Best Countries For Software Outsourcing Generally SpeakingOffshoring vs Outsourcing Difference and Comparison. Overview and History. Outsourcing refers to the contracting out of an entire business function, a project, or certain activities to an external provider. The term entered the business lexicon in the 1. In the second half of the 2. This led to more hiring of external providers to manage business functions and projects where specialized skills were required. Towards the end of the twentieth century, with improvements in shipping technology and telecommunications infrastructure, it became increasingly efficient to get work done in other geographical locations, especially in developing countries where wages are lower. This practice came to be known as offshoring. Not all offshore work was outsourced, however. Captive offshore refers to multinational corporations MNCs establishing subsidiaries in several countries and getting different types of work done in different countries. Factors that MNCs consider when offshoring include costs of factors of production wages, raw material, transportation costs, utilities such as electricity, taxes many countries offer subsidies to entice MNCs to set up shop and skills available among the work force. Benefits. There are several reasons for companies to both offshore and outsource. Outsourcing Benefits. Why do companies outsource There are several reasons why a company might outsource. While this can be a politically sensitive topic, management experts generally agree that outsourcing when done right increases competitive advantage with a natural division of labor that evolves in any society. Reasons for outsourcing include. Cost advantage Costs are arguably the chief motivation behind outsourcing. 8 Things You Need to Know About Small Business Loans 10 Ways to Finance Your Business Best Credit Card Processors for Small Business in 2017 Best CRM Software for. 14 free Scrum project management tools to assist you in Agile software development. QA section to help you choose the right Agile tool. Often companies find that contracting work out to a 3rd party is cheaper. Focus on core competency There are a lot of business functions in a company. For example, human resources, information technology, manufacturing, sales, marketing, payroll, accounting, finance, security, transportation and logistics among others. Most of these are not core to the company. A core activity is one which offers the company competitive advantage over its competitors. It is an activity that the company does better than the competition, which is the main reason its customers do business with the company. Having to handle non core functions is a distraction, so many companies outsource them.
Best Countries For Software Outsourcing Generally Recognized
Quality and Capability Often companies dont have in house expertise for certain activities. In these cases, it is more efficient to outsource, and resulting products and services tend to be of higher quality when provided by outsourcing vendors. Labor flexibility Outsourcing allows a company to ramping up and down quickly as needed. For example, a company may need a large number software programming experts for 6 8 months to develop an application. It would be infeasible to hire people for only 6 months. Outsourcing, however, can provide flexibility so the company does not have to worry about hiring and firing. Benefits of offshoring. Offshoring provides many of the same benefits as outsourcing, including. Cost savings Companies usually offshore manufacturing or services to developing countries where wages are low, thus resulting in cost savings. These savings are passed on to the customers, shareholders and managers of these companies. Skills The competitive advantage of nations often means that some countries or regions develop a much better ecosystem for certain types of industries. This means there is better availability of skilled human resources in that region for specific types of tasks. For example, India and the Phillipines have a large pool of English speaking, college educated youth as well as a mature training infrastructure that makes it ideal for business process outsourcing. Therefore, many companies choose to offshore certain business functions e. These can either be captive or outsourced. Note that you do not need to outsource in order to offshore. Captive offshore units are set up to leverage the benefits of offshoring without having to outsource to vendors. This is usually done when companies believe that their offshore centers for productionservice will provide them with an edge over the competition. Risks and Criticism. Offshoring and outsourcing have both been subject to a lot of criticism, especially from a political standpoint. Politicians and laid off workers often blame offshoring for stealing jobs. Most economists, however, agree that offshoring lowers costs for companies and passes on benefits to consumers and shareholders. There are, however, risks associated with offshoring. These include project failure due to poor communication civil or political unrest impacting production or service delivery arbitrary changes in economic policy of governments may force unncessary restrictions on MNCs and poor infrastructure in the developing country may affect quality or timeliness. While the benefits of outsourcing and offshoring largely overlap, they do not face the same disadvantages. Outsourcing, when done within the country, does not face the same political criticism of loss of jobs. Risks associated with outsourcing can largely be attributed to the vendors lack of familiarity with the clients business. Another risk is a lack of alignment of long term business objectives of the client and the vendor. Offshore Outsourcing. When outsourcing is combined with offshoring, not only is work contracted out to a third party, but it is also agreed that the work will be performed in a different country. The reasons are usually to take advantage of the benefits of outsourcing and offshoring both. Benefits of offshore outsourcing. Offshore outsourcing combines the benefits of outsourcing, such as easier resource ramp up and ramp down, and more specialized skills with the benefits of offshoring, such as lower costs and higher productivity. In the past decade and a half of increasing globalization, offshoring has been the fastest growing segment of the outsourcing market. This is especially true in the case of manufacturing with China being a leader and information technology services, with India leading that space. Business process outsourcing is another area of offshoring that has grown tremendously. Risks of offshore outsourcing. Just as offshore outsourcing combines the benefits, it is also susceptible to the risks of both business practices. Critics claim that these risks are magnified because of the complexity being multiplied. For example, while it can be challenging to work with an external organization for projects that require knowledge of your business operations, these challenges could increase manifold when members of the external organization are located in a different country. Risks include poor communication, incorrect setting of expectations and disconnected control structures. Best Practices. There are several best practices that have evolved over the past two decades to mitigate risks and improve outcomes of projects that are offshored and outsourced. Many of these practices are related to business processes. Process maturity models like CMMi and Six sigma measure not only the quality of processes that outsourcing vendors employ, but also how well companies monitor their processes, measure key metrics and how they continually improve these processes. Industry Trends. On the whole, both outsourcing and offshoring are on the rise. The worldwide economic recession has forced companies to explore all options to increase efficiencies and cut costs. Companies are getting increasingly comfortable outsourcing as well as offshoring larger parts of their businesses as they realize they are not core. Another trend especially in information technology IT services outsourcing is industry consolidation, with larger companies acquiring smaller vendors. For example, HP acquired EDS in 2. Political backlash has also been growing with unemployment rising in the developed world. References and Further Reading.