Almost most of the organizations nowadays are outsourcing in one way or the other. The most common forms are information technology outsourcing (ITO) and business process outsourcing (BPO). Multi National Companies like IBM, Accenture and GE etc, are dominant outsourcing service providers in the information technology outsourcing and business process outsourcing fields. For instance, here in The UK, most of the mobile and broadband companies in communication sector like Virgin media, Orange, O2, 3 etc; have one of their support bases situated at India, mostly their system support base. Computer giants mentioned above like IBM, Accenture, Microsoft, Sun etc; all have a base BPO located at Bangalore, India.
Off shoring organizations specialising themselves in developed sectors, like the software sector have the opportunity to achieve increasingly more qualities and cheaper workforce, which can also possess professional qualifications and infrastructure which leads to a rapid increase in their activities, and above all to business success in an extremely competitive market (Kavcic 2009). For most of the companies, outsourcing represents a starting point for spreading their global network of ownership, their franchise, knowledge and technology in acquired organizations across the world.
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'Outsourcing' can be defined as the 'strategic use of outside resources to perform activities traditionally handled by internal staff and resources'. It is a management strategy by which an organization outsources major, non-core functions to specialized, efficient service providers (The Outsourcing Institute, 2001).
Outsourcing has increasingly become a vital tool for the implementation of business strategy in many organizations. Competition continues to increase and organizations are being continuously forced to find ways to improve business performance and to obtain competitive advantage. Increasingly, organizations are looking beyond the traditional boundaries of the firm to obtain performance improvement. The growing prevalence of outsourcing service providers is shaping the development of competitive strategies as well. The BPO phenomenon has grown as organizations have been transferring responsibility for entire functions such as human resource management, finance and information services to service providers - sometimes referred to as 'unbundling' (Hagel and Singer, 1999).
Types of Outsourcing:
One challenge every business enterprise faces in present times is to find a niche that generates income. Companies are getting cautious in venturing in to projects that aren't profitable and they resort to outsourcing activities to minimize their expenses Outsourcing is divided into three types: technology services outsourcing, business process outsourcing and knowledge process outsourcing.
Technology Services Outsourcing:
With the advent of technology, the business enterprises adapt to these changes and find it necessary to invest on sophisticated technologies and systems as they are fueling the rapid evolution of business and economic models. Some of these technologies include electronic commerce, network infrastructures, applications, telecommunications and website development. However, Investing on a whole new set of manpower to perform these tasks is apparently an additional capital expenditure. In-house employees may perform such functions but not as good as getting it done from a third-party firm that specializes and expertise on the field.
Business Process Outsourcing:
Business Process Outsourcing (BPO), started back in 1995 during the advent of internet business. It involves operational functions such as customer relations management, equipments, accounting, human resources, logistics, procurement, security, documentations, insurance, health care, manufacturing, and media outsourcing. In BPO, specific tasks especially those outside the core competency of a company is outsourced to a third-party firm.
BPO can be further divided into two: front office tasks and back office tasks. Front office functions are customer-oriented such as marketing, customer service and technical support. Back office tasks are more on internal work (e.g. billing, payroll, purchasing).
Knowledge Process Outsourcing:
A more sophisticated level of outsourcing relative to BPO is knowledge process outsourcing (KPO). This involves advanced research, analytical, and technical skills which means that providers are expected to work independently. It is also important to note that in BPO, all processes are still laid out by the client while the KPO specialists are given managerial control. Examples of KPO include: pharmaceutical research and development, intellectual property research, content writing, and database development services.
Among the three types, KPO is the older form of outsourcing and usually involves short-term and peripheral projects. BPO, however, is considered as the most popular among the three types especially if one has to consider that most companies outsource business processes to offshore locations such as the Philippines.
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Importance of outsourcing in The UK IT sector:
The service sector in The United Kingdom contributes to nearly 75 percent of its GDP. These service sectors include IT, banking, insurance, and several other business services which require the expertise of very high-skilled management professionals. This tilt towards services is a significant change that needs a fresh look when it comes to running a business house here. This growing importance of outsourcing services in UK and elsewhere is perhaps due to unique requirements posed by globalization and advances in interactive technologies.
