The Benefits of Outsourcing

Offshore outsourcing has an interesting history. It wasnt started purely as a way to get workers at a cheaper price, as many detractors believe. It is, instead, a normal and predictable part of the globalization process our planet is undergoing.

As we started the change from many national economies to one large global economy, companies started seeing the benefits of expanding their customer base outside their country of origin. Some in the United States had started feeling market saturation and expansion to foreign markets opened up a whole new level of revenue generation to them. They started by offering products and raw materials via export. Eventually it became clear, to some companies, that they needed a corporate presence in the foreign countries they served. This would allow them to provide better service by getting to know the people, their culture and their needs.

This was true even for the information technology companies that are largely outsourced today. It is estimated today that approximately 60% of the profits from American IT companies comes from overseas. They are not alone. Outsourcing is practiced in industries ranging from banking to consumer product manufacturing. Many of them report their overseas earnings to be beating their domestic revenues.

When actually doing business in a foreign country, having a corporate presence there is a good customer service policy. One of the secrets to beating your competition is to have the most responsive and most readily available customer service. No matter how well you plan, there are always issues involving pricing, competition and unresolved complaints that need prompt attention in order to keep your customer happy and coming back. Having people in their own country who speak their own language and understand their customs is a huge step up in gaining this advantage. It helps a company tune into the special needs in an area.

On the other hand, todays outsourcing companies include those who have no official presence in the country being outsourced to; nor do they sell products or services there. Instead, they utilize the more inexpensive labor there to complete the more non-core-competence activities at a favorable cost. This, they feel, is essential in order to compete in the global marketplace. Some find this to be unfair to those U.S. employees losing their jobs to foreign workers.

Looked at from a broader stance, however, if the company is unable to compete globally, it may have no choice other than to go out of business some day. Then many MORE jobs would be lost than are today from the outsourcing that could save the company from eventual disaster.

Another advantage of outsourcing is expertise. Lets take the example of a credit card company. One of the functions of a good credit card company is operation of a call center. This is where incoming customer service calls are taken and where outgoing collection calls are initiated, among other things. A couple decades ago every large credit card company had at least one call center and most had several located in strategic low-income areas of the United States. Although these still exist, they are generally much smaller and hire less people. Instead, call center activities have been outsourced to overseas call center companies. To these overseas companies, call center tasks are their central activity - or their core competence. To the credit card company, however, call center activities are a support function to their core competency, the granting of credit and administration of credit accounts. Outsourcing allows the credit card company to concentrate on its core competencies while getting even better service from the experts overseas than they could have provided themselves. In addition, the cost savings allow the credit card company to invest in new markets and possibly open up new job opportunities here at home.

The price discrepancy between labor in the U.S. and other parts of the world doing our outsourcing is shrinking. For example, the salaries of IT personnel in India is said to be growing at 15-30%, thus reducing the attractiveness of outsourcing programming jobs to India.

Michael Russell Your Independent guide to Outsourcing

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