All Topics  
Offshore outsourcing

 

 
   Email Print
   Bookmark   Link
 

 

Offshore outsourcing
 
 
  Topics Offshore outsourcing Topic Home

Offshore outsourcing is the practice of hiring an external organization to perform some business functions in a country other than the one where the products
Product (business)

The noun product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce from the Latin produce, lead or bring forth....
 or services are actually developed or manufactured. It can be contrasted with offshoring
Offshoring

Offshoring describes the relocation by a company of a business process from one country to another -- typically an operational process, such as manufacturing, or supporting processes, such as accounting....
, 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 wage
Wage

A wage is a compensation, usually financial, received by a worker Coincidence of wants for their Labor .Compensation in terms of wages is given to worker and compensation in terms of salary is given to employees....
s reduces their own domestic employment and domestic investment.






Discussion
Ask a question about 'Offshore outsourcing'
Start a new discussion about 'Offshore outsourcing'
Answer questions from other users
Full Discussion Forum



Encyclopedia


Offshore outsourcing is the practice of hiring an external organization to perform some business functions in a country other than the one where the products
Product (business)

The noun product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce from the Latin produce, lead or bring forth....
 or services are actually developed or manufactured. It can be contrasted with offshoring
Offshoring

Offshoring describes the relocation by a company of a business process from one country to another -- typically an operational process, such as manufacturing, or supporting processes, such as accounting....
, 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 wage
Wage

A wage is a compensation, usually financial, received by a worker Coincidence of wants for their Labor .Compensation in terms of wages is given to worker and compensation in terms of salary is given to employees....
s reduces their own domestic employment and domestic investment. Many customer service jobs as well as jobs in the information technology
Information technology

Information technology , as defined by the Information Technology Association of America , is "the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware." IT deals with the use of electronic computers and computer software to data conv...
 sectors (data processing
Data processing

Computer data processing is any computering Process that converts datas into information or knowledge. The processing is usually assumed to be automated and running on a computer....
, computer programming
Computer programming

Computer programming is the process of writing, testing, debugging/troubleshooting, and maintaining the source code of computer programs. This source code is written in a programming language....
, and technical support
Technical support

Technical support is a range of Customer service providing assistance with technology products such as mobile phones, televisions, computers, or other electronic or mechanical goods....
) in countries such as the United States
United States

The United States of America is a Federal government constitutional republic comprising U.S. state and a federal district. The country is situated mostly in central North America, where its Contiguous United States and Washington, D.C., the Capital districts and territories, lie between the Pacific Ocean and Atlantic Oceans, Borders of the U...
 and the United Kingdom
United Kingdom

The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom , the UK or Britain,is a sovereign state located off the northwestern coast of continental Europe....
 - have been or are potentially affected.

Types

There are four basic types of offshore outsourcing:
  • ITO — Information Technology Outsourcing
    Information Technology Outsourcing

    Information Technology Outsourcing or ITO is a company's outsourcing of computer or Internet related work, such as Programming, to other companies....
  • BPO — Business Process Outsourcing
    Business process outsourcing

    Business process outsourcing is a form of outsourcing that involves the contracting of the operations and responsibilities of a specific business functions to a third-party service provider....
     covers things like running call centers, processing insurance claims.
  • Software R&D — offshore software development
  • KPO - Knowledge Process Outsourcing
    Knowledge process outsourcing

    Knowledge process outsourcing is a form of outsourcing, in which knowledge-related and information-related work is carried out by workers in a different company or by a subsidiary of the same organization, which may be in the same country or in an offshore location to save cost....
     covers things that require a higher skill set such as reading X-Rays, performing investment research on stocks and bonds, handling the accounting functions for a business or executing engineering design projects.


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
    Internet

    The Internet is a global network of interconnected computers, enabling users to share information along multiple channels. Typically, a computer that connects to the Internet can access information from a vast array of available server and other computers by moving information from them to the computer's local memory....
    ;
  • 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.

