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Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one
firm A company, abbreviated as co., is a legal entity In law, a legal person is any person A person (plural people or persons) is a being that has certain capacities or attributes such as reason, morality, consciousness or self-consciousness ...

firm
to another. The term ''outsourcing'', which came from the phrase ''outside resourcing'', originated no later than 1981. The concept, which ''
The Economist ''The Economist'' is an international weekly newspaper A weekly newspaper is a general-news or current affairsCurrent affairs may refer to: Media * Current Affairs (magazine), ''Current Affairs'' (magazine), a bimonthly magazine of cultur ...
'' says has "made its presence felt since the time of the Second World War", often involves the contracting of a
business process A business process, business method or business function is a collection of related, structured activities or tasks Task may refer to: * Task (project management), an activity that needs to be accomplished within a defined period of time or by a ...
(e.g.,
payroll A payroll is the list of employees of some company that is entitled to receive payments as well as other work benefits and the amounts that each should receive. Along with the amounts that each employee should receive for time worked or tasks per ...
processing, claims processing), operational, and/or non-core functions, such as manufacturing,
facility management Facility management (or facilities management or FM) is a professional management discipline focused on the efficient and effective delivery of support services for the organizations that it serves. The International Organization for Standardizati ...
,
call centre A call centre ( Commonwealth spelling) or call center (American spelling Despite the various English dialects spoken from country to country and within different regions of the same country, there are only slight regional variations in ...
/call centre support). The practice of handing over control of public services to private enterprises, even if on a short-term limited basis, may also be described as "outsourcing". Outsourcing includes both foreign and domestic contracting,Hira, Ron, and Anil Hira. Outsourcing America: What's behind Our National Crisis and How We Can Reclaim American Jobs. New York: AMACOM, 2008. Print # 67-96. and sometimes includes
offshoring Offshoring is the relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Usually this refers to a company business, although state govern ...
(relocating a business function to a distant country) or
nearshoring Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another. Th ...
(transferring a business process to a nearby country).
Offshoring Offshoring is the relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Usually this refers to a company business, although state govern ...
and outsourcing are not mutually inclusive: there can be one without the other. They can be intertwined (offshore outsourcing), and can be individually or jointly, partially or completely reversed, involving terms such as reshoring, inshoring, and insourcing.


Terminology

* Offshoring is moving the work to a distant country. If the distant workplace is a foreign subsidiary/owned by the company, then the offshore operation is a
captive Captive or Captives may refer to: Arts, entertainment, and media Films * Captive (1980 film), ''Captive'' (1980 film), a 1980 sci-fi film, starring Cameron Mitchell and David Ladd * Captive (1986 film), ''Captive'' (1986 film), a 1986 British-Frenc ...
, sometimes referred to as ''in-house offshore.'' * 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 performed, developed or manufactured ("Offshore"). *
Insourcing Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another. Th ...
entails bringing processes handled by third-party firms in-house, and is sometimes accomplished via
vertical integration In microeconomics Microeconomics (from Greek prefix ''mikro-'' meaning "small" + ''economics'') is a branch of economics that studies the behavior of individuals and Theory of the firm, firms in making decisions regarding the allocation o ...
. * Nearshoring refers to outsource to a nearby country. * refers to outsourcing to companies in more rural locations within the same country. * (also known as ) is a form of IT-enabled "transfer of service industry employment from offices to home-based ... with appropriate telephone and Internet facilities". These
telecommuting Telecommuting, also called remote working, telework, teleworking, working from home (WFH), mobile work, remote job, work from anywhere (WFA), and flexible workplace, is a employment, work arrangement in which employees do not commuting, commute ...
positions may be customer-facing or back-office, and the workers may be
employee Employment is the relationship between two parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO PhotoLab Clearview; cropped away black border edge.jpg, 300px, ''Hip, Hip, Hurrah!'' ( ...

employee
s or
independent contractor Employment is a relationship between two parties, usually based on contract A contract is a legally binding document between at least two parties that defines and governs the rights and duties of the parties to an agreement. A contract is le ...
s. * In-housing refers to hiring employees or using existing employees/resources to undo an outsourcing. * An
Intermediary An intermediary (or go-between) is a third party that offers intermediation services between two parties, which involves conveying messages between principals in a dispute, preventing direct contact and potential escalation of the issue. In law ...
is a business which provides a contract service to another organization while contracting out that same service. *Make or buy decision refers to an organization's decision whether to outsource a process or service or to deliver it itself.


Acronyms

Some of the acronyms related to BPO (
Business Process Outsourcing Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm A company, ...
) are:


Overview


Motivations

Global labor arbitrage Global labor arbitrage is an economic phenomenon where, as a result of the removal of or disintegration of barriers to international trade International trade is the exchange of capital, goods, and services across international borders or ...
can provide major financial savings from lower international labor rates, which could be a major motivation for offshoring. Cost savings from
economies of scale 330px, As quantity of production increases from Q to Q2, the average cost of each unit decreases from C to C1. LRAC is the long-run average cost In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their sca ...

economies of scale
and specialization can also motivate outsourcing, even if not offshoring. Since about 2015 indirect revenue benefits have increasingly become additional motivators.Forrester Research, Inc. Another motivation is speed to market. To make this work, a new process was developed: "outsource the outsourcing process". Details of managing
DuPont DuPont de Nemours, Inc., commonly known as DuPont, is an American company formed by the merger of Dow Chemical and E. I. du Pont de Nemours and Company on August 31, 2017, and the subsequent spinoffs of Dow Inc. and Corteva. Prior to the sp ...

DuPont
's CIO
Cinda HallmanCinda A. Hallman (1944-2007) became noteworthy for her work in Y2K prior to coining the phrase "outsource the outsourcing process;" both of these were at Du Pont, prior to her nomination to The Research Board. Biography Arkansas-born Hallman began ...
's $4 billion 10-year outsourcing contract with
Computer Sciences Corporation Computer Sciences Corporation (CSC) was an American multinational corporation that provided information technology (IT) services and professional services. On April 3, 2017, it merged with the Enterprise Services line of business of Hewlett P ...
and
Andersen Consulting Accenture plc is an Irish multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational state, a s ...

Andersen Consulting
were outsourced, thus avoiding "inventing a process if we'd done it in-house". A term subsequently developed to describe this is '. Outsourcing can offer greater budget flexibility and control by allowing organizations to pay for the services and business functions they need, when they need them. It is often perceived to reduce hiring and training specialized staff, to make available specialized expertise, and to decrease capital, operating expenses, and risk. "Do what you do best and outsource the rest" has become an internationally recognized business tagline first "coined and developed" in the 1990s by management consultant
Peter Drucker Peter Ferdinand Drucker (; ; November 19, 1909 – November 11, 2005) was an Austrian-American management consultant, educator, and author, whose writings contributed to the philosophical and practical foundations of the modern business corp ...
. The slogan was primarily used to advocate outsourcing as a viable business strategy. Drucker began explaining the concept of "Outsourcing" as early as 1989 in his ''
Wall Street Journal ''The Wall Street Journal'', also known as ''The Journal'', is an American business-focused, English-language international daily newspaper A newspaper is a Periodical literature, periodical publication containing written News, information ...

