The Info List - IT Outsourcing

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In business , OUTSOURCING involves the contracting out of a business process (e.g. payroll processing, claims processing) and operational, and/or non-core functions (e.g. manufacturing, facility management , call center support) to another party (see also business process outsourcing ). The concept "outsourcing" came from the American Glossary 'outside resourcing' and it dates back to at least 1981. Outsourcing
sometimes, though not always, involves transferring employees and assets from one firm to another. Outsourcing
is also the practice of handing over control of public services to private enterprise .

includes both foreign and domestic contracting, and sometimes includes offshoring (relocating a business function to a distant country) or nearshoring (transferring a business process to a nearby country). Outsourcing
is often confused with offshoring, however they can be distinguished: a company can outsource (work with a service provider) and not offshore to a distant country. For example, in 2003 Procter "> Financial savings from lower international labor rates can provide a major motivation for outsourcing or offshoring. There can be tremendous savings from lower international labor rates when offshoring.

In contrast, insourcing entails bringing processes handled by third-party firms in-house, and is sometimes accomplished via vertical integration . However, a business can provide a contract service to another organization without necessarily insourcing that business process.


* 1 Overview

* 1.1 Reasons for outsourcing * 1.2 Digital outsourcing

* 2 Implications

* 2.1 For business

* 2.1.1 Management processes * 2.1.2 Communications and customer service * 2.1.3 Governance * 2.1.4 Security

* 2.2 Insourcing * 2.3 Standpoint of labor

* 2.4 Standpoint of government

* 2.4.1 Policy-making strategy

* Competitiveness strategy * Education strategy * Welfare state strategy * Industrial policy * Environmental policy

* 2.5 Globalization
and socio-economic implications

* 2.5.1 Global inequality and development

* Industrialization * Growth and income * Urbanization

* 2.5.2 Trade * 2.5.3 Migration * 2.5.4 Domestic inequality

* 3 By country

* 3.1 United States * 3.2 European Union

* 4 Co-sourcing

* 4.1 Identity management
Identity management

* 5 Counterwave outsourcing * 6 See also * 7 Notes and references * 8 External links


Two organizations may enter into a contractual agreement involving an exchange of services , expertise, and payments . Outsourcing
is said to help firms to perform well in their core competencies, fuel innovation, and mitigate a shortage of skill or expertise in the areas where they want to outsource.

In the early 21st century, businesses increasingly outsourced to suppliers outside their own country, sometimes referred to as offshoring or offshore outsourcing . Several related terms have emerged to refer to various aspects of the complex relationship between economic organizations or networks , such as nearshoring , crowdsourcing , multisourcing , strategic alliances /strategic partnerships , strategic outsourcing., and vested outsourcing .

can offer greater budget flexibility and control. Outsourcing
allows organizations to pay for the services and business functions they need, when they need them. It also reduces the need to hire and train specialized staff, brings in fresh engineering expertise, and can reduce capital, operating expenses, and risk.

"Do what you do best and outsource the rest" has become an internationally recognized business tagline first "coined and developed" in the 1990s by the "legendary management consultant" Peter Drucker . The slogan was primarily used to advocate outsourcing as a viable business strategy. It has been said that Mr. Drucker began explaining the concept of "Outsourcing" as early as 1989 in his Wall Street Journal article entitled "Sell the Mailroom."

From Drucker's perspective, a company should only seek to subcontract in those areas in which it demonstrated no special ability. The business strategy outlined by his slogan recommended that companies should take advantage of a specialist provider's knowledge and economies of scale to improve performance and achieve the service needed.

In 2009 by way of recognition, Peter Drucker posthumously received a significant honor, when he was inducted into the Outsourcing
Hall of Fame for his outstanding work in the field.

Recently, innovative business models have been developed to help reduce the cost for outsourcing. In particular, these business models may leverage on group bargaining power by aggregating similar outsourcing demands from various organizations when negotiating with external contractors. This potentially presents a win-win situation for both the outsourcer and outsorcee; while the outsourcee offers their services at lower rates to the outsourcer, it is still advantageous to the outsourcee because the project volume is increased.