The strategy to move towards service sector and outsourcing jobs has changed UKs work environment. Without better quality of skilled professionals and reduced cost, The UK's exposure to service and other knowledge-based sector in this competitive global environment could not have increased. In this transformation, there has been evidence to suggest that many workplace employment related practices such as work-life balance (WLB) and equal opportunities (EO) have changed for the better.
Organizations are citing positive benefits in terms of quality, productivity and cost savings as a result of outsourcing. Sectors planning the largest increases in outsourcing are Telecommunications and Other Manufacturing, with public sector organizations planning a significant rise in IT and HR outsourcing over the same period. Over two-thirds of companies in the UK currently outsource some of their business activities.
Harry Tata believes that for UK economy to flourish, outsourcing will play a big role going forward. Outsourcing will help UK avail high-end, knowledge-based services at a lower cost without any pressure on its demography. Outsourcing and remote services will perhaps be the best way to leverage on rich infrastructure that UK has build over years.
What Are the Benefits of Outsourcing in India?India is an appealing place for the software companies to outsource as they have the workforce who are all highly educated and trained in IT worldwide. Mainly companies that involves in this business are software development companies, call centres, Research and Analysis services, Healthcare services, financial services, data entry and engineering services.
Most of the companies choose India to outsource because of the following reason:
Outsourcing to India will unquestionably be beneficial for most of the new companies and for their business as every single pound spend counts for them. India has huge amount of talented, qualified and enormously educated IT resources who work for less money. Services such as Call centre and billing helps them to save up to 60% of your total costs when outsourced.
Quality of Workers:
In India, you almost have 1 million highly educated and skilled IT professionals. Training and specialization in Information technology makes them specialist in the software field. The Indians communication level is fluent when you compare to most of the other countries that do outsourcing. India has huge amount of English speaking people outside United States.
Quality of Work and Increased efficiency
Due to enormous talent and human resource they produce the quality in work which increases the productivity level with the quality of the product. Many countries those who outsource their projects offshore believe quality of service and outstanding productivity could not be achieved elsewhere than India. People believe even the non-core business functions could be efficiently performed which gives overall efficiency and increase in the productivity and benefits.
Make faster deliveries to customers and improved customer satisfaction
By outsourcing, the product gets delivered to the customers quicker, outsourcing companies in India are able to deliver quickly because of the abundant supply of man power at their disposal. By getting the product delivered quickly, the company saves a lot of time and also earns the satisfaction from their customers.
See an increase in your business
With improved customer satisfaction and with more time at their disposal, the company sees an increase in its business with future projects flowing in because of the reputation that it has created from its previous business.
Freedom and Stress less Work
As per the prediction of the Managing director of Equa Terra for Europe Mr. Phil Morris, the outsourcing of IT services will continue at least for another decade and it does not affect any British workers as UK does not have enough trained workers.
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What are all the problems of Outsourcing to India?
When you hear complaints about off shoring to India, usually it's about call centres. The hard-to-understand accents, high turnover, etc. make this a tough business to satisfy in. The Internet and phone connections were awful in some of the Indian Call Centres.
Nobody wants to lose a job, especially when labour cost is the main reason. It's demoralizing for employees of U.K. companies to train their lower-cost replacements in India. Though the macroeconomic gains from outsourcing are tangible in the long run, job losses are devastating to workers and their families.
The Reasons for a Recession to Occur:
Researching the origins or understanding the reasons for the occurrence of recessions have been interesting areas of research in economics. There are a lot of reasons for recessions to occur. Some might be associated with sharp changes in the prices of the raw materials used in producing goods and services, (Stijn C. and Kose A.M. 2009). Furthermore, Stijn and Kose suggest that a country might trigger itself into recession by trying to reduce its own inflation, hence leading into efforts where it leads itself into to a decline in demand for goods and services, eventually resulting into a recession. Some recessions, including the current one which we have been facing for almost two years now is due to financial market problems. Sudden increases in asset values and an alarmingly quick growth on credit often coincides with hasty accumulation of debts. As corporations and the public get overextended and face difficulties in repaying their debt repayments, they naturally reduce investment and willingness to consume, which in turn leads to a decrease in economic activity. Most of the credit booms do not necessarily end up in recessions, but when they do, these recessions are often more costly than others, (Stijn C. and Kose A.M. 2009). When people reduce consuming, it reflects directly on importing and exporting too, due to lesser demand for products and raw materials, and this directly influences on countries with exporting as major sources of income.
