Outsourcing can be defined as turning over all or part of an organizational activity to an outside vendor. Outsourcing is often seen as a tool of cost cutting where companies move their jobs to an outside vendor on an ongoing basis. These services were initially provided internally by that organization. The pressure of the current market forces and the price wars have forced many companies to reduce cost by outsourcing its non-core activities to low wage countries in Asia. A cost cut of any manner can change the company's position in the market. Companies with low cost leadership are able to gain the potential market share.
Many companies around the world are adopting the practice of outsourcing their activities to the Far East developed and developing countries. Outsourcing of manufacturing operations started back when many companies started to invest in China and now have their manufacturing operations there. However, the current trend of outsourcing focuses on outsourcing company’s non manufacturing activities. This paper discusses the relationship between the U.S. and India involving outsourcing of products, jobs and services. It points to some reasons for India being the winner in attracting companies across the globe to outsource their non-manufacturing activities. Finally, some of the advantages and disadvantages are discussed.
Thus in the current global economy, it is important for companies to find ways to accomplish more with less resources. Globalization is the search for markets to sell products and services at the higher prices and to procure products and services at the lowest prices. One of the ways for a company to do this is through outsourcing.
The first sign of outsourcing was witnessed by the manufacturing industry, and China emerged as the winner in terms of attracting jobs and foreign investment. At this stage of outsourcing, it was common for a company to have its manufacturing plant in the Far East or Mexico to take the advantage of cheap labor. As outsourcing become more widespread, more and more functions were capable of being outsourced. The biggest boom in outsourcing was observed when service activities were outsourced. Outsourcing worldwide has now topped US $1 trillion per annum (Lyons, 2001).
In recent years, one focus of globalization - the transfer of certain manufacturing processes overseas - has expanded to include the offshore outsourcing of many business process services. The offshore outsourcing of business process services to other countries has generated much debate in the United States and presents broad implications for American consumers and equity share holders, corporations, and the U.S. workforce.1 Critics of offshore outsourcing contend that it will destroy the American middle class and seriously undermine America’s economic future. Opponents of business process outsourcing (BPO) fear that millions of U.S. workers will become jobless from competition in the services sector and accuse U.S. corporations of exporting high paying white-collar service jobs overseas at the expense of the American worker. Others fear that outsourcing will exert downward pressure on U.S. wages and that the income distribution gap will broaden as more middle-class jobs go offshore. The destination for much of U.S. business service outsourcing is India. U.S. firms now account for about 80 percent of India’s BPO market.6 The driving force behind much of this U.S. outsourcing trend to India is the lower labor costs provided by the Indian BPO sector. India’s comparative advantage lies in its highly developed and successful IT sector, its reputation for low-cost but high-quality work. India can provide a large pool of low-wage English speaking IT knowledge workers who are highly educated. Additionally, India can count on growing Internet and telecommunications capabilities and favorable time zone differential.7
This paper presents an overview of India’s participation in the...
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