Companies primarily outsource to reduce certain costs, which may include peripheral or "non-core" business expenses, high taxes, high energy costs, excessive government regulation or mandates, and production or labor costs. The incentive to outsource may be greater for U.S. companies due to unusually high corporate taxes and mandated benefits like social security , Medicare , and safety protection (OSHA regulations). At the same time, it appears U.S. companies do not outsource to reduce executive or managerial costs. For instance, executive pay in the United States in 2007 was more than 400 times more than average workers—a gap 20 times bigger than it was in 1965.


Many think of outsourcing as it relates to manufacturing (e.g. the "made in China
" label on the products you buy). However, outsourcing of white-collar work has grown rapidly since the early 21st century. The digital workforce of countries like India
and China
are only paid a fraction of what would be minimum wage in the US. On average, software engineers are getting paid between 250,000 and 1,500,000 rupees (US$4,000 to US$23,000) in India
as opposed to $40,000-$100,000 in countries such as the US and Canada
. Outsourcing
has also expanded to include many different countries; Costa Rica
Costa Rica
has become a big source for outsourcing work as it offers the advantage of a highly educated labor force, a large bilingual population, stable democratic government, shares similar time zones with the United States, and it takes only a few hours to travel between Costa Rica
Costa Rica
and the US. Companies such as Intel, Procter & Gamble, HP, Gensler, Amazon and Bank of America have big operations in Costa Rica. In the recent years there has been an exponential growth in white collar work with service providers emerging in a wide range of activities, from banking and legal services to companies like Resourcesus US, a pioneer in outsourcing services for architecture firms in United States. Unlike outsourced manufacturing, outsourced white collar work, offers workers the flexibility to choose their working hours, and which companies to work for. With many individuals telecommuting from home, the companies that require this type of work do not need to allocate additional funds for setting up of office space, management salary, and employee benefits as these individuals are contracted workers .



Management Processes

and complex supply chains , along with greater physical distance between higher management and the production-floor employees often requires a change in management methodologies, as inspection and feedback may not be as direct and frequent as in internal processes. This often requires the assimilation of new communication methods such as voice over IP , instant messaging , and Issue tracking systems, new time management methods such as time tracking software , and new cost- and schedule-assessment tools such as cost estimation software .

Communications And Customer Service

In the area of call center outsourcing, organizations that are not experienced in working with outsourced call centers may suffer from lower end-user-experience as a result of outsourcing. This is exacerbated when outsourcing is combined with offshoring in regions where the first language and culture are different.

For example, foreign call center agents may speak with different linguistic features such as accents , word use and phraseology, which may impede comprehension. The visual cues that are missing in a telephone call may lead to misunderstandings and difficulties.


In 1979, Nobel laureate Oliver E. Williamson
Oliver E. Williamson
wrote that the governance structure is the "framework within which the integrity of a transaction is decided." Adding further that "because contracts are varied and complex, governance structures vary with the nature of the transaction." University of Tennessee researchers have been studying complex outsourcing relationships since 2003. Emerging thinking regarding strategic outsourcing is focusing on creating a contract structure in which the parties have a vested interest in managing what are often highly complex business arrangements in a more collaborative, aligned, flexible, and credible way. (Also see relational contract , governance , Vested outsourcing .)


Before outsourcing, an organization is responsible for the actions of their entire staff, sometimes a substantial liability. When these same people are transferred to an outsource service provider, they may not even change desks. But their legal status changes. They are no longer directly employed by (and responsible to) the organization. This creates legal, security and compliance issues that are often addressed through the contract between the client and the suppliers. This is one of the most complex areas of outsourcing and sometimes involves a specialist third-party adviser.

Fraud is a specific security issue as well as criminal activity, whether it is by employees or the supplier staff. However, it can be disputed that fraud is more likely when outsourcing is involved. For example, in April 2005, a high-profile case involved the theft of $350,000 from four Citibank
customers when call-center workers acquired the passwords to customer accounts and transferred the money to their own accounts opened under fictitious names. Citibank
did not find out about the problem until the American customers noticed discrepancies with their accounts and notified the bank.


has gone through many iterations and reinventions. Some outsourcing contracts have been partially or fully reversed, citing an inability to execute strategy, lost transparency "> re-enter the work force and smoothly transition into high-demand labour opportunities, potentially through re-training programs, the government should also address the socioeconomic struggle and other welfare concerns of displaced employees.

