What will be the effects of offshore outsourcing?

Keywords: Offshore outsourcing, outsource, IT, Software outsourcing, Business Process Outsourcing, BPO, Offshoring, Nearshoring, Nearshore Outsourcing, Offshore captive units

Outsourcing to other countries (also called offshoring or offshore outsourcing) is a hot topic, with passions running high on both sides of the argument – for and against. Those against offshore outsourcing of jobs from developed countries to relatively less developed countries feel that their economies are simply losing the job opportunities to some other country. Those for offshore outsourcing contend that it is economics at play and very few companies, if any, will really have a choice in future – they contend that for companies of over a particular size to stay in business, they will necessarily need to factor in offshore outsourcing in their strategy.

Is offshore outsourcing then a simple case of passion versus reason? Or is there more to it? This is what this section of Billion Dollar Questions tries to figure out, by providing various view points and resources. We hope you find this section to be of use.

This page – like all the other pages at BillDoll.com, The Billion Dollar Questions Site - is a work-in-progress and stuff will get added regularly.

Offshore Outsourcing Discussions & Opinions - Web Resources

Outsourcing Backlash – Globalisation in the Knowledge Economy – from Gartner
The Impact of Offshoring on Developing Countries – from The Economics behind Offshoring, Stanford University
The Economics of Outsourcing – Mises Institute
The Economics of Outsourcing – How Should Policy Respond? – from Foreign Policy in Focus
Welfare Economics of Outsourcing – Eric Rasmusen’s Weblog
The Hidden Costs of Offshore Outsourcing by Stephanie Overby - CIO.com
Top 10 Risks of Offshore Outsourcing by Dean Davison – ZDNet - Techupdate
An Atlas of Offshore Outsourcing by David E. Gumpert - BusinessWeek online
Weighing the Benefits of Offshore Outsourcing - A CIO Research Report by Lorraine Cosgrove Ware
A New Tide in Offshore Outsourcing by David E. Gumpert - BusinessWeek Online
ITworld.com on "The art of successful offshore outsourcing"
As a growing number of IT jobs move overseas, some CIOs and economists prophesy a political storm against offshore outsourcing by Christopher Koch - CIO.com
Getting the Balance Right – The Economic Benefits of Offshoring – A Deutsche Bank thought paper (PDF)
Offshoring Conflicts with National Interests – MIT Alumni Opinion column
Offshore Outsourcing – Risk & Rewards – A CFO Magazine Symposium (PDF)
Rural Sourcing. What Is To Become Of The American IT Worker? - By: Kamil Z. Skawinski – CCNews
Beyond the Outsourcing Angst: Making America More Productive - by Thomas F. Siems @ Federal Reserve Bank of Dallas
The Politics and Economics of Offshore Outsourcing - N. Gregory Mankiw, Harvard University and the American Enterprise Institute, Phillip Swagel, American Enterprise Institute (PDF)
The Economics of Offshore Outsourcing – Peter D’Aprix, LED Digest, Feb 2006
Can America Learn to Love Outsourcing – Privatization Watch @ Reason.org (PDF)
Dispelling some Myths about Offshoring - Ann E. Harrison, Margaret S. McMillan, UC Berkeley Tufts University, September 2006 (PDF)
Hidden Costs of Offshore Outsourcing - staff transitioning and managing offshore contract may be costly - calculate hidden costs of moving jobs overseas - cultural differences can stymie best-laid contract specs - CIO Magazine Sep 1,2003 ( see a simple worksheet you can use to compute the hidden cost of offshore outsourcing)
The Inner Cost of Outsourcing - When contemplating outsourcing, CIOs should first think about their people - by Stephanie Overby - MARK GOULSTON - But even the smartest CIOs can miss one of the most important considerations—the human cost of an outsourcing decision, says this CIO article. Read on
The Reality of Outsourcing - February, 2004 - by Bruce Bartlett - National Center for Policy Analysis
Truth & Consequences of Offshoring - a number of studies have been released by various organizations touting large economic benefits that will accrue to the American economy through the offshoring of white-collar work. A closer examination of these studies, however, shows that the promised benefits of offshoring are far overstated, while the likely economic costs are not addressed at all. Further, even the potential benefits to the American economy from offshoring are likely to be concentrated in the incomes of a relatively select percentage of American households, says this 2005 article from the Economic Policy Institute
A chart showing prices per hour for one-for-one tutoring in USA and India

Billion Dollar Site Highlights

Billion Dollar Questions – most important questions answered
Billion Dollar People – the world of billionaires
Billion Dollar Ideas – billion dollar concepts, products and businesses
Billion Dollar News - billion dollar news and newsmakers
Billion Dollar FAQ – questions about a billion dollars or more (and answers)

Wikipedia Article on Offshore Outsourcing

Offshore outsourcing is the practice of hiring an external organization to perform some or all business functions in a country other than the one where the product or service will be sold or consumed. It can be contrasted with offshoring, in which the functions are performed in a foreign country, whether by the foreign subsidiary of the same company or a third-party. Opponents point out that this sends work to other countries than the one the opponents live in, thereby reducing domestic employment and domestic investment in the countries which, because of higher wages, are subject to outsourcing by countries with lower wages. Many jobs in the infotech sectors - such as data entry, computer programming, and customer support in countries such as the United States and the United Kingdom - have been or are potentially affected.

