs. These costs can come from contracting in countries with known political unrest. Time zones and cultural differences can increase costs as well. Specifically due to communication problems. Simple instructions can be confusing for foreign providers as American colloquialisms can be a real problem. A break down in communication can bring projects to a screeching halt. Time is money.
Another disadvantage has to do with security. Theft of financial data and private company and customer information is a real concern and rightfully so. The same can be said for intellectual property. There have been cases where the offshore provider has sold sensitive private data. In certain countries like China for example, theft of intellectual property is quite common. U.S. companies have a difficult and in some case impossible task of trying to seek legal action. Unfortunately, without the support of the Chinese government to assist in cracking down on intellectual theft it is a daunting task to say the least.
When it comes to manufactured goods overseas. The time frame for delivery can be much longer than if it were done onshore. This can be due to shipping interruptions caused by political upheaval and terrorist attacks. In addition to this, the ability to monitor and assess the quality of goods before it is shipped to the U.S. can be limited.
It should be noted that while the disadvantages are real issues experienced by several companies. The chance to save money still makes outsourcing to the global market an opportunity worth taking the risk.
In spite of global economic woes, outsourcing to the global marketplace will continue. ITO has paved the way for BPO to continue it’s growth of procured services. The numbers vary from one analyst and market researcher to the next. But one thing they all seem to agree on is outsourcing is alive and well and will continue to grow in the coming years.
Datamonitor predicts global outsourcing will grow at least 7% by the end of 2011 with expenditures at a staggering $650 billion dollars. About 65% of that number will come from the U.S. alone. 2014 could see an increased of 10% and over $800 billion dollars.
In spite of the disadvantages, companies that want to remain competitive, reduce overall costs, and expand their core business cannot afford not to outsource. Especially in industries where technology and software development advances need to happen quickly. Highly skilled programmers available at a much lower cost than American programmers is a fact that cannot be overlooked.
As BPO becomes a bigger percentage of outsourced services, companies will be able to re- invest a substantially increased amount of income back into their core business. However, in order for companies to realize success they will need to be able to manage the outsourcing process to keep costs from getting out of line and become more responsible for monitoring and protecting their data.
Love it or hate it, this way of doing business is necessary if companies want to compete and remain profitable. Global outsourcing will continue to evolve and shows no signs of slowing down.