Outsourcing in the New Economy

Organization isn’t about perfection; it’s about efficiency, reducing stress and clutter, saving time and money and improving your overall quality of life. In order to be irreplaceable, there has to be something different.

Outsourcing is the contracting or subcontracting of noncore activities to free up cash, personnel, time, and facilities for activities in which a company holds competitive advantage. With the economy propulsive towards globalization, many companies are committed to gather a competitive advantage by crisping their costs, optimizing efficiency, and great customer service. But the question lies in, how to get that done in a limited time? A one-word answer to this is offshore development or outsourcing the gateway to success. Outsourcing software development has proven to be a great success for many companies worldwide. Globalization is compelling a lot of companies to continuously enhance their competitive edge. Outsourcing cuts down internal costs while ensuring that the company is focused on its core competencies. In a fast-paced technological world, it is unlikely that a company will be able to frame a whole spectrum of business. So it is a good decision to outsource some of the functions while keeping intact the business processes.

IG 1: IT leading as most active area of outsourcing

The best and potent companies outsource a lot of functions, because they its known that offshore providers can often provide the same or better services for a fragment of the cost. Hence, now a days, outsourcing no more is a back-office functions in IT department. It has now become a rapidly growing trillion-dollar industry, and most of it is done offshore because over there lower labor costs and global telecommunications make it not only a feasible option, but a preeminent competitive advantage. Previously, companies preferred to keep their core functions in-house and used to outsource only peripheral services. However, in the current scenario, this is not the case.

The outsourcing industry has ripened and, keeping in consideration, the recent variations in the world economy, many global-minded companies percept the practice not only as a way to save money, but also as a partnership that will help them become industry leaders. It has been observed that those companies that choose to ignore outsourcing risk being pushed out of the marketplace. Outsourcing is rapidly taking center stage, moving beyond basic IT functions into IT management, business planning, and more. The companies that provide offshore outsourcing services are now fully engaged in boardroom discussions and interact regularly with CIOs as they perform ever more sophisticated tasks, lead projects, guide corporate strategy, and provide various consulting services.

Apart from the low cost which has been and probably will continue to be one of the main attractions of outsourcing, there are many more advantages of outsourcing. Cost savings obviously is important, but as the role of IT bolster within companies and the marketplace, outsourcing has many other advantages to offer. IT outsourcing can be an absolute opportunity for companies to innovate and pursue new strategic directions. Companies who realize this will reap the benefits, while others may be left behind.

One more reason for the burgeoning success of outsourcing is that there is a dearth of IT talent in the labor pool in many of the developed countries. However, developing countries such as India has a diverse, talented labor pool of young, highly educated workers whose hourly rate is much less than that of their counterparts in Western Europe and North America. These foreign workers are providing increasingly sophisticated solutions and are helping their clients in rapidly adapting to an ever more complex marketplace with rapidly changing technology.

Now that all companies compete globally, there is a consistent exploration for new areas with the cheapest costs, particularly for labour. Currently, Vietnam is an industry leader for outsourcing, not only because it has a low cost of labor, integrated with the fact that the outsourcing firms in Vietnam has significant breadth and depth of experience, complemented by a highly education and highly experienced workforce. In future, another country may replace Vietnam as the top destination for offshore outsourcing, but right now the country has a firm hold in the marketplace and is widely accepted as the most highly desired location by companies who want to outsource some or all of the IT functions overseas.

Since the issue of fluctuating currency exchange rates and unprecedented economic change is prevailing, the outsourcing destinations cannot solely rely on being the low-cost provider, because that tagline may fall to another country tomorrow. Successfully outsourcing companies need to have the resilience and strategic vision to secure and hold onto a long-term in the marketplace.

Previously, CIOs used to have a technical role, making sure that all computer systems were operational. Recently, they have become a strategic part of upper management, advising and guiding the CEOs and CFOs, who recognize that technology is king. Outsourcing companies can view this shift as a correlation for their own developing role in the marketplace. Rather than providing ad-hoc technological solutions, they can be treated as resources because companies seek to adapt to a changing marketplace. Outsourcing companies can and should be valued strategic partners who help companies identify opportunities for strategic innovation. Offshore outsourcing companies have the capability to help companies continuously innovate, because they have a global perspective and can view the company for what it really is, since they are observing it more or less from the outside. Furthermore, because outsourcing companies are acquainted with a wide range of the latest and greatest technologies, they can recommend new growth opportunities that their clients would otherwise be unaware of.

Outsourcing companies have a absolute interest in identifying & analyzing new business solutions and helping their clients succeed, because, after all, their business model awaits on maintaining strong client relationships and helping them maintain and boost their technology as much as possible. This has probably never been so important as it is now a days, when companies are grappling to keep their heads above water in these fierce tides of a struggling global economy.

When companies are facing tight budget constraints, they have three options for their departments:

  • They can continue to do things as they always have… which might lead to their failure as other companies become stronger competitors.
  • They can downsize and slash their budget… which will surely put creates a probability to damper on the company’s ability to innovate and compete.
  • They can turn to offshore outsourcing, which will lower costs and help the company find new and innovative ways to grow and better compete in the global marketplace.

Recent events has many relevant lessons showing that companies that prefer the third choice are the ones that come out the head. The bottom line is: companies must innovate for survival. Successful companies should take advantage of opportunities wherever they present themselves and resist the temptation to boil everything down to costs. Cost obviously is important, but outsourcing offers many other opportunities for innovation and improvement in the global marketplace.

Anirvan Mukherjee
An article by:
Anirvan Mukherjee

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