Reduced Costs from Outsourcing
One of the main reasons companies will consider outsourcing is the overall reduced costs. Outsourcing provides a more efficient approach in controlling operating costs. Costs per additional employee include salary, overhead, equipment/software, training/education, other supplies, and possibly facility costs (Sood, 2005). Another cost savings quality is in overall Human Resources, as outsourcing eliminates costs for future development of employees, current trainings, recruitment, payroll and benefits. There are many markets that are able to reduce operating expense and cost of goods sold through outsourcing. Highlighted in this paper will be IT, electronics, the automobile industry, and customer services.
India has had a competitive edge in the global IT market. The salary range for Indian
software professionals is about fives times less than their counterparts in other developed countries. India has been able to keep a competitive edge by keeping the supply of IT professionals high. India supplies more than double the number of computer science graduates than any other country (Askari and Chatterjee, 2003). In other words, they are able to provide highly skilled, low paying IT professionals with a grasp of the English language. It is estimated, by 2008, that India will employ $77 billion dollars of the global IT market.
But as salaries in India have gradually increased, other countries have been competing with their low salaried IT professionals. According to the “Watch out, India – Outsourcing to China” article in The Economist (2006) salaries of graduates, engineers and programmers have been climbing fast and staff turnover at IT companies can reach 30-40% a year. Although not at the same rate as India, countries have been producing graduates that have been competing in the IT outsourcing market. China, Malaysia, Philippines, Singapore, Thailand, Czech Republic, Chile, Canada, and Brazil are other outsourcing locations that have been evaluated for lower costs (Regalado, 2007).
Cost of engineering time can be significantly reduced by outsourcing work to Asia. In 2005, the US average salary for software design and development positions was at $51,596 while the average annual base pay for software engineers in India was equivalent to $10,300 US dollars. At the same time, new graduates in Ireland were getting an average of about $27,500 (Geer, 2006). In the electronics sector, the wage rate ratio between the United States and China for product engineers is about 10:1, and for software developers, the ratio between the United States and India is about 8:1.
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 (...
Recently outsourcing has been in the news, especially during political election years. It seems to be a phenomenon that is causing much concern among the population. But exactly how is outsourcing effecting both workers and businesses? And is it as big of a problem as politicians describe?
The proponents of contracting out assume that outsourcing in the IT sector is useful in strategic, technological, and economic reasons. (Gonzalez, Gasco & Llopis, 2009) They believe that outsourcing enables an organization to get the same or better services with lower cost. First, strategic advantages enable organizations to refocus on strategic and core functions, and provide flexibility for organizations because organizations need not to concern about routine tasks (Gonzalez, Gasco & Llopis, 2009). OPPGA (1998) also support these strategic advantages. It asserts that outsourcing can provide organizations with great flexibility in personnel and facilities in short-term projects. Outsourcing providers can provide better services for clients since they usually use new and developed technologies. Second, proponents think that outsourcing gives organizations opportunities to access to technology and reduce technological obsolescence without large investments (Gonzalez, Gasco & Llopis, 2009). Lastly, Pros assume that contracting out can save s...
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...
Since the concept of outsourcing was introduced it has been a subject of debate between politicians and citizens of the United States. Remarkably, it was the United States who supported outsourcing and now it is the United States that feels its economic progress is being threatened by outsourcing. One may argue that the financial situations that existed two decades earlier are not the same as they are today, thus the change of time, business priorities of economies have also changed.
Global outsourcing first became popular in the apparel and textile manufacturing industries during the late 1960’s and 1970’s. Then it continued with automotive, computers, electronics, and other forms of assembly work during the 1980’s. Most recently, during the 1990’s, now and also in the future the outsourcing is focused on ‘knowledge’ work such as work in software design, technical support, telemarketing, call centers, and back office work. By the end of 2009 Information Technology outsourcing (ITO) revenues were over US $250 Billion while for Business Process Outsourcing (BPO) were more than US$ 140 billion. By 2006, over 200 firms from the Forbes 2000 companies and almost half of the Top Global 250 had offshored IT and business process activities. By 2008 India was managing 65% of the ITO and 43% of the BPO market. In general, India, China, Latin America, Philippines and Mexico have been the top locations for offshoring. The United States is a major player in the offshoring of IT and business process, however, Europe is also catching up. The growth of global sourcing sparked due to the technological advances in the telecommunications industry and the internet w...