Wall Street Journal
'' article entitled "Sell the Mailroom". Sometimes the effect of what looks like outsourcing from one side and insourcing from the other side can be unexpected: The New York Times reported in 2001 that "6.4 million Americans .. worked for foreign companies as of 2001, utmore jobs are being outsourced than" he reverse


Agreements

Two organizations may enter into a contractual agreement involving an
exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorporated community in Green Township, Morgan County, Indiana, Green Township, Morgan County, Indiana, Morgan County, in the U.S. state of In ...
of
services Service may refer to: Activities :''(See the Religion section for religious activities)'' * Administrative service, a required part of the workload of Faculty (academic staff), university faculty * Civil service, the body of employees of a governm ...
, expertise, and
payments A payment is the voluntary tender of money or its equivalent or of things of value by one party 300px, '' Hip, Hip, Hurrah!'' (1888) by Peder Severin Krøyer, a painting portraying an artists' party in 19th century Denmark A party is a gathe ...
. Outsourcing is said to help firms to perform well in their core competencies, fuel
innovation 190px, Thomas Edison with phonograph. Edison was one of the most prolific inventors in history, holding List of Edison patents, 1,093 U.S. patents in his name. Innovation is the practical implementation of ideas that result in the introduction ...

innovation
, and mitigate a shortage of skill or expertise in the areas where they want to outsource.


History


20th century

Following the adding of management layers in the 1950s and 1960s to support expansion for the sake of economy of scale, corporations found that agility and added profits could be obtained by focusing on core strengths; the 1970s and 1980s were the beginnings of what later was named outsourcing.
Kodak The Eastman Kodak Company (referred to simply as Kodak ) is an American public company that produces various products related to its historic basis in analogue photography. The company is headquartered in Rochester, New York, and is incorpora ...

Kodak
's 1989 "outsourcing most of its information technology systems" was followed by others during the 1990s. In 2013, the International Association of Outsourcing Professionals gave recognition to
Electronic Data Systems Electronic Data Systems (EDS) was an American multinational information technology equipment and services company headquartered in Plano, Texas. History Electronic Data Systems (EDS) was founded in 1962 by H. Ross Perot, a graduate of the ...
Corporation's Morton H. Meyerson who, in 1967, proposed the business model that eventually became known as outsourcing.


IT-enabled services offshore outsourcing

Growth of offshoring of IT-enabled services, although not universally accepted, both to subsidiaries and to outside companies (offshore outsourcing) is linked to the availability of large amounts of reliable and affordable communication infrastructure following the telecommunication and Internet expansion of the late 1990s. Services making use of low-cost countries included * back-office and administrative functions, such as finance and accounting, HR, and legal * call centers and other customer-facing departments, such as marketing and sales services * IT infrastructure and application development * knowledge services, including engineering support, product design, research and development, and analytics.


Early 21st century

In the early 21st century, businesses increasingly outsourced to suppliers outside their own country, sometimes referred to as offshoring or
offshore outsourcing Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another. Th ...
. Other options subsequently emerged:
nearshoring Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another. Th ...
,
crowdsourcing Crowdsourcing is a sourcing model in which individuals or organizations obtain goods or services, including ideas, voting, micro-tasks and finances, from a large, relatively open and often rapidly evolving group of participants. , crowdsourc ...

crowdsourcing
, multisourcing,
strategic alliancesA strategic alliance (also see strategic partnership) is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. The alliance is a cooperation Cooperation (written ...
/
strategic partnershipA strategic partnership (also see strategic allianceA strategic alliance (also see strategic partnership) is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. The al ...
s, strategic outsourcing. From Drucker's perspective, a company should only seek to subcontract in those areas in which it demonstrated no special ability. The business strategy outlined by his slogan recommended that companies should take advantage of a specialist provider's knowledge and economies of scale to improve performance and achieve the service needed. In 2009, by way of recognition, Peter Drucker posthumously received a significant honor when he was inducted into the Outsourcing Hall of Fame for his outstanding work in the field.


Limitations due to growth

Inflation, high domestic interest rates, and economic growth pushed India's IT salaries 10 - 15%, making some jobs relatively "too" expensive, compared to other offshoring destinations. Areas for advancing within the value chain included research and development, equity analysis, tax-return processing, radiological analysis, and
medical transcription Medical transcription, also known as MT, is an allied health profession dealing with the process of transcribing voice-recorded medical reports that are dictated by physicians, nurses and other healthcare practitioners. Medical reports can be voi ...
.


Offshore alternatives

Japanese companies outsourced to China, particularly to formerly Japanese-occupied cities. German companies have outsourced to
Eastern Europe Eastern Europe is the eastern region of Europe. There is no consistent definition of the precise area it covers, partly because the term has a wide range of geopolitical, geographical, ethnic, cultural, and socioeconomic connotations. Russia, loca ...

Eastern Europe
an countries with German-language affiliation, such as
Poland Poland ( pl, Polska ), officially the Republic of Poland ( pl, Rzeczpospolita Polska, links=no ), is a country located in Central Europe. It is divided into 16 Voivodeships of Poland, administrative provinces, covering an area of , and ha ...

Poland
and
Romania Romania ( ; ro, România ) is a country at the crossroads of Central Europe, Central, Eastern Europe, Eastern and Southeast Europe, Southeastern Europe. It borders Bulgaria to the south, Ukraine to the north, Hungary to the west, Serbia to t ...

Romania
. French companies outsource to North Africa for similar reasons. For Australian IT companies,
Indonesia Indonesia ( ), officially the Republic of Indonesia ( id, Republik Indonesia, links=yes ), is a country in Southeast Asia and Oceania between the Indian Ocean, Indian and Pacific Ocean, Pacific oceans. It consists of more than List of islands ...

Indonesia
is one of the major choice of offshoring destination. Near-shore location, common time zone and adequate IT work force are the reasons for offshoring IT services to Indonesia.


Growth of white-collar outsourcing

Although offshoring initially focused on manufacturing, white-collar offshoring/outsourcing has grown rapidly since the early 21st century. The digital workforce of countries like
India India (Hindi: ), officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by population, second-most populous country, the List of countries and dependencies by area, seventh-largest ...

India
and
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the List of countries and dependencies by population, world's most populous country, with a population of around 1.4 billion. Covering approximately 9.6& ...

China
are only paid a fraction of what would be
minimum wage A minimum wage is the lowest remuneration Remuneration is the pay or other financial compensation provided in exchange for an employee Employment is a relationship between two party (law), parties, usually based on employment contract, cont ...
in the US. On average,
software engineer A software engineer is a person who applies the principles of software engineering to the design, development, maintenance, testing, and evaluation of computer software Software is a collection of Instruction (computer science), instructions ...
s are getting paid between 250,000 and 1,500,000 rupees (US$4,000 to US$23,000) in India as opposed to $40,000–$100,000 in countries such as the and
Canada Canada is a country in the northern part of North America. Its Provinces and territories of Canada, ten provinces and three territories extend from the Atlantic Ocean, Atlantic to the Pacific Ocean, Pacific and northward into the Arctic Ocea ...

