Offshore outsourcing

Offshore outsourcing is the practice of hiring an external organization to perform some business functions ("Outsourcing") in a country other than the one where the products or services are actually developed or manufactured ("Offshore"). It can be contrasted with offshoring, in which a company moves itself entirely to another country, or where 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 wages reduces their own domestic employment and domestic investment. Many customer service jobs as well as jobs in the information technology sectors (data processing, computer programming, and technical support) in countries such as the United States and the United Kingdom - have been or are potentially affected.

Types

There are four basic types of offshore outsourcing:

• Information technology outsourcing (ITO) is where outsourcing related to technology or internet such as computer programming.
• Business process outsourcing (BPO) involves contracting out of operational functions to a third party service provider.
• Offshore software development
• Knowledge process outsourcing (KPO) is a type of outsourcing which involves or requires a more advanced technical skill and a higher level of expertise.

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 can be transmitted over the Internet;
• The work is repeatable^{[citation needed]}.

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, among many others, are:-

• Algeria (Full Spectrum Services)
• Argentina (Full Spectrum Services)
• Bangladesh (Web & Software Programming, Game Development, IT Support, Network Solutions, Offshore Outsourcing Service)
• Belarus (Programming, R&D)
• Bolivia (Web & Software Programming, Game Development, IT Support, Network Solutions, Offshore Outsourcing Service)
• Brazil (Web & Software Programming, Game Development, IT Support, Network Solutions, Offshore Outsourcing Service)
• Bulgaria (Programming and R&D)
• Colombia (ITO, BPO, IT services, KPO)
• Costa Rica (Full Spectrum Services)
• China (Programming, Data Entry, Customer Support, F&A)
• Dominican Republic(Customer Service,Manufacturing)
• Egypt (ITO, BPO, and KPO)
• Estonia (Full Spectrum Services)
• India (Full Spectrum Services)
• Indonesia (Programming, R&D, IT Support, Data Entry, Customer Support)
• Malaysia (Customer Support and R&D)
• Mauritius (ITO and BPO)
• Mexico (Full Spectrum Services)
• Morocco (Full Spectrum Services)
• Nepal (Programming, Customer Support, Transcription and Data Entry)
• Pakistan (Full Spectrum Services)
• Panama (Programming, Customer Support)
• Philippines (Customer Support, IT Support, Programming, Data Entry, Animation, Transcription, R&D)
• Republic of Macedonia (Web Software, Mobile Software, Game Development, Network Solutions, Offshore Outsourcing Service, R&D)
• Romania (Programming and IT)
• Russia (Programming and R&D)
• Ukraine (Programming and R&D)
• Vietnam (ITO, BPO, IT services, Offshore Outsourcing Service)

Impact of the Internet

The widespread use and availability of the Internet has enabled individuals and small businesses to contract freelancers from all over the world to get projects done at a lower cost due to lower wages and property prices. Crowdsourcing systems such as Mechanical Turk and CrowdFlower 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' capacity to compete with their larger competitors (who are capable of setting up offshore locations) or arrive at major contracts with offshore companies.

On the other hand, according to Gartner, it also helped with accessibility to labor resources across the world, regardless of company size.^[1] It gave rise to business models such as Remote In-Sourcing that allow companies to tap into resources found abroad, without losing control over security of product quality. The resulting ability to work remotely and online, will continue to have a huge impact on the overall development of the global economy, for small companies and for large corporations.

Source of conflict

There are different views on the impact of offshore outsourcing on the various societies affected, which reflects the attitude of Protectionism versus Free Trade. 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. In fact, offshore outsourcing has led to Domestic factories and companies closing down leaving tens of thousands of U.S. workers jobless while underdeveloped countries such as Brazil, Turkey, etc. begin to flourish.^[2] 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.

Many companies offshore outsource because the wages are cheaper in other areas. This is beginning to create a conflict because many wages overseas are raising. For example, a study by the U.S. Bureau of Labor Statistics found that Chinese wages were almost tripled in the seven years following 2002. The wage increases could change the set up of offshore outsourcing in years to come.^[3]

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 of high-wage nations because the cost of education may be lower in the nations involved in the controversy. [1] While it is true that education is usually considered helpful to competitiveness in general, an "education arms race" with low-wage nations may not pay off.

See also

• Borderless Selling
• Business process outsourcing
• Free trade controversy
• Global delivery model
• Global labor arbitrage
• Global sourcing
• Globally Integrated Enterprise
• Guest worker
• Labor shortage
• List of international trade topics
• Low-cost country sourcing
• Nearshoring
• Offshore company
• Offshore software development
• Offshore software R&D
• Offshoring IT Services
• Offshoring Research Network
• Offshoring
• Outsourcing

Further reading

• Consulate General of the Kingdom of The Netherlands Guangzhou (2011). Outsourcing Comparison Study South-East Asia: China, India, Vietnam 2011-2012.

External links

• An Atlas of Offshore Outsourcing by David E. Gumpert (BusinessWeek online)

References

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