Services

What is the Benefit of Service Sector Outsourcing?

These days, increasing number of firms across the world are outsourcing "white-collar" jobs overseas in an attempt to reduce their overall costs. The practice is not limited to large firms. Offshore outsourcing enhances international competitiveness by enabling small medium enterprises (SMEs) to reduce costs, expand relational ties, serve customers more effectively, free up scarce resources, and leverage capabilities of foreign partners.

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Firms that outsource services usually enter overseas markets by setting up local offices, research laboratories, call centers, and so on in order to utilize the highly skilled but lower-wage "human capital" that is available in countries such as India, the Philippines and China. Outsourcing helps firms to offer global, round-the-clock service from different time zones.

Overall, it seems that India has benefited in IT jobs. However, as Indians get more sophisticated at taking over high-skilled jobs outsourced from European and U.S. multinationals, they are starting to turn away call-center work, saying that it doesn't pay well any longer. In addition, companies are finding that salaries in India are increasing with the demand for jobs from MNCs, and with the Indian technology companies themselves growing in global clout.

Outsourcing of low-end office jobs may then migrate to other countries such as the Philippines or South Africa. In turn, both Indian and American IT service providers are opening offices in Hungary, Poland, and the Czech Republic to take advantage of the German and English-speaking workforce for European clients. The global outsourcing landscape in 50 countries and those countries' potential across three major categories: financial attractiveness, people skills and availability, and business environment.

India and China remain the leaders, in particular as far as people skills and availability are concerned. There are many countries that are attractive, depending on the types of services required. Picking the right location depends on many factors specific to the firm's industry and tasks required for IT, BPO, or voice services.

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Companies must consider the strategic aspects of that decision beyond immediate cost savings, whether firms outsource white-collar or blue-collar jobs. In addition to the lack of consideration for factors other than production costs, sending jobs to a particular country is typically a short-term cost-reduction strategy, because at some point competitive pressures will increase costs there, necessitating moving those jobs again to still lower-cost countries.

Managers are in fact broadening their strategic view of sending skilled work abroad, now using the term "transformational outsourcing" to refer to the growth opportunities provided by making better use of skilled staff in the home office that are brought about by the gains in efficiency and productivity through leveraging global talent. The risk of backlash from customers, community, and current employees necessitates careful consideration of the reasons for a company to go offshore.

Managers must consider the risk of losing control of proprietary technology and processes and must decide whether to set up the company's own subsidiary offshore instead of contracting with outside specialists.

A post by Tim Scott (11 Posts)

Tim Scott is author at LeraBlog. The author's views are entirely his/her own and may not reflect the views and opinions of LeraBlog staff.

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