Canada
.Gillis, A. (2001, Digital sweatshops. This, 34, 6-6.
/ref> Closer to the US,
Costa Rica Costa Rica (, ; ; literally "Rich Coast"), officially the Republic of Costa Rica ( es, República de Costa Rica), is a country in Central America, bordered by Nicaragua to the north, the Caribbean Sea to the northeast, Panama to the southea ...

Costa Rica
has become a big source for the advantages of a highly educated labor force, a large bilingual population, stable democratic government, and similar time zones with the United States. It takes only a few hours to travel between Costa Rica and the US. Companies such as
Intel Intel Corporation is an American multinational corporation and technology company headquartered in Santa Clara, California, Santa Clara, California. It is the world's largest semiconductor chip manufacturer by revenue, and is the developer of ...

Intel
,
Procter & Gamble The Procter & Gamble Company (P&G) is an American multinational consumer goods A final goods or consumer goods is a commodity that is used by the consumer to satisfy current wants or needs, unlike intermediate goods which is utilized to produ ...
, HP,
Gensler Gensler is a global design and architecture firm. Organized into 16 diverse practice areas covering a broad spectrum of industry sectors, Gensler delivers a range of project types for clients around the world. In 2017, Gensler generated $1.197 b ...
,
Amazon Amazon usually refers to: * Amazons In Greek mythology, the Amazons (Ancient Greek: Ἀμαζόνες ''Amazónes'', singular Ἀμαζών ''Amazōn'') are portrayed in a number of ancient Greek, ancient epic poems and legends, such as the L ...
and
Bank of America The Bank of America Corporation (simply referred to as Bank of America, often abbreviated as BofA or BoA) is an American multinational Investment banking, investment bank and financial services holding company headquartered in Charlotte, North ...

Bank of America
have big operations in Costa Rica. Unlike outsourced manufacturing, outsourced white collar workers can choose their working hours, and for which companies to work. Clients benefit from
telecommuting Telecommuting, also called remote working, telework, teleworking, working from home (WFH), mobile work, remote job, work from anywhere (WFA), and flexible workplace, is a employment, work arrangement in which employees do not commuting, commute ...
, reduced office space, management salary, and employee benefits as these individuals are contracted workers.Ross, J; Irani, L; Silberman, M.S.; Zaldivar, A; Tomlinson, B (2010). "Who are the Crowdworkers? Shifting Demographics in Mechanical Turk". CHI 2010. However, ending a government oursourcing arrangement has its difficulties too.


Reasons for outsourcing

While U.S. companies do not outsource to reduce high top level executive or managerial costs, they primarily outsource to reduce peripheral and "non-core" business expenses. Further reasons are higher taxes, high energy costs, and excessive government regulation or mandates. Mandated benefits like
social security Welfare (or commonly, social welfare) is a type of government support intended to ensure that members of a society can meet Basic needs, basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refe ...
, Medicare, and safety protection ( OSHA regulations) are also motivators. By contrast, executive pay in the United States in 2007, which could exceed 400 times more than average workers — a gap 20 times bigger than it was in 1965 is not a factor. Other reasons include reducing and controlling operating costs, improving company focus, gaining access to world-class capabilities, tax credits, freeing internal resources for other purposes, streamlining or increasing efficiency for time-consuming functions, and maximizing use of external resources. For small businesses, contracting/subcontracting/"outsourcing" might be done to improve work-life balance


Outsourcing models

There are many outsourcing models, with variations by country, year and industry. Another approach is to differentiate between tactical and strategic outsourcing models. Tactical models include: * Staff augmentation * Project-based * To gain expertise not available in-house. Strategic consultancy includes for Business process improvement.


Innovation outsourcing

When offshore outsourcing knowledge work, firms heavily rely on the availability of technical personnel at offshore locations. One of the challenges in offshoring engineering innovation is a reduction in quality.


Co-sourcing

Co-sourcing is a hybrid of internal staff supplemented by an external service provider. Co-sourcing can minimize sourcing risks, increase transparency, clarity and lend toward better control than fully outsourced. Co-sourcing services can supplement internal audit staff with specialized skills such as information
risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something ...

risk management
or integrity services, or help during peak periods, or similarly for other areas such as software development or human resources.


Identity management co-sourcing

Identity management Identity management (IdM), also known as identity and access management (IAM or IdAM), is a framework of policies and technologies for ensuring that the right users (in an enterprise) have the appropriate access to technology resources. IdM syste ...
co-sourcing is when on-site hardware interacts with outside identity services. This contrasts with an "all in-the-cloud" service scenario, where the identity service is built, hosted and operated by the service provider in an externally hosted,
cloud computing Cloud computing is the on-demand availability of computer A computer is a machine that can be programmed to carry out sequences of arithmetic or logical operations automatically. Modern computers can perform generic sets of operation ...

cloud computing
infrastructure.


Offshore Software R&D Co-sourcing

Offshore Software R&D is the provision of
software development Software development is the process of conceiving, specifying, designing, Computer programming, programming, software documentation, documenting, software testing, testing, and Software bugs, bug fixing involved in creating and maintaining applic ...
services by a supplier (whether external or internal) located in a different country from the one where the software will be used. The global software R&D services market, as contrasted to ''Information Technology Outsourcing'' (ITO) and BPO, is rather young and currently is at a relatively early stage of development.


=Countries involved in outsourced software R&D

=
Canada Canada is a country in the northern part of North America. Its Provinces and territories of Canada, ten provinces and three territories extend from the Atlantic Ocean, Atlantic to the Pacific Ocean, Pacific and northward into the Arctic Ocea ...

Canada
,
India India (Hindi: ), officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by population, second-most populous country, the List of countries and dependencies by area, seventh-largest ...

India
,
Ireland Ireland ( ; ga, Éire ; Ulster-Scots: ) is an island upright=1.15, Great_Britain.html"_;"title="Ireland_(left)_and_Great_Britain">Ireland_(left)_and_Great_Britain_(right),_are_large_islands_of_north-west_Europe image:Small_Island_in ...

Ireland
, and
Israel Israel (; he, יִשְׂרָאֵל, translit=Yīsrāʾēl; ar, إِسْرَائِيل, translit=ʾIsrāʾīl), officially the State of Israel ( he, מְדִינַת יִשְׂרָאֵל, label=none, translit=Medīnat Yīsrāʾēl; ), is a ...

Israel
were the four leading countries as of 2003. Although many countries have participated in the Offshore outsourcing of software development, their involvement in co-sourced and outsourced Research & Development (R&D) was somewhat limited. Canada, the second largest by 2009, had 21% As of 2018, the top three were deemed by one "research-based policy analysis and commentary from leading economists" as China, India and Israel."
Gartner Gartner, Inc, officially known as Gartner, is a Stamford, Connecticut Stamford () is a city in the U.S. state of Connecticut. It is the third-most populous city in Fairfield County with a population of 129,302 according to the 2020 censu ...