Countries involved

Some of the major countries/districts that provide such services are India
India

India, officially the Republic of India , is a country in South Asia. It is the List of countries and outlying territories by total area country by geographical area, the List of countries by population country, and the most populous liberal democracy in the world....
 ( Full Spectrum Services ), Ukraine
Ukraine

Ukraine is a country in Eastern Europe. It is bordered by Russia to the east; Belarus to the north; Poland, Slovakia, and Hungary to the west; Romania and Moldova to the southwest; and the Black Sea and Sea of Azov to the south....
 (Programming and R&D), Brazil
Brazil

Brazil , officially the Federative Republic of Brazil , is a country in South America. It is the List of countries and outlying territories by total area country by geographical area, occupying nearly half of South America, the List of countries by population country, and the fourth most populous democracy in the world....
 (Web & Software Programming,Game Development,IT Support,Network Solutions,Offshore Outsourcing Service), Argentina
Argentina

Argentina, officially the Argentine Republic , is a country in South America, constituted as a federation of 23 provinces and an autonomous city....
 (Web & Software Programming,Game Development,IT Support,Network Solutions,Offshore Outsourcing Service),Indonesia
Indonesia

The Republic of Indonesia , is a transcontinental country in Southeast Asia and Oceania. Comprising Islands of Indonesia, it is the world's largest Archipelago state....
 (Programming, Data Entry, Customer Support), China
China

China is a Culture of China, an ancient civilization, and, depending on perspective, a national or multinational entity extending over a large area in East Asia....
 (Programming, Data Entry, Customer Support, F&A), Philippines
Philippines

The Philippines, officially known as the Republic of the Philippines, is a country in Southeast Asia with Manila as its capital city. It comprises 7,107 islands in the western Pacific Ocean....
 (Customer Support, IT Support, Programming, Animation, Transcription), Russia
Russia

Russia , or the Russian Federation , is a list of countries spanning more than one continent country extending over much of northern Eurasia....
 (Programming and R&D), Pakistan
Pakistan

Pakistan , officially the Islamic Republic of Pakistan, is a country located in South Asia and borders Central Asia and the Middle East. It has a 1,046 kilometre coastline along the Arabian Sea and Gulf of Oman in the south, and is bordered by Afghanistan and Iran in the west, India in the east and People's Republic of China in th...
 (Programming, Customer Support), Panama
Panama

Panama, officially the Republic of Panama , is the southernmost country of Central America and, in turn, North America. Situated on an isthmus connecting North and South America, some categorize it as a transcontinental nation....
 (Programming, Customer Support), Nepal
Nepal

Nepal , officially the Federal Democratic Republic of Nepal, is a landlocked country in South Asia and is the world's youngest republic. It is bordered to the north by the People's Republic of China, and to the south, east, and west by India....
 (Programming, Customer Support), Bangladesh
Bangladesh

, officially the People's Republic of Bangladesh is a country in South Asia. It is bordered by India on all sides except for a small border with Burma to the far southeast and by the Bay of Bengal to the south....
 (Web & Software Programming,Game Development,IT Support,Network Solutions,Offshore Outsourcing Service), Bulgaria
Bulgaria

The state of Bulgaria , Scientific transliteration Balgarija, officially the Republic of Bulgaria has played a significant role in the Balkans in south-eastern Europe for over fourteen centuries....
 (Programming and R&D), Belarus
Belarus

Belarus is a landlocked country in Eastern Europe, bordered by Russia to the north and east, Ukraine to the south, Poland to the west, and Lithuania and Latvia to the north....
 (Programming, R&D), Romania
Romania

Romania is a country located in Southeastern Europe Central Europe, North of the Balkan Peninsula, on the Lower Danube, within and outside the Carpathian Mountains, bordering on the Black Sea....
 (Programming and IT), the Philippines
Philippines

The Philippines, officially known as the Republic of the Philippines, is a country in Southeast Asia with Manila as its capital city. It comprises 7,107 islands in the western Pacific Ocean....
 (Programming, R&D, Data Entry and Customer Support), Egypt
Egypt

Egypt is a country mainly in North Africa, with the Sinai Peninsula forming a land bridge in Western Asia. Covering an area of about , Egypt borders the Mediterranean Sea to the north, the Gaza Strip and Israel to the northeast, the Red Sea to the east, Sudan to the south and Libya to the west....
 (Customer Support and Programming), Malaysia
Malaysia

Malaysia is a federation that consists of States of Malaysia in Southeast Asia with a total landmass of . The capital city is Kuala Lumpur, while Putrajaya is the seat of the federal government....
 (Customer Support and R&D), Mauritius
Mauritius

Mauritius , officially the Republic of Mauritius, , is an island nation off the coast of the African continent in the southwest Indian Ocean, about 900 kilometres east of Madagascar....
 (ITO and BPO) and many others.

