WHY OUTSOURCE?

The reasons for outsourcing are more than just reducing
costs. Bulla suggested that companies outsource in order
to:
• improve company focus
• gain access to world-class capabilities
• manage difficult or out-of-control functions
• reduce or control operating costs
• gain resources not otherwise available
Of course, another reason is to free internal resources
for other purposes. For example, Datasweep Inc. (which
was acquired by Rockwell Automation in 2005), a company
whose software helps manufacturers manage factories
more efficiently, hired eight programmers in India
and China to translate its product into Japanese and connect
its programs with software from SAP, a German software
maker. Many other companies are reaping the same
benefits from outsourcing through the use of educated but
lower paid overseas employees performing the routine
business tasks. Companies are able to use their U.S.-based
staff to focus on innovation.
ADVANTAGES OF OUTSOURCING
Outsourcing is one of the most popular trends in business
today because of the benefits it offers. For the company
sending work out, the consumer, the economy in general,
and for the country and company receiving the work, the
economic benefits are clearly seen. The benefits of free
trade are enormous: Companies pay less for goods and
services, creating more wealth for shareholders, and causing
prices to go down or remain the same for consumers,
raising the standard of living for the whole country. For
the country receiving the work, there is higher employment,
more competition for skilled employees, higher revenues
for the government in the form of payroll taxes, and
a higher standard of living overall.
Companies saving as much as 80 percent on salaries
lead to more wealth going to shareholders. This frees up
valuable resources to be used in more productive ways.
The cost savings enabled by these moves lower prices for
consumers, increasing their buying power. Many people
are concerned about the future and current implications
of outsourcing, as the results of the surveys show. In some
cases jobs, estimated at around 2 percent so far, are actually
lost. Thus, supporting proponents of outsourcing suggest
that this process hardly contributes to the
unemployment problems caused by a weak economy. The
findings of the U.S. Bureau of Labor Statistics showed
that, in the first quarter of 2004, 70 percent of all job
losses were a result of internal company restructurings,
such as bankruptcy, business ownership change, financial
difficulty, and reorganization.
Next in the chain of benefits comes the company who
contracts the work in a foreign country. The company
benefits because it can increase its production, and hire
more workers. The workers compete for higher paying
jobs than they would have otherwise, raising their standard
of living. The tremendous growth potential in some
areas has the attention of PricewaterhouseCoopers, which
pointed to the city of Coimbatore, India, as a center for
growth because of its plan for a new IT park. The country
and the city benefit from the new income, thus
enabling improved infrastructure for the benefit of all.
One group of people often overlooked in this benefits
discussion is the population of female workers with moderate
education who are able to gain higher-paying positions
because of the influx of business process outsourcing
and IT-enabled services. This new ability has enabled a
social empowerment previously denied young women, and
eventually leads to a more equitable position in society.
DISADVANTAGES OF
OUTSOURCING
Even though there are numerous advantages to outsourcing,
there are just as many disadvantages. One main issue
surrounding outsourcing is the number of American jobs
being moved overseas. Another issue regarding outsourcing
is the inefficiencies that it creates for businesses
because of communication barriers. For example, customers
may have a hard time getting their technical-support
questions answered because of language differences.
In some cases the vendor and customer are not available at
the same time because of the difference in time zones.
Unqualified employees and incompetent vendors are
other problems that arise with outsourcing. Customers are
not always satisfied with the quality or price of their services
and companies can incur losses for their production
and IT support. Outsourcing can cause a company to lose
control of the part of the project that they have outsourced,
especially if the company does not hire an experienced
manager when outsourcing.
When IT security is outsourced, contractors overseas
are given access to a company’s business environment.
Companies must control the level of access given to
providers and verify that the employees hired overseas
meet the company’s screening standards. Companies that
outsource must ensure that their data and networks are
protected.
Outsourcing certain jobs in a business takes a great
deal of time and planning and should be carefully evaluated.
Eric Wahlgren found that the process of outsourcing
can be burdensome for some small companies because

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Outsourcing in the Business Environment
they might “lack established processes that can be easily
taught through a training manual” (2004, p. 41). The primary
disadvantage of outsourcing for the countries overseas
is the potential economic fallout of war. During the
crisis between India and Pakistan in 2002, there was a
decline in offshore contracts for several months.
FUTURE TRENDS
Predictions made by Forrester Research in 2002 indicated
that about 3.3 million U.S. service jobs would be moved
offshore by 2015. By the use of outsourcing, it was
believed that 516,000 software and service industry jobs
would be created from 2004 to 2009. Of these jobs,
272,000 would be offshore and 244,000 would stay in the
United States. If outsourcing were not used, only about
490,000 jobs would be created. The next wave of globalization
will be focused on sending entire IT departments
overseas.
SUMMARY
At one time outsourcing was limited to such services as
housekeeping, architectural design, food service, security,
and relocation. Today, however, outsourcing has become a
popular choice in business and industry. Although outsourcing
began with small businesses, both large and small
organizations are now outsourcing.
Outsourcing is no longer solely a domestic concern.
Globally, organizations are considering and using outsourcing.
With electronic commerce playing a significant
role in the economy, outsourcing is expected to play a considerable role in the growth of electronic commerce