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Offshoring lowering costs
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| The globalization of the IT industry continues to grow and many IT companies are outsourcing much of their work overseas. Lower wages in these countries seem to be the key reason to move operations, with fast its easy to deal with partners and customers. |
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The globalization of the IT industry continues to grow and many IT companies are outsourcing much of their work overseas. Lower wages in these countries seem to be the key reason to move operations, with fast its easy to deal with partners and customers.
There is a lot negative views of offshore outsourcing in the U.S. According to the global insight from 1998 through 2003 offshore IT software and services spending increased from $2.5 billion to $10 billion; the figure could reach $31 billion by 2008. It also estimates that as of 2003 nearly 104,000 IT software and services jobs were displaced. The same study says that 372,000 IT jobs have been lost in this country since 2000, accounting for about 10 percent of the total number of such jobs in the U.S. The main reasons for the loss: the dot-com bust, the recession, and the growth in productivity.
Interestingly, Global Insight says that rather than reducing the number of jobs in the U.S., off shoring is lowering costs for everyone and actually creating jobs, thanks to a more efficient economy. It says that about 194,000 new jobs—both IT and non-IT—were created in 2003 thanks to offshore IT outsourcing, and by 2008 the number will reach over 589,000.
Gartner says that fewer than 5 percent of U.S. IT jobs have moved offshore. But analysts predict that by 2010 25 percent will be in developing countries. They urge companies to proceed carefully; as such moves could result in the loss of future talent, intellectual assets, and organizational performance.
Of course, the creation of new jobs isn't much consolation for people who have lost their jobs. Still, moving some jobs offshore seems inevitable. There is no good alternative.
Some of the other reasons why outsourcing seems to be inevitable are;
Accelerate reengineering which aims at improvements in key measures of performance such as cost, quality, service and speed. However the need to increase efficiency can come into direct conflict with the need to invest in core business. As non-core internal functions are continually put on the back burner, systems become less efficient and less productive. By outsourcing a non-core function to a world class provider, the organization can begin to see the benefits of reengineering.
Outsourcing opens up to new ideas, technologies, methodologies, and people. There is gain in expertise by working with many clients facing similar challenges. This combination of specialization and expertise gives customers a competitive advantage and helps them avoid the cost of chasing technology and training. In addition, there are better career opportunities for personnel who transition to the outsourcing provider.
Outsourcing permits an organization to redirect its resources, most often human resources, from non core activities toward activities which serve the customer. The organization can redirect these resources to greater value activities.
Outsourcing helps in solving complex problems which cannot be solved within the organization. Hence the organization is able to focus on its core business by having operational functions assumed by an outside expert. Freed from devoting energy to areas that are not in its expertise, the company can focus its resources on meeting its customers' needs.
Outsourcing can reduce the need to invest capital funds in non-core business functions. Instead of acquiring the resources through capital expenditures, they are contracted for on an "as used" operational expense basis. Outsourcing can also improve certain financial measurements of the firm by eliminating the need to show return on equity from capital investments in non core areas.
Tremendous risks are associated with the investments an organization makes. Markets, competition, government regulations, financial conditions and technologies all change extremely quickly. Keeping up with these changes, especially those in which the next generation requires a significant investment, is very risky. Therefore outsourcing providers make investments on behalf of many clients, not just one. Shared investment spreads risk, and significantly reduces the risk born by a single company.
Outsourcing is a viable alternative to building the needed capability from the ground. New organizations, spin-offs, or companies expanding into new geography or new technology should consider the benefits of outsourcing from the very start.
In conclusion offshore outsourcing involves a great deal of thought. One should not be spurred simply by expectations of rapid cost reduction. When processes are off shored overseas; companies not only get the advantage of low cost but also experience improvement in productivity and quality. These are the reasons that should motivate offshore outsourcing.
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