Impact of the Internet


The widespread use and availability of the Internet has enabled individuals and small businesses to contract freelancer
Freelancer

A freelancer, freelance worker, or freelance is a self-employed person who pursues a profession without a long-term commitment to any particular employer....
s from all over the world to get projects done at a lower cost
Cost

In economics, business, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore....
 due to lower wages and property prices. Crowdsourcing
Crowdsourcing

Crowdsourcing is a neologism for the act of taking a task traditionally performed by an employee or contractor, and outsourcing it to an undefined, generally large group of people or community in the form of an open call....
 systems such as Mechanical Turk
Amazon Mechanical Turk

The Amazon Mechanical Turk is one of the suite of Amazon Web Services, a crowdsourcing marketplace that enables computer programs to co-ordinate the use of human intelligence to perform tasks which computers are unable to do....
 have added the element of scalability, allowing businesses to outsource information tasks across the Internet to thousands of workers.

This trend runs in parallel with the tendency towards outsourcing in larger corporations, and may serve to strengthen small business
Small business

A small business is a business that is independently owned and operated, with a small number of employees and relatively low volume of sales. The legal definition of "small" often varies by country and industry, but is generally under 100 employees in the United States and under 50 employees in the European Union....
' capacity to compete with their larger competitors capable of setting up offshore locations, or of arriving at major contracts with offshore companies. See Freelancing on the Internet.

Source of conflict

There are different views on the impact on the various societies affected, which reflects the attitude of Protectionism
Protectionism

Protectionism is the economic policy of restraining trade between nations, through methods such as tariffs on imported goods, restrictive import quota, and a variety of other restrictive government regulations designed to discourage imports, and prevent foreign take-over of local markets and companies....
 versus Free Trade
Free trade

Free trade is a type of trade policy that allows traders to act and transact without coercive interference from government. Thus, the policy permits trading partners mutual gains from trade, with goods and services produced according to the law of comparative advantage....
. 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. 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.

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
Comparative advantage

In economics, comparative advantage refers to the ability of a person or a country to produce a particular good at a lower opportunity cost than another person or country....
 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
Arms race

The term arms race, in its original usage, describes a competition between two or more parties for real or apparent military supremacy. Each party competes to produce larger numbers of weapons, greater armies, or superior military technology in a technological escalation....
" with low-wage nations may not pay off.

Sources

Economist.Com Recommendations from November 11, 2004 Special Survey Edition

For a new topic, outsourcing has produced a huge volume of research, not all of it worthwhile. Here is a sprinkling of some of the better stuff:

From the McKinsey Global Institute

“Offshoring: Is It a Win-Win Game?”, August 2003

“New Horizons: Multinational Company Investment in Developing Economies”, October 2003

“Can Germany Win from Offshoring?”, Diana Farrell, July 2004

“Exploding the Myths of Offshoring”, Martin Baily and Diana Farrell, July 2004

From the Boston Consulting Group

“China: The Pursuit of Competitive Advantage and Profitable Growth”, July 2003

“Capturing Global Advantage”, April 2004

From the Offshoring Research Network

“A Dynamic Perspective on Next-Generation Offshoring: The Global Sourcing of Science and Engineering Talent”, Stephan Manning, Silvia Massini and Arie Y. Lewin, in: Academy of Management Perspectives, Vol. 22, No.3, October 2008, 35-54.

[https://offshoring.fuqua.duke.edu/pdfs/DukeServiceProviderReport_web.pdf “Offshoring 2.0: Contracting Knowledge and Innovation to Expand Global Capabilities”], Vinaj Couto, Mahadeva Mani, Vikas Sehgal, Arie Y. Lewin, Stephan Manning and Jeff W. Russell, Duke University and Booz & Co., 2008.

[https://offshoring.fuqua.duke.edu/orn_report.pdf “Next Generation Offshoring: The Globalization of Innovation”], Arie Y. Lewin and Vinaj Couto, Duke University and Booz Allen Hamilton, 2006.