Gartner
Group adds in
Russia Russia ( rus, link=no, Россия, Rossiya, ), or the Russian Federation, is a country spanning Eastern Europe and Northern Asia. It is the List of countries and dependencies by area, largest country in the world, covering over , and encom ...

Russia
, but does not make clear whether this is pure R&D or run-of-the-mill IT outsourcing.


Usability issues in offshore development

The main driver for offshoring development work has been the greater availability of developers at a lower cost than in the home country. However, the rise in offshore development has taken place in parallel with an increased awareness of the importance of usability, and the user experience, in software. Outsourced development poses special problems for development, i.e. the more formal, contractual relationship between the supplier and client, and geographical separation place greater distance between the developers and users, which makes it harder to reflect the users' needs in the final product. This problem is exacerbated if the development is offshore. Further complications arise from cultural differences, which apply even if the development is carried out by an in-house offshore team. Historically offshore development concentrated on back office functions but, as offshoring has grown, a wider range of applications have been developed. Offshore suppliers have had to respond to the commercial pressures arising from usability issues by building up their usability expertise. Indeed, this problem has presented an attractive opportunity to some suppliers to move up market and offer higher value services.


Legal issues

Offshore Software R&D means that company A turns over responsibility, in whole or in part, of an in-house software development to company B whose location is outside of company A's national jurisdiction. Maximizing the economic value of an offshore software development asset critically depends on understanding how best to use the available forms of legal regulations to protect intellectual rights. If the vendor cannot be trusted to protect trade secrets, then the risks of an offshoring software development may outweigh its potential benefits. Hence, it is critical to review the intellectual property policy of the potential offshoring supplier. The intellectual property protection policy of an offshore software development company must be reflected in these crucial documents: General Agreement; Non-Disclosure Agreement; Employee Confidentiality Contract.


2000-2012 R&D

As forecast in 2003, R&D is outsourced. Ownership of
intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The most well-known types are copyright ...
by the outsourcing company, despite outside development, was the goal. To defend against tax-motivated cost-shifting, the US government passed regulations in 2006 to make outsourcing research harder. Despite many R&D contracts given to Indian universities and labs, only some research solutions were patented. While
Pfizer Pfizer Inc. ( ) is an American multinational pharmaceutical corporation. Pfizer is one of the world's largest pharmaceutical companies, and was ranked 64th on the 2020 ''Fortune'' 500 list of the largest U.S. corporations by total revenue, ...

Pfizer
moved some of its R&D from the UK to India, a
Forbes ''Forbes'' () is an American business magazine owned by Integrated Whale Media Investments and the Forbes family (publishers), Forbes family. Published eight times a year, it features articles on finance, industry, investing, and marketing to ...

Forbes
article suggested that it is increasingly more dangerous to offshore IP sensitive projects to India, because of India's continued ignorance of patent regulations. In turn, companies such as
Pfizer Pfizer Inc. ( ) is an American multinational pharmaceutical corporation. Pfizer is one of the world's largest pharmaceutical companies, and was ranked 64th on the 2020 ''Fortune'' 500 list of the largest U.S. corporations by total revenue, ...

Pfizer
and Novartis, have lost rights to sell many of their cancer medications in India because of lack of IP protection.


Future trends

A 2018 "The Future of Outsourcing" report began with "The future of outsourcing is digital." The ''""Do what you do best and outsource the rest"'' approach means that "integration with retained systems" is the new transition challenge - people training still exists, but is merely an "also." There is more complexity than before, especially when the outside company may be an integrator. While the number of technically skilled labor grows in India, Indian offshore companies are increasingly tapping into the skilled labor already available in Eastern Europe to better address the needs of the Western European R&D market.


Changed government outsourcing focus

Forbes considered the US Presidential election of 2016 "the most disruptive change agent for the outsourcing industry", especially the renewed "invest in America" goal highlighted in campaigning, but the magazine tepidly reversed direction in 2019 as to the outcome for employment. Furthermore, there are growing legal requirements for
data protectionInformation privacy is the relationship between the collection and dissemination of data, technology Technology ("science of craft", from Ancient Greek, Greek , ''techne'', "art, skill, cunning of hand"; and , ''wikt:-logia, -logia'') is the s ...
, where obligations and implementation details must be understood by both sides. This includes dealing with customer rights.


Implications


Performance measurement

Focusing on
software quality In the context of software engineering, software quality refers to two related but distinct notions: * Software functional quality reflects how well it complies with or conforms to a given design, based on functional requirements or specification ...
metrics is a good way to maintain track of how well a project is performing.


Management processes

Globalization and complex
supply chains In commerce Commerce is the exchange of goods and services, especially on a large scale. Etymology The English-language word ''commerce'' has been derived from the Latin Latin (, or , ) is a classical language belonging to the Italic lang ...
, along with greater physical distance between higher management and the production-floor employees often requires a change in management methodologies, as inspection and feedback may not be as direct and frequent as in internal processes. This often requires the assimilation of new communication methods such as
voice over IP Voice over Internet Protocol (VoIP), also called IP telephony, is a method and group of technologies for the delivery of voice communications and multimedia Multimedia is a form of communication that co ...
,
instant messaging Instant messaging (IM) technology is a type of online chat allowing real-time text transmission over the Internet or another computer network. Messages are typically transmitted between two or more parties, when each user inputs text and trigger ...

instant messaging
, and Issue tracking systems, new methods such as
time tracking software Time-tracking software is a category of computer software that allows its employees to record time spent on tasks or projects. The software is used in many industries, including those who employ freelancers and hourly workers. It is also used by pr ...
, and new cost- and schedule-assessment tools such as cost estimation software. The term Transition methodology describes the process of migrating knowledge, systems, and operating capabilities between the two sides.


Communications and customer service

In the area of
call center A call centre ( Commonwealth spelling) or call center ( American spelling; see spelling differences) is a centralised office used for receiving or transmitting a large volume of enquiries by telephone. An inbound call centre is operated by a ...

call center
outsourcing, especially when combined with offshoring, agents may speak with different
linguistic Linguistics is the science, scientific study of language. It encompasses the analysis of every aspect of language, as well as the methods for studying and modeling them. The traditional areas of linguistic analysis include phonetics, phonet ...

linguistic
features such as
accentsAccent may refer to: Speech and language * Accent (sociolinguistics), way of pronunciation particular to a speaker or group of speakers * Accent (phonetics), prominence given to a particular syllable in a word, or a word in a phrase ** Pitch accen ...
, word use and phraseology, which may impede comprehension.The words "100% U.S.Based Customer Service" (followed by "Talk to a real person any time") are on the back of envelopes mailed by a major USA corporation.


