Global Outsourcing

Topics: Outsourcing, Business process outsourcing, Management Pages: 17 (4091 words) Published: June 3, 2009
OUTSOURCING

Introduction

In today's global competitive marketplace, outsourcing is also rapidly becoming a major factor that contributes to profit as well as the success of a company. Global outsourcing that was developed in 1950s has had remarkable influences on international business as well as on global marketplaces (Burkholder 2006). Today, with development of science and technology, global outsourcing has spread in many countries, particular in Asian countries. The reason why outsourcing is the important strategy of business is that it has brought a great deal of benefits such as cost saving, core competency focus, reduced production time and increased efficiency (Kehal & Singh 2006). Outsourcing decisions are frequently based on current supply and market trends and competitive pressure.

Nowadays, the term "outsourcing" is seen in not only Information Technology area but also in other areas such as customer service, human resource, business process improvement and finance. The readers of this paper will perceive that outsourcing has brought many benefits to many fields.

In several surveys reported by The Country Monitor (1997), however, there are worries about business ethics in outsourcing partners. The employees are ridiculously underpaid, ill-treated and underage, especially as the work is so dangerous. Nike, for example, hires some employees with low salary that they can not afford to their living (The Country Monitor 1997). This issue will get difficult to change because it has tremendous effects to profit of business. This research aims to show that outsourcing is very successful in both small and large businesses due to its benefits such as quality and strategy improvement. In this paper, we will examine the reasons why companies get their products manufactured in other countries like China and India. It also addresses the reason why outsourcing is viable for companies in the development of market place.

I.Overview
1.What is Outsourcing
There are more than interesting definitions about Outsourcing. In a recent research report by Chaudhury, Nam & Rao (1995), Outsourcing is the contracting of various information systems' sub-function to outside suppliers rather than completing it internally" Or

"The term "outsourcing", although not specific to Information systems(IS) in that it reflect the use of external agent to perform one or more organizational activities(e.g., purchasing of a good or service), is now in vogue in the IS domain and applies to everything from use of contract programmers to third party facilities management" (Lacity & Hirschheim 1993).

2.Growth of Outsourcing.
Outsourcing has been called "one of the greatest organizational and industry structure shifts of the century," with the potential to transform the way businesses operate (Drucker, 1998). Outsourcing has rapidly grown spending from nearly $3.7 trillion in 2001 to surpassing $5 trillion in 2003. It is predicted that outsourcing will create more than 3 million jobs and nearly $135 billion will be paid to outsource abroad next two years (Clott, 2004). Over many years, outsourcing has proven its benefits and it is viable alternative to strengthen the company. Moreover, the development of outsourcing in the United States has led to the growth of mutual economic benefit for both the outsourcing and outsourced countries. For example, every dollar is spent to outsource in India, the U.S. economy captures $1.46 in return (Kehal & Singh 2006).

Figure 1

Source: Nasscom 2008
The development of outsourcing has promoted financial benefits as well as economy growth in India. Figure 1 shows the increase in revenue from outsourcing in the Indian IT- Business Process Outsourcing (BPO) sector from financial year 2000 to financial year 2010. As can be seen, there has been a dramatic increase in IT- BPO revenue and this sector always reach the target. In the Indian domestic market, revenue increased from $1.9 billion in the...

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