Criteria

The general criteria for a job to be offshore-able are:

The job does not require direct customer interaction;
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 this development 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 shipped instantly, from and to almost anywhere in the world.

Countries involved

Some of the major countries/districts that provide such services are:

India (Programming and IT)
Bangladesh (Programming and IT)
Russia (Programming and R&D)
Pakistan (Programming, Customer Support, Call Center)
Bulgaria (Programming and R&D)
Ukraine (Programming and Design)
Belarus (Software development, Design, Engineering)
Romania (Programming and IT)
The Philippines (Data Entry and Customer Support)
Egypt (Customer Support and Programming)
China (Programming)
Latin America (solution providers)
Malaysia (Call Center and R&D)

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. This trend runs in parallel with the tendency towards big corporations' outsourcing, and may serve to strengthen small business' capacity to compete with their bigger 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.

Reference Sources

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

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

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

Academia

“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

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

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

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

Related Topics:

Outsourcing

Offshoring

Nearshoring

Labor shortage

Free trade controversy

Offshoring IT Services

Borderless Selling

Bangalored

Business process outsourcing in India

Retrieved from http://en.wikipedia.org/wiki/Offshore_outsourcing

End of Wikipedia content

General Outsourcing & Offshoring Reference

See Resources for Business Processes & Business Process Outsourcing across Functions & Industries @ eBPO.in

BPO Across Functions - Finance & Accounting (Accounting, Payroll, Tax Accounting, Accounts Payables & Receivables, Order to Cash Cycle, Procure to Pay Cycle, Claims Processing, Travel Claims Processing, Medical Claims Processing, Financial Compliance Management, Financial Auditing, Financial Planning & Analysis), Design & Creative (Literary, Writing and Communication, Translation & Localization, Multimedia & Graphics, Graphics, Animation), Administration & Secretarial (Transcription Services, Data Management, Data Aggregation, Document Management), Customer Support (Tele Support, Online Support), Human Resources (HR Help-desk, Training & Development, Knowledge Management, E-learning, Recruiting Services, Benefits Administration), Sales & Marketing (Advertising & Public Relations, Sales Prospecting, E-marketing, Telemarketing & Telesales, Marketing & Sales Strategy, Market & Consumer Research, Customer Relationship Management, Loyalty Program Support, Order Fulfillment Support, Sales Support, Call Centre, Online Sales Support), E-commerce & E-business (Web Site Management, Hosting & Maintenance, Content Creation & Updation, Web Analytics)

BPO Across Industries - Aerospace & Defense, Automobiles, Chemicals, Computers & Internet, Construction, Education, Electrical & Electronics, Electrical, Electronics, Manufacturing & Engineering, Finance & Investment, Banking, Asset Management, Insurance, Investment Banking, Food & Drink, Agriculture, Forestry & Livestock, Government & Society, Events & Hospitality, Law & Legal, Leisure & Entertainment, Media, Medicine & Healthcare, Metals & Mining, Oil & Gas, Paper & Packaging, Personal Care, Textiles & Apparel, Retailing, Science, Technology & Engineering, Travel & Transportation, Transportation, Distribution & Logistics, Air Transportation, Land Transportation, Railways, Roadways, Water Transportation, Shipping, Travel, Travel Agencies & Tour Operators, Utilities, Energy, Sanitation, Telecommunications

Outsourcing Glossary of Terms

A - Activity-Based Costing, Application Service Provider, ASP, Acquired Rights Directive, Activity-based accounting, Activity-based pricing, Amendments, Application service provider model, Approvals, ARD, Audit, Activity-Based Costing, ASPs, ASP

B - Barriers to Outsourcing, Benchmark, BPO, Back office functions, Backlash, Balanced scorecard, Basel II, Baseline, Baseline period, Benchmarking, Best Practice, Best shore, Best-of-breed, Billing audit, Body shop, BOT, BPM, BPMS, BPO, Build-Operate-Transfer model, Business benefit contracting, Business outcome achievement, Business process outsourcing, Barriers to Outsourcing, Benchmark, BPO, Business Process Outsourcing

C - Captive Center, Case Study, Co-Sourcing or Cosourcing, Commercialization, Commoditization, Competitive Insourcing, Contract, Contract Manufacturing, Core Competencies, Call centers, Captive Centers, Cash penalty, Change management, Change of character clause, Chargeback system, Chief sourcing officer, Comanagement process, Competency center, Confidentiality, Continuous performance reporting, Contract, Cooperate sourcing option, Core competencies, Cosourcing, Cost and value discovery, Cost/benefit model, Cost-benefit analysis, Cost-plus pricing, Customer satisfaction benchmarking,

Captive Center, Case Study, Commercialization, Commoditization, Core Competencies, Critical versus Core

D - Disciplines of Outsourcing, Dashboards, Data center operations, Definitions, Delivery, Description, Direct foreign investment, Disaster recovery, Disposal of assets, Dispute resolution process, Downsizing, Dragnet clause

