Offshore outsourcing

Offshore outsourcing

Offshore outsourcing is the practice of hiring an external organization to perform some business functions in a country other than the one where the products or services are actually developed or manufactured. It can be contrasted with offshoring, in which the 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.



There are four basic types of offshore outsourcing:


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 has a high information content;
  • The work can be transmitted over the Internet;
  • The work is easy to set up;
  • The work is repeatable.

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.

One of the main factors influencing the beginnings of the offshore outsourcing movement were a combination of pressures to reduce labor costs, save on operational cost such as payroll, administrative cost, utilities and to improve productivity, and an expanding, economical labor in other countries. When companies outsource the idea is to save money if they can keep the prices of their product lower than competitors.

Countries involved

Some of the major countries/districts that provide such services are India (Full Spectrum Services), Mexico (Full Spectrum Services), Ukraine (Programming and 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), Argentina (Full Spectrum Services), Indonesia (Programming, R&D, IT Support, Data Entry, Customer Support), China (Programming, Data Entry, Customer Support, F&A), Philippines (Customer Support, IT Support, Programming, Animation, Transcription), Russia (Programming and R&D), Pakistan (Full Spectrum Services), Panama (Programming, Customer Support), Nepal (Programming, Customer Support), Bangladesh (Web & Software Programming, Game Development, IT Support, Network Solutions, Offshore Outsourcing Service), Bulgaria (Programming and R&D), Belarus (Programming, R&D), Romania (Programming and IT), the Philippines (Programming, R&D, Data Entry and Customer Support, Egypt (Customer Support and Programming), Malaysia (Customer Support and R&D), Mauritius (ITO and BPO), Republic of Macedonia (Web Software, Mobile Software, Game Development, Network Solutions, Offshore Outsourcing Service, R&D) [1] and many others.

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 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 capable of setting up offshore locations, or of arriving at major contracts with offshore companies. See Freelancing on the Internet.

Source of conflict

There are different views on the impact 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. 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.

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


Economist.Com Recommendations from November 11, 2004 Special Survey Edition

For a new topic, outsourcing has produced a huge volume of research, not all of it worthwhile. Here is a sprinkling of some of the better stuff:

From the McKinsey Global Institute

“Offshoring: Is It a Win-Win Game?”, August 2003

“New Horizons: Multinational Company Investment in Developing Economies”, October 2003

“Can Germany Win from Offshoring?”, Diana Farrell, July 2004

“Exploding the Myths of Offshoring”, Martin Baily and Diana Farrell, July 2004

From the Boston Consulting Group

“China: The Pursuit of Competitive Advantage and Profitable Growth”, July 2003

“Capturing Global Advantage”, April 2004

From the Offshoring Research Network

“A Dynamic Perspective on Next-Generation Offshoring: The Global Sourcing of Science and Engineering Talent”, Stephan Manning, Silvia Massini and Arie Y. Lewin, in: Academy of Management Perspectives, Vol. 22, No.3, October 2008, 35-54.[2]

“Offshoring 2.0: Contracting Knowledge and Innovation to Expand Global Capabilities”, Vinaj Couto, Mahadeva Mani, Vikas Sehgal, Arie Y. Lewin, Stephan Manning and Jeff W. Russell, Duke University and Booz & Co., 2008.

“Next Generation Offshoring: The Globalization of Innovation”, Arie Y. Lewin and Vinaj Couto, Duke University and Booz Allen Hamilton, 2006.

From The Brookings Institute

“Offshoring Service Jobs: Bane or Boon - and What to Do?”, Lael Brainard and Robert Litan, April 2004

“Offshoring, Import Competition, and the Jobless Recovery”, Charles Schultze, August 2004

“The Outsourcing Bogeyman”, Daniel Drezner, Foreign Affairs, May/June 2004

“Hardheaded Optimism About Globalisation”, Amar Bhide, Columbia University, forthcoming

From the Bureau of Labour Statistics

“Occupational Employment Projections to 2012”, Daniel Hecker, Monthly Labour Review, February 2004

“The 1988-2000 Employment Projections: How Accurate Were They?”, by Andrew Alpert and Jill Auyer, Occupational Outlook Quarterly, Spring 2003

From Forrester

“3.3m US Services Jobs To Go Offshore”, John McCarthy, November 2002

“Low-Cost Global Delivery Model Showdown”, John McCarthy, August 2004

“Two Speed Europe: Why 1 Million Jobs Will Move Offshore”, Andrew Parker, August 2004

From Other Research

“The New Wave of Outsourcing”, Ashok Deo Bardham and Cynthia Kroll, University of California at Berkeley, Fisher Centre for Real Estate and Urban Economics Research Report, Fall 2003

“Globalisation of IT Services and White Collar Jobs: The Next Wave of Productivity Growth”, Catherine Mann, Institute for International Economics, December 2003

Further reading

External links


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