Governance

In 1979, Nobel laureate wrote that the
governance Governance is all the processes of interactions be they through the laws Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, ...

governance
structure is the "framework within which the integrity of a transaction is decided." Adding further that "because contracts are varied and complex, governance structures vary with the nature of the transaction."
University of Tennessee The University of Tennessee (University of Tennessee, Knoxville; UT Knoxville; UTK; or UT) is a public In public relations and communication science, publics are groups of individual people, and the public (a.k.a. the general public) is t ...
researchers have been studying complex outsourcing relationships since 2003. Emerging thinking regarding strategic outsourcing is focusing on creating a contract structure in which the parties have a vested interest in managing what are often highly complex business arrangements in a more collaborative, aligned, flexible, and credible way.


Security

Reduced security, sometimes related to lower loyalty may occur, even when "outsourced" staff change their legal status but not their desk. While security and compliance issues are supposed to be addressed through the contract between the client and the suppliers, fraud cases have been reported. In April 2005, a high-profile case involved the theft of $350,000 from four
Citibank Citibank is the consumer division of financial services Financial services are the economic services provided by the finance Finance is the study of financial institutions, financial markets and how they operate within the financial syst ...

Citibank
customers when call-center workers acquired the passwords to customer accounts and transferred the money to their own accounts opened under fictitious names. Citibank did not find out about the problem until the American customers noticed discrepancies with their accounts and notified the bank.


Information technology

Richard Baldwin's 2006 ''The Great Unbundling'' work was followed in 2012 by ''Globalization's Second Acceleration (the Second Unbundling)'' and in 2016 by ''The Great Convergence: Information Technology and the New Globalization''. It is here, rather than in manufacturing, that the bits economy can advance in ways that the economy of atoms and things can't: an early 1990s Newsweek had a half page cartoon showing someone who had just ordered a pizza online, and was seeking help to download it.


Step-in rights

If both sides have a contract clause permitting step-in rights, then there is a right, though not an obligation, to take over a task that is not going well, or even the entire project.


Issues and reversals

A number of outsourcings and offshorings that were deemed failures led to reversals signaled by use of terms such as
Insourcing Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another. Th ...
and reshoring. The New York Times reported in 2017 that IBM "plans to hire 25,000 more workers in the United States over the next four years," overlapping India-based Infosys's "10,000 workers in the United States over the next two years." A clue to a tipping point having been reached was a short essay titled "Maybe You Shouldn’t Outsource Everything After All" and the longer "That Job Sent to India May Now Go to Indiana." Among problems encountered were supply-and-demand induced raises in salaries and lost benefits of similar-time-zone. Other issues were differences in language and culture. Another reason for a decrease in outsourcing is that many jobs that were subcontracted abroad have been replaced by technological advances. According to a 2005 Deloitte, Deloitte Consulting survey, a quarter of the companies which had outsourced tasks reversed their strategy. These reversals, however, did not undo the damage. New factories often: * were in different locations * needed different skill sets * used more automation. Public opinion in the US and other Western powers opposing outsourcing was particularly strengthened by the drastic increase in unemployment as a result of the 2007–2008 financial crisis. From 2000 to 2010, the US experienced a net loss of 687,000 jobs due to outsourcing, primarily in the computers and electronics sector. Public disenchantment with outsourcing has not only stirred political responses, as seen in the 2012 United States presidential election, 2012 US presidential campaigns, but it has also made companies more reluctant to outsource or offshore jobs. A counterswing depicted by a 2016 Deloitte survey suggested that companies are no longer reluctant to outsource. Deloitte's survey identified three trends: * Companies are broadening their approach to outsourcing as they begin to view it as more than a simple cost-cutting play * Organizations are "redefining the ways they enter into outsourcing relationships and manage the ensuing risks". * Organizations are changing the way they are managing their relationships with outsourcing providers to "maximize the value of those relationships".


Insourcing

Insourcing is the process of reversing an outsourcing, possibly using help from those not currently part of the inhouse staff. Outsourcing has gone through many iterations and reinventions, and some outsourcing contracts have been partially or fully reversed. Often the reason is to maintain control of critical production or competencies, and insourcing is used to reduce costs of taxes, labor and transportation.Shermon, G (2017). "Digital Talent – Business Models and Competencies" Page 190 Regional insourcing, a related term, is when a company assigns work to a subsidiary that is within the same country. This differs from ''onshoring'' and ''reshoring'': these may be either inside or outside the company.


Regional insourcing

Regional insourcing is a process in which a company establishes satellite locations for specific entities of their business, making use of advantages one state may have over another This concept focuses on the delegating or reassigning of procedures, functions, or jobs from production within a business in one location to another internal entity that specializes in that operation. This allows companies to streamline production, boost competency, and increase their bottom line. This competitive strategy applies the classical argument of Adam Smith, which posits that two nations would benefit more from one another by trading the goods that they are more proficient at manufacturing.


Net effect on jobs

To those who are concerned that nations may be losing a net number of jobs due to outsourcing, some point out that insourcing also occurs. A 2004 study in the United States, the United Kingdom, and many other industrialized countries more jobs are insourced than outsourced. The New York Times disagreed, and wrote that free trade with low-wage countries is win-lose for many employees who find their jobs offshored or with stagnating wages. The impact of offshore outsourcing, according to two estimates published by
The Economist ''The Economist'' is an international weekly newspaper A weekly newspaper is a general-news or current affairsCurrent affairs may refer to: Media * Current Affairs (magazine), ''Current Affairs'' (magazine), a bimonthly magazine of cultur ...
showed unequal effect during the period studied 2004 to 2015, ranging from 150,000 to as high as 300,000 jobs lost per year. In 2010, a group of manufacturers started the Reshoring Initiative, focusing on bringing manufacturing jobs for American companies back to the country. Their data indicated that 140,000 American jobs were lost in 2003 due to offshoring. Eleven years later in 2014, the United States recovered 10,000 of those offshored positions; this marked the highest net gain in 20 years. More than 90% of the jobs that American companies "offshored" and outsourced manufacturing to low cost countries such as
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the List of countries and dependencies by population, world's most populous country, with a population of around 1.4 billion. Covering approximately 9.6& ...

China
, Malaysia and Vietnam did not return.


Insourcing crossbreeds

The fluctuation of prefixes and names give rise to many more "cross-breeds" of insourcing. For example, "offshore insourcing" is "when companies set up their own "" process centers overseas, sometimes called a ''Captive Service'', taking advantage of their cheaper surroundings while maintaining control of their back-office work and business processes." "" refers to hiring developers to work in-house from virtual (remote) facilities.


In the United States

A 2012 series of articles in The Atlantic, Atlantic MagazineJanuary: February: June:December: highlighted a turning of the tide for parts of the USA's manufacturing industry. Specific causes identified include rising third-world wages, recognition of hidden off-shoring costs, innovations in design/manufacture/assembly/time-to-market, increasing fuel and transportation costs, falling energy costs in the US, increasing US labor productivity, and union flexibility. Hiring at GE's giant Appliance Park in Louisville, Kentucky, Louisville increased 90% during 2012.