From The Brookings Institute

“Offshoring Service Jobs: Bane or Boon - and What to Do?”, Lael Brainard and Robert Litan, April 2004

“Offshoring, Import Competition, and the Jobless Recovery”, Charles Schultze, August 2004

“The Outsourcing Bogeyman”, Daniel Drezner
Daniel Drezner

Daniel W. Drezner is currently a professor of international politics at The Fletcher School of Law and Diplomacy at Tufts University as well as being a prolific blogger, the author of several books, the author of several Op-Ed pieces in major publications, and a frequent media guest....
, Foreign Affairs, May/June 2004

“Hardheaded Optimism About Globalisation”, Amar Bhide, Columbia University, forthcoming

From the Bureau of Labour Statistics

“Occupational Employment Projections to 2012”, Daniel Hecker, Monthly Labour Review, February 2004

“The 1988-2000 Employment Projections: How Accurate Were They?”, by Andrew Alpert and Jill Auyer, Occupational Outlook Quarterly, Spring 2003

From Forrester

“3.3m US Services Jobs To Go Offshore”, John McCarthy, November 2002

“Low-Cost Global Delivery Model Showdown”, John McCarthy, August 2004

“Two Speed Europe: Why 1 Million Jobs Will Move Offshore”, Andrew Parker, August 2004

From Other Research

“The New Wave of Outsourcing”, Ashok Deo Bardham and Cynthia Kroll, University of California at Berkeley, Fisher Centre for Real Estate and Urban Economics Research Report, Fall 2003

“Globalisation of IT Services and White Collar Jobs: The Next Wave of Productivity Growth”, Catherine Mann, Institute for International Economics, December 2003

See also

  • outsourcing
    Outsourcing

    Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company. The decision to outsource is often made in the interest of lowering firm or making better use of time and energy costs, redirecting or conserving energy directed at the core competence of a particular business, or to make more efficient...
  • offshoring
    Offshoring

    Offshoring describes the relocation by a company of a business process from one country to another -- typically an operational process, such as manufacturing, or supporting processes, such as accounting....
  • nearshoring
    Nearshoring

    Nearshoring means sourcing service activities to a foreign, lower-wage country that is relatively close in distance or time zone . The customer expects to benefit from one or more of the following constructs of proximity: geographic, temporal, cultural, linguistic, economic, political, or historical linkages....
  • Global labor arbitrage
    Global labor arbitrage

    Global labor arbitrage is an economic phenomenon where, as a result of the removal of or disintegration of barriers to international trade, jobs move to nations where labor is inexpensive and/or relatively impoverished labor moves to nations with relatively higher paying jobs....
  • Globally Integrated Enterprise
    Globally Integrated Enterprise

    The globally integrated enterprise is a term coined in 2006 by Sam Palmisano, CEO of IBM Corp, used to denote a company that fashions its strategy, its management, and its operations in pursuit of a new goal: the integration of Manufacturing and value delivery worldwide....
  • list of international trade topics
    List of international trade topics

    This is a list of international trade topics.* Absolute advantage* Agreement on Trade-Related Aspects of Intellectual Property Rights * Asia-Pacific Economic Cooperation ...
  • labor shortage
    Labor shortage

    In its narrowest definition, a labor shortage is an economics in which there are insufficient qualified candidates to fill the demand for employment at any price....
  • Free trade controversy
  • Offshoring IT Services
  • Borderless Selling
    Borderless Selling

    Borderless selling is the process of selling services to clients outside the country of origin of services through modern methods which eliminate the actions specifically designed to hinder international trade....
  • guest worker
  • Bangalore
    Bangalore

    Bangalore , officially Bengaluru , is the capital of the Indian States and territories of India of Karnataka. Located on the Deccan Plateau in the south-eastern part of Karnataka, Bangalore is India's List of most populous cities in India and List of most populous metropolitan areas in India....
  • business process outsourcing
    Business process outsourcing

    Business process outsourcing is a form of outsourcing that involves the contracting of the operations and responsibilities of a specific business functions to a third-party service provider....
  • offshore software development


External links

  • [https://offshoring.fuqua.duke.edu/ Offshoring Research Network]