Negative welfare effects of outsourcing have gathered substantial public attention. The possibility of outsourcing has internationalized labour markets which used to be local, opening up jobs which were traditionally non-traded to international competition. The resulting combination of lower wages and unemployment for certain jobs has driven the perceived ‘losers’ to engage in heated political debate.

Labour unions in the European Union have succeeded in pushing through protectionist policies in favour or lower-skilled groups throughout the 1970s and 1980s, including the Common Agricultural Policy on farming. Interest groups opposing outsourcing have been more active to voice their disapproval because the negative outcomes of the phenomenon are more concentrated on specific groups of people, namely those losing jobs to external competition, whereas the benefits from it become dissipated among the population at large. Overall lower prices and greater quality and variety of goods in domestic markets are some of the benefits of exploiting a country's comparative advantage through outsourcing.

Unlike the alleged ‘losers’ from outsourcing, those affected positively by it lack the motivation to organize to voice their support. There has been a wave of protectionism concerned with deep changes in the social structure allegedly imposed on the global system through globalization and outsourcing. The activists see a readjustment of class systems and highlight an increased fracture in societies between the ‘haves’ and the ‘have-nots’ as different groups adjust to increasingly or decreasingly advantageous positions in the system of outsourcing. Opponents of outsourcing have also denounced it as a threat to local cultural integrity.

The argument on cultural disintegration points to the standardization of practices and norms as multinational corporations become involved with industries in regions culturally different from those in the country of origin. The alleged diffusion of culture has raised concern over the endurance of cultural norms and values, sociopolitical institutions and frameworks, or even cultural preferences and traditions in a context of increasing foreign presence.

Increased uncertainty regarding future socioeconomic security ought to be met with policies promoting equality and a fair redistribution of economic gains for a government to maintain its voters’ favour. Because of overall unpredictability, governments will likely need to reassure civilians that the burden of employment jobs resulting from outsourcing will be shared among taxpayers.

The fluctuations in employment levels are determined by the types of jobs which can be profitably outsourced or offshored. Domestic jobs become offshored or outsourced when lower productivity in other regions is compensated by lower wages, making outsourcing profitable even despite the added costs of transportation. The overall cost-effectiveness of the spatial unbundling of the industrial process thus depends on the cost of transporting specific services or ideas given the available technology. Because of this technological advancements such as the telecommunications revolution, air shipping or the Internet have deeply accelerated outsourcing and may continue to boost this process.

The future results of technological ingenuity and innovation are unknown, as are its potential impacts employment levels on any given task or job across regions. In the Global South , policies attracting multinational corporations can help increase employment levels and promote growth. Governments that pursue these policies facilitate welfare protection given the context of increased unemployment in industries which cannot compete with the international market due to trade liberalization policies.

Industrial Policy

results from an internationalization of labor markets as more tasks become tradable. According to leading economist Greg Mankiw, the labour market functions under the same forces as the market of goods, with the underlying implication that the greater the number of tasks available to being moved, the better for efficiency under the gains from trade. With technological progress, more tasks can be offshored at different stages of the overall corporate process.

Environmental Policy

There are widespread claims that outsourcing has pushed environmental standards down in developing regions as countries compete to attract foreign projects and investment. Similar to lower wages, lower health and environmental regulations contribute to giving a country a comparative advantage over another due to lower production costs. The controversy this raises, however, is that unlike wages, lower health or environmental standards does benefit the new employees joining the workforce. Import competition has caused a de facto ‘race-to-the-bottom’ where countries lower environmental regulations to secure a competitive edge for their industries relative to other countries. As Mexico competes with China
over Canadian and American markets, its national Commission for Environmental Cooperation has not been active in enacting or enforcing regulations to prevent environmental damage from increasingly industrialized Export Processing Zones. Similarly, since the signing of NAFTA heavy industries have increasingly moved to the US which has a comparative advantage due to its abundant presence of capital and well-developed technology. A further example of environmental de-regulation with the objective of protecting trade incentives have been the numerous exemptions to carbon taxes in European countries during the 1990s. The evidence suggests that even if outsourcing has promoted lower environmental protection, there are no intrinsic geographic implications that the Global South has been more negatively affected than the North. o Although outsourcing can influence environmental de-regulatory trends, the added cost of preventing pollution does not majorly determine trade flows or industrialization.


