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Outsourcing is the delegation of tasks or jobs from internal production to an external entity (such as a subcontractor). Most recently, it has come to mean the elimination of native staff to staff overseas, where salaries are markedly lower. It became a popular buzzword in business and management in the 1990s.

Overview

Outsourcing and out-tasking involve transferring a significant amount of management control to the supplier. Buying products from another entity is not outsourcing or out-tasking, but merely a vendor relationship. Likewise, buying services from a provider is not necessarily outsourcing or out-tasking. Outsourcing always involves a considerable degree of two-way information exchange, co-ordination, and trust.

The concept started with Ross Perot when he founded Electronic Data Systems in 1962. EDS would tell a prospective client, "You are familiar with designing, manufacturing and selling furniture, but we're familiar with managing information technology. We can sell you the information technology you need, and you pay us monthly for the service with a minimum commitment of two to ten years."

Organizations that deliver such services feel that outsourcing requires the turning over of management responsibility for running a segment of business. In theory, this business segment should not be mission-critical, but practice often dictates otherwise. Outsourcing business is characterized by expertise not inherent to the core of the client organization.

A related term is out-tasking: turning over a narrowly-defined segment of business to another business, typically on an annual contract, or sometimes a shorter one. This usually involves continued direct or indirect management and decision-making by the client of the out-tasking business.

The international context

With the rise of Globalisation, many companies are turning to either offshoring or offshore outsourcing. Offshore outsourcing more and more takes the shape of Business Process Outsourcing, where whole business processes (such as support and development) are outsourced. The client is usually free to choose who provides the outsourced business processes, while stock markets press the company to do more for less. This requires that managers search out the cheapest sources they can find. In countries like India and China (primarily Bangalore in India), companies like IBM, Microsoft, Hewlett Packard, and Novell choose to get services from sub-contractors in these countries or move many development and support jobs there. Smaller businesses can also take advantage of freelancing on the Internet to get smaller projects done by offshore developers at minimum cost.

This practice became even more popular after the dot-com crash of the early 21st century. As many businesses struggled with cash-flow problems, many investors were leary in investing money in high-tech companies, which many felt were still vulnerable to the dot-com effect. Struggling to do more with less, companies looked for less expensive avenues of development and support. For the United States, India seemed like a perfect resource for these needs since most nationals spoke English—a side-effect of several decades of British colonial rule. A company can hire an engineer in India, for example, for US$10,000 a year where an equally qualified engineer in the U.S. could cost $60,000-$90,000 a year.

A side effect of this practice led to the domestic unemployability of thousands of high-tech professionals, many of whom were new college graduates. Many of these new graduates studied high-tech fields specifically because a few years earlier, they were told there was an earnest need for people with the skills they actively acquired. Many companies required their employees to train their off-shore replacements, after which they were downsized (laid off). In one unfortunate case, a Bank of America programmer committed suicide when forced to train his Indian replacement.

In practice, this trend has experienced mixed results. Some companies, which were required to hire off-shore talent by investors, reported communication barriers and high foreign personnel turnover rates. They would often ask for one thing, but be delivered a different item. A domestic correspondent may have dealt with a foreign counterpart for weeks, only to find he had left the previous day (with no notice) and was replaced with another individual, who would then need to be briefed on the current development and projects. Several companies also complained of the low quality of the work produced by Indian development teams.

Reaction by some US customers has also been negative. Many customers of Dell complained of an inability to effectively communicate with their support staff, which Dell outsourced to India, because of their heavy Indian accents. Due to negative customer reaction and negative publicity, Dell moved some of its tech phone support jobs back to the US, most notably for corporate customers, though they stated they still plan to augment their Indian staff.

Because of the outsourcing of many jobs from the United States to India, the prominence of Bangalore as a high-tech region has caused the rise of the term "Don't Get Bangalored" in American business. The term refers to loss of American jobs overseas. There are several US websites that sell "Don't Get Bangalored" T-shirts.

Other companies report favorable results, however. One company said that the low cost of his Indian development team allows him to hire higher-paid American lead developers.

International Viewpoint

David an international student from India from University of Texas thinks that the policy of John Kerry to curb outsourcing makes no sense. He says " First of all most of the companies sell their products in countries like India and China. For example, nokia sells more than half of its cellphones in the international market. So there is nothing wrong in creating white collared jobs in china or india. Infact most of the multinational companies manufacture their products and sell them in international markets.

Workers in China and India are viewed as cheap labors. My advisor calls them as "cheap workhorses". Thats insane. China and India have low cost of living. So there is nothing wrong in getting a low salary. The quality of living of middle class people in these countries even with low salaries are much better than the quality of middle class people in america.

How many of the americans know that america does not have enough citizens to work on software development projects. Most of the high end software development is done by talented engineers from India. How many know that more than 50% of microsoft's employees are indians. Only a very small segment of american citizens from prestigious universities in america are equally talented as the talented chinese or indians. The rest of the american population do jobs like pizza delivery etc.

And another misconception is that quality of customer service has deteriorated because of Indian customer service. The above argument makes no sense coz indians have excellent command over english and they have been learning english right from grade one. I am pretty sure that no american will complain on the technical content of the customer service offered.

If americans want to sell their products or to get cheap products from developing countries like india, they should also be ready to create jobs and employ people in that country. Wallmart is filled with cheap products from india and china. So now the question is who is cheap THE PERSON WHO MAKES CHEAP THINGS OR THE PERSON WHO BUYS CHEAP THINGS???????????

See also

• supply chain
• vertical integration
• freelancing on the Internet
• list of management topics

External links

• The Official Outsourcing and BPO Forum
• The New Face of the Silicon Age - Wired Magazine
• Outsourcing Community Forums
• The Outsourcing Times