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...
Kesavan, R., Mascarenhas, O. A., & Bernacchi, M. D. (2013). Outsourcing Services to India: A Review and New Evidences. International Management Review, 36-44.
How is outsourcing affecting American Citizens, its not only taking jobs away from us Americans but is also hurting our US economy. Outsourcing is when a company such as Apple sends jobs overseas to a country such as China and has factory workers there assemble the product for a much lower price. Yes this lowers the price of products but we have to take into account how many jobs this it taking from American citizens. Outsourcing jobs does lower the price of products but jobs should stay here in the US to build our economy and give American’s their jobs back.
Outsourcing has become a very popular issue, and it has reached an all-time climax. Firms are starting to do this a lot more than than in the previous decade. What is outsourcing? Outsourcing is defined as “The procuring of services or products, such as the parts used in manufacturing a motor vehicle, from an outside supplier or manufacturer in order to cut costs.” And it has become a big issue in our country. There are thousands of articles and books written on it, and you can attend numerous classes and speeches on the subject. The use of outsourcing is quite simple really… Either pay an American worker $15 an hour, or pay someone in India to do the same job for $2 an hour. There are lots of other advantages and disadvantages to outsourcing but I will address those later in the essay. So what does an average American really know about outsourcing? Most people would say sending our jobs to another country in order to save money isn’t justified. It would cost a lot of people jobs, which would send them into distress and possibly debt. But that’s not the whole story behind outsourcing. People hear about outsourcing and automatically decide that it is bad for our economy. What about the good things that outsourcing brings to our economy? We are sending jobs to India, their consumers will start making more money, and in return buy more of our goods and services. In this essay I will show you both points of the debate and you can decide for yourself whether or not outsourcing is bad for our country.
Outsourcing has been around for many years. In this paper, I will discuss some of the history of outsourcing, the good things about outsourcing, and the bad things about outsourcing. Outsourcing is important because many companies rely on it in order to get many different products and services to their facility on time and in good shape. Outsourcing is a huge part of the business industry today. Any business can be affected by outsourcing.
[6] Kripalani, Majeet & Egnardio, Pete. The Rise Of India. Business Week Online. December 8, 2003. http://www.businessweek.com/magazine/content/03_49/b3861001_mz001.htm
The software industry is one of the great catalysts of economic growth and job creation.
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).
The market for IT industry was huge and expanding at a fast pace. However the market leaders were Accenture and IBM which had a negligent market share and rest was captured by small enterprises. Indian companies also ventured in the industry and due to their competition, IT multinational giants had to increase their base in India. Due to high opportunities, attrition rate was also high in this industry. As a result Indian companies like Wipro, Infosys increased their base level salaries. During this phase, Indian economy was transforming towards an era of information and knowledge. This can be seen from the fact that contribution of services towards the economy’s GDP was higher than 18% in 2001 as against in 1980. No other industry had done better standing against global competition. The annual exports had always been over 50% over a decade. U.S.A. share represents highest with 61% and about a third of Fortune 500 companies outsource their software work to India. To foster development, Indian government has taken a number of steps like liberalization of policies and providing necessary capital and infrastructure to foster growth. Thus Indian environment has been conducive for growth. (Ref: Indian Embassy.org) Competitor analysis- The market for IT industry was fairly competitive with IBM and Accenture as global leaders and rest of the market was pretty diffused. IBM and Accenture had strong brand and a global presence with a large customer base. They also offered panoply of services viz. technology implementation, business consulting, offshore services, customer relationship management etc. Both offered breadth and depth of services. IT market in India offered technical and business consulting with Tata Consultancy Services which was the market leader in IT exports and Wipro Technologies and Infosys being other major market players. TCS offered consultancy services, IT services, asset based solution etc. Wipro was third largest IT provider with service offerings in IT consulting, software solutions, BPO etc. Both had a strong global presence. Intensity of Rivalry: Rivalry amongst competitors was pretty intense as can be seen the Indian competition caused IBM to increase their presence in India. However leaders like IBM and Accenture had a wide range of service offerings so competition was only amongst few sectors. Rivalry was to hire the top talent as human capital is the most important thing in the IT sector. This is the reason that attrition rate lead to a rise in pay packages.