E - E-Sourcing, Economies of scale, Efficiency sourcing deal, Employee self-service, Enhancement sourcing deal, Escalation procedure, Exit plan, E-Sourcing

F - Functional Process Outsourcing, Farmshore sourcing, Fast track process to selection, Fee-for-service pricing, Feeny-Lacity-Willcocks model, Fixed pricing, Follow the sun, Force Majeure, Foreign Commerce Clause, Full-service provider, Functional redundancy, Facilities Management, FM, Functional Process Outsourcing

G – Gainsharing, Governance, Grid Computing, Gainsharing, Gainsharing, GBPOV, Governance, General allocation systems, Geopolitical risk management, Global delivery model, Global shared services model, Governance, Governance statement of work

H – Heresourcing, H1-B visa, HIPAA, Hub and spoke model, Human capital assets, Human resources management systems, Hybrid delivery model

I – Insourcing, Import quotas, Incentives, Indirect Cost, Innovation capture, Insourcing, Intellectual guidance, Interactive voice response, IP, IP protection, ISO 9000 Series of Standards, ISO 9001, ITIL, ITO, IVR, International Association of Outsourcing Professionals (IAOP)

J - Joint ventures, Just-in-Time Sourcing, Jobs for America Act, Joint Venture, Just-in-Time Sourcing

K - Key performance indicator, Knowledge transfer, KPI

L - L-1 visa, Labor arbitrage, Limitation of Liability, Location theory, Long-term capacity planning

M – M, Make versus Buy, Market-Driven Sourcing, MNC, Multinational corporations, Multisourcing, Make versus Buy, Market-Driven Sourcing

N - Nearshore outsourcing, Nearshoring, Net present value, NIH syndrome, Non-performance penalties, Not invented here syndrome, NPV, Nearshore, Nearshoring

O - Offshore Outsourcing, Offshore, Offshoring, Outsourcing, Outsourcing at the Customer Interface, Outsourcing Framework, Outsourcing Process, Outsourcing Risk, Outsourcing Teams, ODC, Offshore development center, Offshore outsourcing, Offshoring, Onshore outsourcing, Outsourcing, Ownership, Offshore Outsourcing, Offshoring, Outsourcing, Outsourcing at the Customer Interface, Outsourcing Framework, Outsourcing Process, Outsourcing Teams

P - Payment schedule, Peer comparisons, Penalty clause, Performance audit, Performance monitoring, Pilot project, PMO, Preamble, Prime contractor, Process mapping, Process owner, Process reengineering, Program office, Project management office, Process Enterprise, Performance-Based Pricing, Process Enterprise

Q - Quality assurance

R – Rebadge, Reference group, Relationship management, Relationship performance assessment, Request for information, Request for proposal, Requirements, Return on investment model, Review date, Risk, Risk factors, Risk management, Risk tolerance, Rural sourcing, Request for Information, Request for Proposal, RFI – Request for Information, RFP - Request for Proposal

S - Scope of Services, Service Level Agreement, Service Provider, Shared Services, Shared Services, Shelter, SLA, Sourcing, Sourcing-as-Strategy, Strategic Alliance, Strategic Outsourcing, Supply Chain, SAAS, Sarbanes-Oxley Act, SAS 70, Scope, Security audit, Selective sourcing, Service accountability, Service level agreement, Service level measurement, Service level reports, Service oriented architecture, Service outcome statements, Service provider, Shared risk/reward pricing, Shared services, Single supplier, Site selection, Site visit, Six Sigma, SLA, SOA, Software as a Service, Software licensing agreements, Sole supplier, Sourcing, SOX, Staff augmentation, Stakeholders, Statement of Intent, Statement of Work, Statement on Auditing Standards 70, Steady state, Steering committee, Supply chain management, SWOT analysis, Scope of Services, Scorecard (Balanced Scorecard), Service Level Agreement (SLA), Service Provider, Shared Services (Shared Services Centers), Sourcing, Sourcing-as-Strategy, Strategic Outsourcing, Supply Chain

T – Termination, Termination of contract, Terms and conditions, Time and materials, Time and percent conventions, Total cost strategy, Total quality management, TQM, Transaction cost theory, Transaction costs, Transactional pricing, Transfer of Undertakings Protection of Employment Regulations 1981, Transformational outsourcing, Transition management, Transitional outsourcing, TUPE, Tactical Outsourcing, Transactions, Transformational Outsourcing, Turnkey, Tactical Outsourcing, Transactions, Transformational Outsourcing

U - Unbundled pricing strategy, Unrepatriated earnings, User environment, Utility computing

V - Value audit, Value-added outsourcing, Value Proposition, Value Proposition

W – Waiver, Warranties

X-sourcing

Y - Your mess for less

Z - Zero-Based Sourcing

General Reference

Web Portals

The following portals provide resources on research, directory, search engine / search engines, yellow pages, classifieds

AOL, Yahoo, Google, eBay, YouTube, Yahoo Groups, Wikipedia, CNN, Time, Forbes, Fortune, BBC

BillDoll.com - The Billion Dollar Site