Main article: Globalization

Global Inequality And Development


has contributed to further levelling of global inequalities as it has led to general trends of industrialization in the Global South and deindustrialization in the Global North.

Even though outsourcing has promoted a movement of industrial sites from the Global North to Global South regions, it has not been the only reason for the concurrent deindustrialization and industrialization of the North and South respectively. Deindustrialization in more economically and technologically developed regions has also been affected by increased industrial productivity.

The rise in industrial efficiency which characterized development in developed countries has occurred as a result of labor-saving technological improvements. Although these improvements do not directly reduce employment levels but rather increase output per unit of work, they can indirectly diminish the amount of labor required for fixed levels of output. Likewise, a trending shift in demand towards non-tradable services such as those in the health-care or government sectors has further accelerated deindustrialization in the Global North. Since these tasks cannot be outsourced, the demand for them needs to be met domestically abiding by the local market price. Consequently, a shift in the labor force towards fulfilling these profitable services has mostly taken place at the expense of industry since the agricultural sector in the early industrializing Global North had already been maximizing its labour capacity.

Despite the variety of domestic and international factors affecting deindustrialization in the Global North, those concerning the external influence of the global market have been the most influential ones since 1994.

The recent industrialization process outsourcing has encouraged in the Global South has taken place at a much faster pace than it did during its beginnings in the North, given that the well-developed technology was already developed, and merely spread to further regions.

Growth And Income

The almost simultaneous industrialization of the developing Global South and deindustrialization of the more developed Global North resulted in an international convergence of incomes.

has been characterized by rapid rates of growth and industrialization in the Global South. Conversely, the Global North has experienced a moderate slowdown in growth. Patterns of global industrialization and deindustrialization are explained by a combination of models in economic geography and economic growth. Models in economic geography illustrate that decreasing communication costs reduce the spatial clustering of industrial development. The lower cost to the spread of ideas improved coordination and communication within corporations across greater geographic distances. This process originated roughly after the international chaos of the World Wars, as a consequence of advancements in information technology during the 1960s. Further adaptations to technological progress, particularly the spread of the internet and liberalization of the telecommunications industry, permitted an acceleration of the movement of ideas and consequently of outsourcing since about the 1980s.


The pace of urbanization in the Global North decreased considerably relative to its high levels following the Industrial Revolution. Rates of urban growth have been higher in the Global South.


emerged with a new wave of globalization marked by high volumes of trade and capital flows. The increased movement of capital and goods contrasted starkly with the barriers and protectionism prevalent throughout the World Wars and the Great Depression during the Interwar Years.


The level of migration has remained relatively low, particularly compared to the mass migratory trends which characterized the Industrial Revolution roughly between 1850 and 1914., probably because labor markets are not free now. Countries now have discrimination labor laws, only allow people with citizenship cards live and work free in their territories, even getting a citizenship card is difficult for some one not born in their territory. Free labor markets, discrimination based with a person skills would help reduce outsourcing problems, letting people freely follow their jobs in other countries.

Domestic Inequality

in the Global North led to a rising divergence in domestic employment levels in different tasks within a given industry, making tackling unemployment more difficult for governments as job losses ceased to be primarily sectoral.



