Offshore outsourcing means contracting part or an entire department of an organization to an external vendor located in another country, most of the time in a developing country. Over the years offshore outsourcing has gained popularity and aside from the financial benefits there are other factors that have influenced the rise to fame of offshore outsourcing.
The supply and demand factor.
Developed countries offer an abundant supply of cheap labor which enables the more industrialized countries to conduct their business at a modest cost. The abundant supply of labor often times enable the outsourcing companies to allocate a large number of workers to tasks which can then be accomplished in a matter of days. This is a huge advantage to the client since it would have otherwise taken them probably months to set up and finish the same project due to limited human resources.
The 24/7 work schedule.
Thanks to the time zone difference companies can ensure their business runs round the clock. While one team in one location goes to sleep the other is up and working in another. This business continuity offered by the time zone difference ensures that work never stops, including on weekend and holidays. This in return results in an increase in productivity. Companies no longer need to have their workers working overtime or in shifts if they don’t want to. Aside from increased productivity there is also an increase in customer satisfaction. This is due to the fact that customers no longer need to wait for long periods of time to get their goods or services just because a company had to close at the end of working business hours or on holidays.
The increase in customer satisfaction and productivity in the end inevitably contributes to the company’s bottom line. Translation? Profits. Increased sales means increased income. Increased income means increased financial resources which can then be invested in even more productive projects or reinvested back into the same project.
Job creation is undoubtedly one of the top reasons as to why outsourcing is gaining popularity at such a fast pace. In many developing countries unemployment tops the list of problems affecting the countries. Even getting a formal education is no assurance that one will get as job when they are finished. Few are lucky in securing jobs. Graduates end up jobless, engaged in crime or doing menial jobs just to make ends meet. This situation has seen a spike in human capital flight also known as brain drain. Well-educated people or professionals in a particular country move to more favorable economies in search of jobs. Their home country then end up losing expertise because there were no jobs. Outsourcing has become an important tool in the fight against brain drain.
Improvements in telecommunications.
Improvements in the communication sector have contributed immensely to the growth of the outsourcing industry. Communications have been made instant and clearer. There is also the variety of communication channels from emails to phone calls to teleconferencing to videoconferencing. Partners in different countries do not need to travel to the outsourcing countries to keep up to date with what is happening. All they need to do is call in, send an email or a text. If there are more than two partners in the project a conference call can come in handy when holding meetings which would have otherwise proven difficult were it not for the advancements in telecommunications.
That being said it also encourages channeling of investment towards the improvement of the communication structure. Therefore nations engaging in outsourcing will see major improvements in their communication sector in a bid to improve communication as well as product and service delivery in the outsourcing industry. Clients and vendors can communicate effortlessly as well as send instructions/requests and end products fast and inexpensively via digital channels made possible with improved communication infrastructure. This is an added bonus seeing as chances are if they were not engaging in outsourcing in the first place investors would not have seen the need to improve the outdated communication infrastructure in the first place. This improved communication infrastructure will then end up benefiting other economic sectors as well.
Everyone can now engage in outsourcing.
In the beginning only well established companies had the resources and man power to take advantage of the international recourses. This was largely due to their ability to set up subsidiaries or contracts with third-party vendors. However owing to the improvements witnessed in the communication industry small, including start-ups and medium sized companies can now also take advantage of the global resources through outsourcing. They are now able to reap maximum benefits with limited resources.
Knowledge and skill transfer.
Outsourcing creates a channel whereby skills and knowledge can be transferred form developed nations to the developing ones. This happens when the two nations partner up during outsourcing. They have to exchange information in order for the work to be done. If a new technology or a new way of doing something is created in the developed country they normally share it with their external partner. The knowledge and skills gained through partnering during outsourcing can then be used in domestic projects. In the end when the knowledge and skills are applied in other economic sectors the livelihoods of the citizens in that country end up being improved attracting even more investors.
Creating demand in other sectors.
Outsourcing has given the rise to needs in other service sectors. For example when setting up an outsourcing company you have to have worker who are skilled. You will need IT department, a legal department, accounting department and the whole lot in management team. The people in these departments have to have an education thus prompting educational institutions to set up courses or revise them in order to produce candidates fit the positions or even open up a special training institutions. This is to say that outsourcing creates a niche that other sectors who are not involved in outsourcing can benefit from.
Source of foreign exchange earnings.
Foreign exchange is vital to every nation as it determines the value of foreign investment. Offshore outsourcing means that foreign currency will be exchanged making it a good source of foreign currency. One will be exporting goods and services that will be paid for in the client’s form of currency.
The ability of companies to access skills from anywhere in the world has also contributed to the rise of offshore outsourcing. Before globalization accessing skills based in other countries meant processing visas and relocation of the said skills to the home country of the hiring company. Today this simply means having access to the internet and a computer. Employees can then work from anywhere.
Access to skilled human resource.
In the past in as much as developed nations wanted to outsource the developing countries were just not skilled enough to take up the jobs. This is one of the reasons why outsourcing was registering a slow growth. However in recent times with improved economies, upgraded education systems and political stability in many developing nations their expertise and skills in not only technology but also managerial capacities has contributed to the growth of the outsourcing sector.
Corporate Social Responsibility
A number of companies engage in outsourcing as a part of their corporate social responsibility initiative. This is so that they can provide employment to disadvantaged groups of people in developing countries and improve their livelihood. These groups might be women/girls, the youth among others. So in as much as they are benefitting business-wise their main goal might be to improve the lives of the targeted group. With time more and more companies followed suit.
Few start-up requirements.
Most activities in the outsourcing sector unlike other sectors such as oil and gas are environmentally friendly. They do not necessarily need to comply with strict regulations that come with production processes, waste management and disposal among others. They also do not highly depend on infrastructure such as roads and ports which need to be well-maintained at all times.
These are just but a few factors fuelling the growth of the outsourcing industry, granted there are more. What can be concluded from the above is that these factors are in a way connected and is one huge cycle. Companies are able to access quality products and services at low cost and in the process they are providing a source
of income and improving the lives of the inhabitants of the developing countries. Education institutions are being set up and curriculums revised to train the professional who will work in the industry. In the process of collaborating with these nations they gain the knowledge which they then transfer to other domestic sectors. This then lead to improved economies that end up attracting more investors. Feel free to leave your comment below with your thoughts and we can pick up a discussion from there.