Standpoint of labor

From the standpoint of labor, outsourcing may represent a new threat, contributing to worker insecurity, and is reflective of the general process of globalization and Polarization (economics), economic polarization. * ''Low-skilled work'': Outsourced low-skilled work to contractors who tend to employ migrant labor is causing a revival of radical trade union activity. In the UK, major hospitals, universities, ministries and corporations are being pressured; outsourced workers often earn minimum wage and lack sick pay, annual leave, pensions and other entitlements enjoyed by directly employed staff at the same workplaces. * ''In-housing'': In January 2020, Tim Orchard, the CEO of Imperial College Healthcare NHS Trust, Imperial College Healthcare Trust stated that the in-housing of over 1,000 Sodexo cleaners, caterers and porters across five National Health Service, NHS hospitals in London "will create additional cost pressures next year but we are confident that there are also benefits to unlock, arising from better team working, more co-ordinated planning and improved quality." * ''USA base'': On June 26, 2009, Jeff Immelt, the CEO of General Electric, called for the United States to increase its manufacturing base employment to 20% of the workforce, commenting that the U.S. has outsourced too much and can no longer rely on consumer spending to drive demand.Bailey, David and Soyoung Kim (June 26, 2009
GE's Immelt says U.S. economy needs industrial renewal
.''UK Guardian.''. Retrieved on June 28, 2009.


Standpoint of government

Western governments may attempt to compensate workers affected by outsourcing through various forms of legislation. In Europe, the Acquired Rights Directive attempts to address the issue. The Directive is implemented differently in different nations. In the United States, the Trade Adjustment Assistance Act is meant to provide compensation for workers directly affected by international trade agreements. Whether or not these policies provide the security and fair compensation they promise is debatable.


Government response

In response to the recession, President Obama launched the SelectUSA program in 2011. In January 2012, President Obama Issued a Call to Action to Invest in America at the White House "Insourcing American Jobs" Forum. Obama met with representatives of companies such as Otis Elevator, Apple Inc., Apple,
DuPont DuPont de Nemours, Inc., commonly known as DuPont, is an American company formed by the merger of Dow Chemical and E. I. du Pont de Nemours and Company on August 31, 2017, and the subsequent spinoffs of Dow Inc. and Corteva. Prior to the sp ...

DuPont
, Master Lock, all of which had recently brought jobs back or made significant investments in the United States.


Policy-making strategy

A main feature of outsourcing influencing policy-making is the unpredictability it generates regarding the future of any particular sector or skill-group. The uncertainty of future conditions influences governance approaches to different aspects of long-term policies. In particular, distinction is needed between * ''cyclical unemployment'' – for which ''pump it up'' solutions have worked in the past, and * ''structural unemployment'' – when "businesses and industries that employed them no longer exist, and their skills no longer have the value they once did."


=Competitiveness

= A governance that attempts adapting to the changing environment will facilitate growth and a stable transition to new economic structures until the economic structures become detrimental to the social, political and cultural structures. Automation increases output and allows for reduced cost per item. When these changes are not well synronized, unemployment or underemployment is a likely result. When transportation costs remain unchanged, the negative effect may be permanent; jobs in protected sectors may no longer exist.Stiglitz, J. And Charlton, A., (2005). "Trade can be Good for Development," Ch. 2 in Fair Trade for All, Oxford University Press, Oxford, NY. USA outsourcing's effect on Mexico, studies suggest, is that for every 10% increase in US wages, north Mexico cities along the Mexico–United States border, border experienced wage rises of 2.5%, about 0.69% higher than in inner cities. By contrast, higher rates of saving and investment in Asian countries, along with rising levels of education, studies suggest, fueled the ‘Asian miracle’ rather than improvements in productivity and industrial efficiency. There was also an increase in patenting and research and development expenditures.


=Industrial policy

= Outsourcing results from an internationalization of labor markets as more tasks become tradable. According to leading economist Greg Mankiw, the labour market functions under the same forces as the market of goods, with the underlying implication that the greater the number of tasks available to being moved, the better for efficiency under the gains from trade. With technological progress, more tasks can be offshored at different stages of the overall corporate process. The tradeoffs are not always balanced, and a 2004 viewer of the situation said "the total number of jobs realized in the United States from insourcing is far less than those lost through outsourcing."


=Environmental policy

= Import competition has caused a de facto ‘race-to-the-bottom’ where countries lower environmental regulations to secure a competitive edge for their industries relative to other countries. As Mexico competes with China over Canadian and American markets, its national Commission for Environmental Cooperation has not been active in enacting or enforcing regulations to prevent environmental damage from increasingly industrialized Export Processing Zones. Similarly, since the signing of North American Free Trade Agreement, NAFTA, heavy industries have increasingly moved to the US which has a comparative advantage due to its abundant presence of capital and well-developed technology. A further example of environmental de-regulation with the objective of protecting trade incentives have been the numerous exemptions to carbon taxes in European countries during the 1990s. Although outsourcing can influence environmental de-regulatory trends, the added cost of preventing pollution does not majorly determine trade flows or industrialization.


Success stories

Companies such as Jain Irrigation Systems, ET Water Systems (now a Jain Irrigation Systems company), GE Appliances and Caterpillar Inc., Caterpillar found that with the increase of labor costs in Japan and China, the cost of shipping and custom fees, it cost only about 10% more to manufacture in America. Advances in technology and automation such as 3D printing technologies have made bringing manufacturing back to the United States, both cost effective and possible. Adidas, for example, plans producing highly customized shoes with 3D printers in the U.S.


Globalization and socio-economic implications


Industrialization

Outsourcing has contributed to further levelling of global inequalities as it has led to general trends of industrialization in the Global South and deindustrialization in the Global North. Not all manufacturing should return to the U.S. The rise of the middle class in China, India and other countries has created markets for the products made in those countries. Just as the U.S. has a "Made in U.S.A." program, other countries support products made in their countries as well. Localization, the process of manufacturing products for the local market, is an approach to keeping some manufacturing offshore and bringing some of it back. Besides the cost savings of manufacturing closer to the market, the lead time for adapting to changes in the market is faster. The rise in industrial efficiency which characterized development in developed countries has occurred as a result of labor-saving technological improvements. Although these improvements do not directly reduce employment levels but rather increase output per unit of work, they can indirectly diminish the amount of labor required for fixed levels of output.


Growth and income

It has been suggested that "workers require more education and different skills, working with software rather than drill presses" rather than rely on limited growth labor requirements for non-tradable services.


By location


United States

Protection of some data involved in outsourcing, such as about patients (Health Insurance Portability and Accountability Act, HIPAA) is one of the few federal protections. "Outsourcing" is a continuing political issue in the United States, having been conflated with offshoring during the 2004 United States presidential election, 2004 U.S. presidential election. The political debate centered on outsourcing's consequences for the domestic U.S. workforce. United States Democratic Party, Democratic U.S. presidential candidate John Kerry called U.S. firms that outsource jobs abroad or that incorporate overseas in tax havens to avoid paying their "fair share" of Taxation in the United States, U.S. taxes "Benedict Arnold corporations". A Zogby International August 2004 poll found that 71% of American voters believed "outsourcing jobs overseas" hurt the economy while another 62% believed that the U.S. government should impose some legislative action against these companies, possibly in the form of increased taxes. President Obama promoted the 'Bring Jobs Home Act' to help reshore jobs by using tax cuts and credits for moving operations back to the USA. The same bill was reintroduced in the 113th United States Congress as the Bring Jobs Home Act (S. 2569; 113th Congress). While labor advocates claim union busting as one possible cause of outsourcing, another claim is high corporate income tax rate in the U.S. relative to other OECD nations, and the practice of taxing revenues earned outside of U.S. jurisdiction, a very uncommon practice. Some counterclaim that the actual taxes paid by US corporations may be considerably lower than "official" rates due to the use of tax loopholes, tax havens, and "gaming the system". Sarbanes-Oxley has also been cited as a factor.