"Outsourcing" has become a continuing political issue in the United States, having been conflated with offshoring, during the 2004 U.S. presidential election . The political debate centered on outsourcing's consequences for the domestic U.S. workforce. Democratic U.S. presidential candidate John Kerry
John Kerry
criticized U.S. firms that outsource jobs abroad or that incorporate overseas in tax havens to avoid paying their "fair share" of U.S. taxes during his 2004 campaign, calling such firms " Benedict Arnold
Benedict Arnold

Criticism of outsourcing, from the perspective of U.S. citizens , generally revolves around the costs associated with transferring control of the labor process to an external entity in another country. A Zogby International poll conducted in August 2004 found that 71% of American voters believed that "outsourcing jobs overseas" hurt the economy while another 62% believed that the U.S. government should impose some legislative action against companies that transfer domestic jobs overseas, possibly in the form of increased taxes on companies that outsource. One prediction (from 2010) claims that, by 2014, more than 1.3 million positions will disappear because of "the accelerated movement of work to India
..." and some other countries willing to accept outsourced jobs. President Obama promoted an act titled 'Bring Jobs Home Act' that would help reshore jobs by giving incentives such as a tax cut or a 20 percent tax credit for moving operations back to the USA. The same bill was reintroduced in the 113th United States Congress
113th United States Congress
as the Bring Jobs Home Act (S. 2569; 113th Congress) .

Union busting
Union busting
is one possible cause of outsourcing. As unions are disadvantaged by union busting legislation, workers lose bargaining power and it becomes easier for corporations to fire them and ship their job overseas.

Another rationale is the high corporate income tax rate in the U.S. relative to other OECD nations, and the practice of taxing revenues earned outside of U.S. jurisdiction, a very uncommon practice. However, outsourcing is not solely a U.S. phenomenon as corporations in various nations with low tax rates outsource as well, which means that high taxation can only partially, if at all, explain US outsourcing. For example, the amount of corporate outsourcing in 1950 would be considerably lower than today, yet the tax rate was actually higher in 1950.

It is also suggested that lowering the corporate income tax and ending the double-taxation of foreign-derived revenue (taxed once in the nation where the revenue was raised, and once from the U.S.) will alleviate corporate outsourcing and make the U.S. more attractive to foreign companies. However, while the US has a high official tax rate, the actual taxes paid by US corporations may be considerably lower due to the use of tax loopholes, tax havens, and "gaming the system". Rather than avoiding taxes, outsourcing may be mostly driven by the desire to lower labor costs (see standpoint of labor above). Sarbanes-Oxley
has also been cited as a factor for corporate flight from U.S. jurisdiction. See also: Disney litigation


Where outsourcing involves the transfer of an undertaking, it is subject to Council Directive 77/187 of 14 February 1977, on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of businesses (as amended by Directive 98/50/EC of 29 June 1998; consolidated in Directive 2001/23 of 12 March 2001). Under that directive, rights acquired by employees with the former employer are to be safeguarded when they, together with the undertaking in which they are employed, are transferred to another employer, i.e., the contractor. An example of a case involving such contracting-out was the decision of the European Court of Justice in Christel Schmidt v. Spar- und Leihkasse der früheren Ämter Bordesholm, Kiel und Cronshagen, Case C-392/92 . Although subsequent decisions have disputed whether a particular contracting-out exercise constituted a transfer of an undertaking (see, for example, Ayse Süzen v. Zehnacker Gebäudereinigung GmbH Krankenhausservice, Case C-13/95 ), in principle, employees of an enterprise outsourcing part of its activities in which they are employed may benefit from the protection offered by the directive.

Seeking to implement the cost-cutting solutions, many Western European firms have been transferring tech projects eastward. For example, Deutsche Bank has some of its software developed in Ukraine, Siemens possess R">

Despite unfavorable economic conditions from 2007 to 2009, the outsourcing services market continued to flourish in Central and Eastern European. In 2008 when the inflow of investment in Western Europe was down by 48%, it fell by only 9% in Central and Eastern Europe. In Poland
alone, during 2009, the year following the global economic downturn, approximately 10,000 jobs were created in business process outsourcing (BPO).


CO-SOURCING is a business practice where a service is performed by staff from inside an organization and also by an external service provider. It can be a service performed in concert with a client 's existing internal audit department. The scope of work may focus on one or more aspects of the internal audit function. Co-sourcing
can serve to minimize sourcing risks, increase transparency, clarity and lend toward better control over the processes outsourced.

