Offshore Outsourcing of Services: Too Good To Be True?

1720 Words4 Pages
bulb-icon

Recommended: Shortcomings of outsourcing

Offshore Outsourcing is the employment of an external party to perform services or business tasks in a different country to where the services themselves are required. All offshored tasks follow similar patterns, the work can be conveyed over the internet, it is repeatable, it can be telework and there is always a substantial wage disparity between the offshore and original countries.

Some of the earliest references to outsourcing crop up from 2002-2004, claiming that IT firms could save 60% on labour costs by using an Indian workforce , or rather pessimistically that 3.3 million US service jobs are due to “go offshore” . The explosive growth seen since the beginning of the century has primarily been attributed to this vast reduction in operating costs provided by the practice; however other advantages include improved flexibility, 24/7 working hours and minimized time to complete work. A report by the National Association of Software and Service Companies (Nasscom) found that the average speed of answer by Indian call centre agents is 8 seconds, compared to 20 seconds in the United Statesi, highlighting yet another positive aspect of offshore outsourcing.

The rise in globalization made the extensive trade in services seen today an inevitability, many see it as simply a new form of international trade, creating an overall positive effect on the world economy (win-win). Comparative advantage, originally defined by David Ricardo in 1817 with his book ‘On the Principles of Political Economy and Taxation’, fits perfectly with the offshore outsourcing premise. The theory states simply, that if two countries (or organizations) have differing costs for producing the same goods, then they will both benefit from trading . The large wage...

... middle of paper ...

.... [accessed 4th November 2011] Available from: http://www.economist.com/node/1527320

Zuckerman, Sam. Falling dollar pushing up costs of outsourcing to India. SFGate [online]. [accessed 5th November 2011] Available from: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/10/01/BU6USGDH9.DTL&feed=rss.business

Outsourcing – A Boon to Global Economy, Ezdia [online] [accessed 9th November 2011] Available from: http://www.ezdia.com/epad/benefits-outsourcing-business-process-bpo/2926/

The Benefits of Outsourcing for Small Businesses. AllBusiness [online] [accessed 8th November 2011] Available from: http://www.allbusiness.com/human-resources/workforce-management-hiring/1084-1.html

Davison, Dean. Top 10 Risks of Offshore Outsourcing, Zdnet [online]. [accessed 8th November 2011] Available from: http://www.zdnet.com/news/top-10-risks-of-offshore-outsourcing/299274

Show More
Related

  • Offshoring from a Societal Viewpoint and Its Impact on Canada

    2916 Words  | 6 Pages

    Globalisation is a growing phenomenon that is the result of various developments in the global environment, each of which merits an individual analysis of its social impacts. For the purpose of this analysis, the focus will be placed upon arguably its most controversial aspect, offshore outsourcing. Offshore outsourcing, or offshoring, is becoming an increasingly common business practice as a result of a combination of the recent technological advancements in the areas of transportation and communication, and the increased competitiveness of the business world. From the perspective of firms, tapping into cheap labor from less developed countries is a very logical business decision to reduce costs and maximize profits. This has not only motivated businesses to engage in offshoring, it has sometimes been critical to their survival in fiercely competitive environments.

    Read More

  • Outsourcing in Intercollegiate Athletics

    948 Words  | 2 Pages

    Outsourcing simply means acquiring services from an external organization instead of using internal resources (Butler, 2000). By using outsourced resources, organizations can gain a competitive advantage by utilizing contingent staff to accomplish strategic goals without incurring the fixed overhead. By focusing on the leading edge and highly specialized skill sets, outsourcing providers can often offer higher quality services, or at a lower price than the client organization. Typical reasons for outsourcing go beyond simple contingent staffing. Outsourcing providers are able to maintain economies of scale with regard to specialization (...

    Read More

  • Outsourcing: Pros and Cons

    527 Words  | 2 Pages

    Mankiw and Swagel (2006) argue outsourcing is not as large a phenomenon as the media describes. Their research indicates outsourcing accounts for very little of job loss in the United States, nor has it made a distinct contribution to the slow rebound of the labor market. They go on to propose that increased overseas employment has actually contributed to higher employment in parent United States companies. They reported that while 30,000 jobs were lost per month in 2004, two million job changes per month were happening as well. They reference the Bureau of Labor Statistics when they report that in 2015 there are expected to be 3.4 million jobs outsourced, but 160 million jobs gained here in the United States. They also claim that there is a rise in net US income by 12-14 cents per dollar of outso...

    Read More

  • Outsourcing as a factor in the United States recession

    660 Words  | 2 Pages

    Outsourcing is a complicated and a multifaceted subject that involves a “business[’s] purchase of parts or labor from another company rather than maintaining a sufficient enough number of its own employees to do the same work in the country where the company is already based” ("Outsourcing"). The first practice of outsourcing was in medieval times when “nation-states called in soldiers-for-hire to help their own military forces during ongoing conflicts” ("Outsourcing"). Many think of outsourcing as a one way trade of production facilities moving outside of a companies locale but in actuality it is a two way trade that also involves companies from other areas moving their factories to local areas where conditions are beneficial for the specific business. Outsourcing has evolved but the main idea has remained the same. The recent increase in outsourcing “was initiated by Wall Street pressures on corporations . . . . for increased profits . . . in the production of goods and services marketed in the U.S."(Roberts).