Europe

Council Directive 77/187 of 14 February 1977 protects employees' rights in the event of transfers of undertakings, businesses or parts of businesses (as amended 29 June 1998, Directive 98/50/EC & 12 March 2001's Directive 2001/23). Rights acquired by employees with the former employer are to be safeguarded when they, together with the undertaking in which they are employed, are transferred to another employer, i.e., the contractor. Case subsequent to the European Court of Justice's Christel Schmidt v. Spar- und Leihkasse der früheren Ämter Bordesholm, Kiel und Cronshagen, Case C-392/92 [1994] have disputed whether a particular contracting-out exercise constituted a transfer of an undertaking (see, for example, Süzen v Zehnacker Gebaeudereingung GmbH, Ayse Süzen v. Zehnacker Gebäudereinigung GmbH Krankenhausservice, Case C-13/95 [1997]). In principle, employees may benefit from the protection offered by the directive.


Asia

Countries that have been the focus of outsourcing include India, Pakistan, and the Philippines for American and European companies, and China and Vietnam for Japanese companies. The Asian IT service market is still in its infancy, but in 2008 industry think tank Nasscom-McKinsey predicted a $17 billion IT service industry in India alone. A China-based company, Lenovo, outsourced/reshored manufacturing of some time-critical customized Personal computer, PCs to the U.S. since "If it made them in China they would spend six weeks on a ship." Article 44 of Japan's Employment Security Act implicitly bans the domestic/foreign workers supplied by unauthorized companies regardless of their operating locations. The law will apply if at least one party of suppliers, clients, labors reside in Japan, and if the labors are the integral part of the chain of command by the client company, or the supplier. * No person shall carry out a labor supply business or have workers supplied by a person who carries out a labor supply business work under his/her own directions or orders, except in cases provided for in the following Article. ** A person who falls under any of the following items shall be punished by imprisonment with work for not more than one year or a fine of not more than one million yen. (Article 64) * Unless permitted by act, no person shall obtain profit by intervening, as a business, in the employment of another. Victims can lodge a criminal complaint against the CEO of the suppliers and clients. The CEO risks arrest, and the Japanese company may face a private settlement with financial package in the range between 20 and 100 million JPY (200,000 - million USD).


Nearshoring

When the New York Times headlined "Near Source of Supplies the Best Policy" their main focus was on "cost of production." Although transportation cost was addressed, they did not choose among: * transporting supplies to place of production * transporting finished goods to place(s) of sale * cost and availability of labor Nearshoring or Nearsourcing is having
business process A business process, business method or business function is a collection of related, structured activities or tasks Task may refer to: * Task (project management), an activity that needs to be accomplished within a defined period of time or by a ...
es, especially information technology processes such as application maintenance and development or testing, in a nearby country, often sharing a border with the target country. Commonalities usually include: geographic, temporal (time zone), cultural, social, linguistic, economic, political, or historical linkages. The term Nearshoring is a derivative of the business term
offshoring Offshoring is the relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Usually this refers to a company business, although state govern ...
. The hybrid term "nearshore outsourcing" is sometimes used as an alternative for nearshoring, since nearshore workers are not employees of the company for which the work is performed. It can also be a reversal, by contracting a development partner in a different country but in close proximity (same or nearby time zone), facilitating communication and allowing frequent visits. This is a business strategy to place some or all of its operations close to where its products are sold. Typically, this is contrasted with the trend to outsource low-wage manufacturing operations to developing nations (offshoring), and reflects a reversal of that trend. Sometime, the work is done by an outside contracted company rather than internally (insourcing), but unlike offshore outsourcing, the work is done in fairly close proximity to either the company headquarters or its target market. In Europe, nearshore outsourcing relationships are between clients in larger European economies and various providers in smaller European nations. Major centers are
Poland Poland ( pl, Polska ), officially the Republic of Poland ( pl, Rzeczpospolita Polska, links=no ), is a country located in Central Europe. It is divided into 16 Voivodeships of Poland, administrative provinces, covering an area of , and ha ...

Poland
, Outsourcing_in_Ukraine, Ukraine, Belarus, Czech Republic,
Romania Romania ( ; ro, România ) is a country at the crossroads of Central Europe, Central, Eastern Europe, Eastern and Southeast Europe, Southeastern Europe. It borders Bulgaria to the south, Ukraine to the north, Hungary to the west, Serbia to t ...

Romania
, Bulgaria, Hungary, Portugal, Slovakia, and the Baltic states, Baltic. The attraction is lower-cost skilled labor forces, and a less stringent regulatory environment, but crucially they allow for more day to day physical oversight. These countries also have strong cultural ties to the major economic centers in Europe as they are part of EU. For example, as of 2020 Portugal is considered to be the most trending outsourcing destination as big companies like Mercedes, Google, Jaguar, Sky News, Natixis and BNP Paribas opening development centers in Lisbon and Porto, where labor costs are lower, talent comes from excellent Universities, there's availability of skills and the time zone is GMT (the same as London). In the US, American clients nearshore to
Canada Canada is a country in the northern part of North America. Its Provinces and territories of Canada, ten provinces and three territories extend from the Atlantic Ocean, Atlantic to the Pacific Ocean, Pacific and northward into the Arctic Ocea ...

Canada
and Mexico, as well as to many nations in Central and South America.


Reasons to nearshore


Culture

Cultural alignment with the business is often more readily achieved through near-sourcing due to there being similarities between the cultures in which the business is located and in which services are sub-contracted, including for example proficiency with the language used in that culture.


Communication

Constraints imposed by time zones can complicate communication; near-sourcing or nearshoring offers a solution. English language skills are the cornerstone of Nearshore and IT services. Collaboration by universities, industry, and government has slowly produced improvements. Proximity also facilitates in-person interaction regularly and/or when required.


Other Advantages

Software development nearshoring is mainly due to flexibility when it comes to upscale or downscale teams or availability of low cost skilled developers. The nearshoring of call centers, shared services centers, and (Business process outsourcing, Business Process Outsourcing) rose as offshore outsourcing was seen to be relatively less valuable. The complexities of offshoring stem from language and cultural differences, travel distances, workday/time zone mismatches, and greater effort for needed for establishing trust and long-term relationships. Many nearshore providers attempted to circumvent communication and project management barriers by developing new ways to align organizations. As a result, concepts such as remote insourcing were created to give clients more control in managing their own projects. Nearshoring still hasn't overcome all barriers, but proximity allows more flexibility to align organizations.