Examples of co-sourcing services are supplementing the in-house internal audit staff with specialized skills such as information risk management or integrity services, providing routine assistance to in-house auditing for operations and control evaluations in peak period activity and conducting special projects such as fraud investigation or plant investment appraisals. Another example of co-sourcing is outsourcing part of software development or software maintenance activities to an external organization , while keeping part of the development in-house. Other internal business activities such as HR and administrative tasks can also be co-sourced by employee leasing companies.


It is an approach to enterprise identity management in which the identity service interacts directly or through some technical footprint with an organization's Information Technology
Information Technology
(IT) identity backend infrastructure (directories, databases , and other identity repositories). The organization and the external service provider typically have a shared responsibility for building, hosting and operating the identity service. The balance of this responsibility can vary depending on the service levels required, and span from an all on-premises deployment, where the identity service is built, hosted and operated within the organization's IT infrastructure and managed on-premises by the external service provider. This contrasts with an "all in-the-cloud" service scenario, where the identity service is built, hosted and operated by the service provider in an externally hosted, cloud computing infrastructure.


Some firms have reversed the decision to outsource because the results were not entirely as expected. The circumstances which allow firms to unbundle the different tasks or stages of its manufacturing process into different locations have not been fully determined. Though the nature of the tasks plays a role determining their interconnectedness, other factors such as innovation in the manufacturing process or advances in transport and communication technology also affect the need for direct contact among employees. As the process which ties tasks together within firms remains unclear, there is a degree of uncertainty about which tasks need to remain geographically clustered together. In many cases firms took risks experimenting with outsourcing while lacking a firm understanding of the relationship among internal tasks and its spatial implications.

Despite saving money, companies have often faced unexpected drawbacks from outsourcing, such as miscommunication or lower quality of intermediate products, which end up delaying the overall production process. Another reason for a decrease in outsourcing is that many jobs that were subcontracted abroad have been replaced by technological advances.

According to a Deloitte Consulting survey carried out in 2005, a quarter of the companies which had outsourced tasks reversed their strategy. Many big companies like Lenovo considered turning around outsourcing strategies of outsourcing.

Public opinion in the US and other Western powers opposing outsourcing was particularly strengthened by the drastic increase in unemployment as a result of the 2007-2008 financial crisis. In the first decade from 2000 to 2010, the US experienced a net loss of 687,000 jobs due to outsourcing, primarily in the computers and electronics sector. Public disenchantment with outsourcing has not only stirred political responses, as seen in the 2012 US presidential campaigns , but it has also made companies more reluctant to outsource or offshore jobs.

A 2016 Deloitte survey suggested that companies are no longer reluctant to outsource. Deloitte's survey identified three trends:

* Companies are broadening their approach to outsourcing as they begin to view it as more than a simple cost-cutting play * Organizations
are "redefining the ways they enter into outsourcing relationships and manage the ensuing risks." * Organizations
are changing the way they are managing their relationships with outsourcing providers to "maximize the value of those relationships."


* Application Management Services Framework * Business
process outsourcing (BPO) * Business
process outsourcing to India
* Business
process outsourcing in the Philippines * Call center
Call center
industry in the Philippines * Call center
Call center
industry in Bangladesh * Co-sourcing
* Comparative advantage
Comparative advantage
* Contingent workforce * Crowdsourcing * Engineering
process outsourcing (EPO) * Facilities Management * Farmshoring * Freelance marketplace * Globality * Global sourcing * Homeshoring * Information technology outsourcing (ITO) * Impact sourcing * Knowledge process outsourcing (KPO) * Legal process outsourcing (LPO) * List of management topics * Offshore software development * Offshoring * Offshoring Research Network * Outsource marketing * Print and mail outsourcing * Programmers Guild * Recruitment process outsourcing (RPO) * Regional insourcing * Supply chain
Supply chain
* Telecentre * Telecommuting
* Third-party logistics (3PL) * Transition methodology * Verifiable computing * Vested outsourcing * Virtual assistance


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* The dictionary