Since that there are various political reasons for recession to occur, it has always been a challenge to predict a recession. Furthermore, (Stijn C. and Kose A.M. 2009) say that the behavioural characteristics of many economic variables-including credit volumes, asset values, and the unemployment rate-around recessions have been documented, but although they might be the cause of recessions, they could also be the result of recessions-or in economic parlance, endogenous to recessions. (Stijn C. and Kose A.M. 2009) also argue that even though economists use a large set of variables to forecast the future behaviour of economic activity, none has proven a reliable predictor of whether a recession is going to take place. Changes in some variables-such as asset values, the unemployment rate, some interest values, and consumer confidence-appear to be useful in identifying recessions, but economists still fail to accurately forecast a significant fraction of recessions, let alone predicting their severity in terms of duration and amplitude, (Stijn C. and Kose A.M. 2009).
Most economists use some variations of the three Ds, to determine whether a recession has commenced or not. The three Ds being: duration, depth, and dispersion, (Burns and Mitchell 1946). Duration is a clear determinant to measure recession. The longer an economy stays weak, the more likely it will be tagged as a recession. It can be simply understood with the two declining quarters of the economy for the duration test. But the years 1980 and 1920 were tagged as recessions because they did meet the depth test.
The third D being dispersion can be understood with the help of two real life examples in the recession of 1960 was caused due to the reason when the 118 day steel strike in 1959, the strike was not the direct reason for the occurrence of recession. But the failure of the economy to rebound after that strike ended was the ultimate reason for the economy to for the recession of 1960. Similarly the GM strike of 1970 was considered to be a part of the recession on that year (Burns and Mitchell 1946).
Impacts of outsourcing during recession:
Software outsourcing has been a dominant business practice among world businesses for over a decade now. Global businesses have been outsourcing their software development projects to offshore destinations in order to get the projects completed at a lower cost. Over time, some offshore destinations have become outsourcing hubs since the companies there have proved their merit by providing quality work at cost effective prices. The ongoing economic crunch has disturbed global business in a big way and the offshore outsourcing has also been affected by this. However, the burden of recession has not been heavy for everyone involved in software outsourcing. Here's an analysis.
With recession, the need to cost of production increased. Over the years, outsourcing had been tied and tested by many global companies and its pros and cons could be determined. Companies who decided to use this method to cut costs had examples of other outsourcing companies to guide them in following outsourcing practices carefully. They could now make smarter decisions in choosing those offshore service providers who were capable of delivering good results at a cost effective price. Recession gave a boost to the trend of outsourcing. On the other hand, offshore service providers witnessed an increase in the number of projects sourced to them as a result of recession. However, everyone wanted a piece of the pie and so many companies mushroomed, offering great values on the services they provided. As the competition increased, there was a need to take quality control seriously. Thus the service improved on the offshore front and service providers in offshore destination began to gain due to recession.
Outcome for UK and India while doing an IT offshore:
The UK and The US have been the dominant IT outsourcing countries to India for a very long time now. But very recently The UK has chosen to depart significantly from the US in its approach towards outsourcing and off shoring. The US government has been leaning towards protectionism, whereas The UK government, which has outlined plans to cut it's spending to a mammoth £83 billion, could look to outsource and offshore more to deliver quality services at lower costs, say experts and industry veterans.
After The US, The UK accounts for nearly 18% of the country's outsourcing services exports. "The new coalition government led by David Cameron is much more level in their thinking from the perspective of saying that we don't mind who delivers public services as long as they are delivered at high quality and as cost-effectively as possible," said Paul Pindar, CEO, Capita Group, one of UK's largest outsourcing vendors, which also has offshore delivery centers in India.
The outlook for off shoring is very optimistic, agreed Mr. Pindar. "It's one thing when you've got a modest financial dilemma to be able to pick and choose how you want services to be delivered. But when you are really up against it financially and in a severe debt situation, I think ideologically, people are much more interested in what's being delivered, how it is being delivered, its reliability and its cost-effectiveness, not whether it is being delivered from London, Blackpool or Bangalore. There's much more open-mindedness on that count," Mr Pindar said.