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What offshore outsourcing is all about?

Outsourcing is the new buzzword rocking the global business environment. Offshore outsourcing has changed the art of doing business. Organizations are utilizing different resources of outsourcing to gain business advantage.

The key idea is to reduce or eliminate non-core areas of functioning. To put in simple words, organizations cannot focus of every aspect of business with equal efficiency as others. So organizations are hiring an external organization to perform some business functions in a different geographic location other than the one where the products or services are actually developed or manufactured. Countries with higher wages outsource their work overseas inorder to reduce their own domestic employment and domestic investment.

Every organization has to undertake various business activities or processes in order to achieve its targeted objectives. Each business function consumes certain resources of business. As more resources are consumed, there is reduction in the overall profitability. The organizations outsource some activities to another entity that is better at performing that particular activity and would able to would carry forward the same on behalf of the parent business organization. This would eventually lead to lesser resource consumption and increase the competitiveness of the business organization. This would eventually increase the competitiveness of the business organization. This is the basic concept of outsourcing. Popularly, organizations that outsource their processes are called outsourcer. The firms that provide outsourced activities are known as service providers.

Offshore outsourcing is a concept of outsourcing your activity to one who is not on your shore. The outsourcer and the service provider are located at two different geographic locations.

Organizations prefer to invest in offshore outsourcing resources because when compared to their own countries, certain nations have easily accessible resources that would enable them to earn better profits.

The business organizations from developed nations outsource their non-core business activities to the developing countries that are providing quality services at economically cheap price in comparison to developed countries. Various factors that affect the decision of a client regarding offshore outsourcing are manpower cost, manpower quality, and infrastructure facilities. Legal and business environment in the service provider's nation plays a pivotal role in the development of offshore outsourcing.

Offshore outsourcing has revolutionized various industry segments. Information technology is the leading industry sector followed by many industries in the manufacturing segments.

There are four basic types of offshore outsourcing:

  • Information Technology Outsourcing
  • Business Process Outsourcing
  • Software R & D - offshore software development
  • Knowledge Process Outsourcing

The basic criteria for a job to be offshore-able are:

  • Significant wage difference between the parent and offshore countries
  • The work has high information content
  • The work can be transmitted over the Internet and is repeatable
  • The work is easy to set up

The key factor behind the development of offshore outsourcing has been the need to reduce costs while the enabling factor has been the global electronic internet network that allows data to be accessed and delivered instantly, from and to almost any corner of the world. The key benefits of offshore outsourcing are:

  • Labor cost reduction
  • Operational cost such as payroll, administrative cost, utilities can be saved
  • Productivity can be improved

When companies outsource, the key aim is to save money so that they are able to keep the prices of their products lower than the competitors. India, China, and Philippines are the favorite destinations for outsourcer's world wide.