Visa requirements

The United States has a special Travel visa, visa, the H-1B visa, H-1B, which enables American companies to Foreign worker, temporarily (up to three years, or by extension, six) hire foreign workers to supplement their employees or replace those holding existing positions. In hearings on this matter, a United States senator called these "their outsourcing visa."


Examples

* In 2003
Procter & Gamble The Procter & Gamble Company (P&G) is an American multinational consumer goods A final goods or consumer goods is a commodity that is used by the consumer to satisfy current wants or needs, unlike intermediate goods which is utilized to produ ...
outsourced their facilities' management support, but it did not involve offshoring. * Dell offshored to India in 2001 but reversed since "customers were not happy with the prior arrangement ..."


Print and mail outsourcing

Print and mail outsourcing is the outsourcing of document printing and distribution. The Print Services & Distribution Association was formed in 1946, and its members provide services that today might involve the word outsource. Similarly, members of the Direct Mail Marketing Association were the "outsourcers" for advertising agencies and others doing mailings. DMMA celebrated their 100th anniversary in 2017. The term "outsourcing" became very common in the print and mail business during the 1990s, and later expanded to be very broad and inclusive of most any process by the year 2000. Today, there are web based print to mail solutions for small to mid-size companies which allow the user to send one to thousands of documents into the mail stream, directly from a desktop or web interface.


Marketing outsourcing

The term outsource marketing has been used in Britain to mean the outsourcing of the marketing function. The motivation for this has been: * cost reduction. * specialized expertise. * speed of execution * short term staff augmentation While much of this work is the "bread and butter" of specialized departments within advertising agencies, sometimes specialist are used, such as when the Guardian newspaper outsourced most of their marketing design in May 2010.


Business Process Outsourcing

Business Process Outsourcing (BPO) is a subset of outsourcing that involves the contracting of the operations and responsibilities of a specific
business process A business process, business method or business function is a collection of related, structured activities or tasks Task may refer to: * Task (project management), an activity that needs to be accomplished within a defined period of time or by a ...
to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca-Cola that outsourced large segments of its supply chain. BPO is typically categorized into back office and front office outsourcing. BPO can be
offshore outsourcing Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another. Th ...
, near-shore outsourcing to a nearby country, or onshore outsource to the same country. Information technology, Information Technology Enabled Service (ITES-BPO), Knowledge process outsourcing (KPO) and Legal process outsourcing (LPO) are some of the sub-segments of BPO. Although BPO began as a cost-reducer, changes (specifically the move to more service-based rather than product-based contracts), companies now choose to outsource their back-office increasingly for time flexibility and direct quality control. Business process outsourcing enhances the flexibility of an organization in different ways: BPO vendor charges are project-based or fee-for-service, using business models such as Remote In-Sourcing or similar software development and outsourcing models. This can help a company to become more flexible by transforming fixed into variable costs. A variable cost structure helps a company responding to changes in required capacity and does not require a company to invest in assets, thereby making the company more flexible. BPO also permits focusing on a company's core competencies. Supply chain management with effective use of supply chain partners and business process outsourcing can increase the speed of several business processes.


BPO caveats

Even various contractual compensation strategies may leave the company as having a new "single point of failure" (where even an after the fact payment is not enough to offset "complete failure of the customer's business"). Unclear contractual issues are not the only risks; there's also changing requirements and unforeseen charges, failure to meet service levels, and a dependence on the BPO which reduces flexibility. The latter is called Vendor lock-in, lock-in; flexibility may be lost due to penalty clauses and other contract terms. Also, the selection criteria may seem vague and undifferentiated Security risks can arise regarding both from physical communication and from a privacy perspective. Employee attitude may change, and the company risks losing independence. Risks and threats of outsourcing must therefore be managed, to achieve any benefits. In order to manage outsourcing in a structured way, maximising positive outcome, minimising risks and avoiding any threats, a business continuity management (BCM) model is set up. BCM consists of a set of steps, to successfully identify, manage and control the business processes that are, or can be outsourced. Analytical hierarchy process analytic hierarchy process, (AHP) is a framework of BPO focused on identifying potential outsourceable information systems. L. Willcocks, M. Lacity and G. Fitzgerald identify several contracting problems companies face, ranging from unclear contract formatting, to a lack of understanding of technical IT processes.


Technological pressures

Industry analysts have identified robotic process automation (RPA) software and in particular the enhanced self-guided RPAAI based on artificial intelligence as a potential threat to the industry and speculate as to the likely long-term impact. In the short term, however, there is likely to be little impact as existing contracts run their course: it is only reasonable to expect demand for cost efficiency and innovation to result in transformative changes at the point of contract renewals. With the average length of a BPO contract being 5 years or more – and many contracts being longer – this hypothesis will take some time to play out. On the other hand, an academic study by the London School of Economics was at pains to counter the so-called "myth" that ''RPA will bring back many jobs from offshore''. One possible argument behind such an assertion is that new technology provides new opportunities for increased quality, reliability, scalability and cost control, thus enabling BPO providers to increasingly compete on an outcomes-based model rather than competing on cost alone. With the core offering potentially changing from a "lift and shift" approach based on fixed costs to a more qualitative, service based and outcomes-based model, there is perhaps a new opportunity to grow the BPO industry with a new offering.


Industry size

One estimate of the worldwide BPO market from the BPO Services Global Industry Almanac 2017, puts the size of the industry in 2016 at about US$140 billion. India, China and the Philippines are major powerhouses in the industry. In 2017, in India, the BPO industry generated US$30 billion in revenue according to the national industry association. The BPO industry is a small segment of the total outsourcing industry in India. The BPO industry workforce in India is expected to shrink by 14% in 2021. The BPO industry and IT services industry in combination are worth a total of US$154 billion in revenue in 2017. The BPO industry in the Philippines generated $22.9 billion in revenues in 2016, while around 700 thousand medium and high skill jobs would be created by 2022. In 2015, official statistics put the size of the total outsourcing industry in China, including not only the BPO industry but also IT outsourcing services, at $130.9 billion.


See also

* Outstaffing * Collaboration * A. Aneesh (Algoracy) * Banking BPO services * BPO security * Business process outsourcing to India * Business process outsourcing in the Philippines * Business process outsourcing in China * Call center industry in the Philippines * Call center industry in Bangladesh * Contract manufacturer * Contingent workforce * Crowdsourcing * Facilities management * Freelance marketplace * Globality * Global sourcing * Globalization * Globally Integrated Enterprise * Licensed production * Offshore custom software development * Offshoring Research Network * Outsourced document processing * Professional Employer Organization * Programmers Guild * Recruitment * Selfsourcing * Software testing outsourcing * Supply chain * Telecentre * Telecommuting * Theory of the firm#Economic theory of outsourcing * Virtual assistant (occupation), Virtual assistance


References


Further reading

* *


External links

* {{Authority control Outsourcing, Business-to-business Business process Business terms Economic globalization Information technology Information technology management International business International factor movements International trade Office work Offshoring Postal services Telecommuting