    Read More

  • Sweatshops Case Study

    1536 Words  | 4 Pages

    “5 Facts About Overseas Outsourcing.” Center for American Progress, Center for American Progress, 9 July 2012,

    Read More

  • Outsourcing and the US Labor Market

    1210 Words  | 3 Pages

    In many cases outsourcing has proven to be beneficial for businesses. It can help a business’s management by allowing executives to focus on the core structure of the firm rather than every specific element. Production, manufacturing, or additional servic...

    Read More

  • Labor in the United States and Outsourcing

    1040 Words  | 3 Pages

    Outsourcing emerged on the financial arena during the 1980s and has since then been spreading. Outsourcing production was furthered with the process of globalization which provided a new component leading to the strengthening of resources, skill and labor specializations across the world. The process of outsourcing is using the skill and abilities of a third-party to accommodate society on the foundation of labor. As stated earlier, it was during the 1980s that the process kicked off mainly due to the efforts of corporations when they began to hire labor forces across the world. Even though outsourcing has come out from its developing stages, there are still following effects on the US economy.

    Read More

  • Ethics Of Outsourcing

    1599 Words  | 4 Pages

    Outsourcing has been viewed as a strategic decision rather than as an ethical dilemma. Robertson, Lamin & Livanis state that there are ethical considerations that are largely overlooked in evaluations of outsourcing decisions (2010, pg. 185). When reviewing an ethical dilemma, there must be a framework for which a decision can be made. “Utilitarianism

    Read More

  • The Impact of Outsourcing

    1771 Words  | 4 Pages

    There are many benefits to outsourcing, many reasons that company has to outsource some of its business. According to Robin Gareiss, “The No. 1 reason companies turn to outsourcers is to save money--64% say that’s the main goal of their outsourcing contracts” (3). Companies are able to save money because they outsource to another country, and the third party that is in the outsourcing contract, runs the business in that country and is able to pay wages in accordance with that country’s laws, which for the most part there are none. The business usually outsources to a developing nation, and as a result can pay much, much lower wages than if it were to stay within the US. This cost-saving idea has become a much strong reason for outsourcing since the economy has been in a recession, a...

    Read More

  • The Outsourcing Trickle

    1236 Words  | 3 Pages

    As esteemed journalist Tom Piatak wisely puts it, “The trickle of outsourcing threatens to become a flood.” His words speak the truth as outsourcing has left United States’ workers jobless, and it continues to increase the unemployment rate every year. During February of 2009, American workers lost a record 651,000 jobs alone, increasing the unemployment rate to 8.1 percent, the highest it has been in 25 years (Katel). Multinational corporations, hoping to cut down costs and stay profitable in the market, outsource by exporting American jobs to third-world countries such as China and India. It may seem noble that outsourcing provides third-world countries with job opportunities, but the United States’ markets and industries are greatly affected. Outsourcing is harmful to the United States’ economy because it paves the way for job losses, decreases product consumption, and widens the gap between the rich and the poor.

    Read More

  • Effectiveness of Rhetorical Devices Used in Two Articles

    1095 Words  | 3 Pages

    Kibbe, C. (2004, 07 09). Outsourcing: the good, the bad and the inevitable. New Hampshire Business Review, pp. 1A-21A.

    Read More

  • The Pros and Cons of Outsourcing

    1607 Words  | 4 Pages

    Outsourcing is shifting all of the costs-accounting costs, including personnel, plus the risk of failure and the responsibility for action-to the third party. In return for assuming costs, the third party benefits by controlling the operation (Coughlan 167). This is the basic definition of what outsourcing is. Outsourcing has been around from the beginning of time. In the movie, ?It Started With the Greeks,? they talk about how the Ionians found out that they could go around the world and find products that people back in their home town would buy. This essentially started the idea of outsourcing since the people who wanted the product was unable to get it but, they were able to have someone else do it for them. Once people knew that they could get anything that they wanted from around the world it lead into consumerism. So once someone got the idea to start and do this full time as a job they were able to outsource anything that they wanted.

    Read More

  • Outsourcing Development Work to India

    2311 Words  | 5 Pages

    In the late 1980's the rise of India outsourcing had its start. During this phase, India provided skilled contract workers for the US. Efforts to outsource projects to India arose in the late 1990's. This was driven by a combination of rapidly changing technologies and shrinking IT budgets Little by little the small offshore development projects started to multiply. In the beginning it was trial and error because there wasn't much focus on a repeatable and process driven model. During this time offshore outsourcing led to several failures. The big outsourcing force during the late 1990's came with Y2K. Work needed to get done quick and outsourcing to Indian companies was a solution to this. Indian companies had the ability to scale rapidly.

    Read More

  • Outsourcing Information Security Consultants

    1798 Words  | 4 Pages

    Outsourcing is a technique for companies to reassign specific responsibilities to external entities. There are several motivations for outsourcing including organizational, improvement, cost, and revenue advantages (Ghodeswar & Vaidyanathan, 2008).

    Read More

  • Offshore Outsourcing Essay

    1873 Words  | 4 Pages

    What does it mean to offshore outsource? Let’s first start by explaining what outsourcing means. The basic meaning of outsourcing is to obtain goods or services from an outside place. This gives businesses and companies the ability to save money. When the businesses and companies save money that ultimately means the consumers will also save money. The word offshore means some distance from the shore. According to Blinder “Offshoring, by contrast, means moving jobs out of the country, whether or not they leave the company” (20). To better understand the meaning of offshore outsourcing, we can say that it is the process where the companies provide jobs to foreign countries. Big

    Read More

More about Offshore Outsourcing of Services: Too Good To Be True?

Open Document