There are benefits associated with outsourcing services such as reduced costs, improvement of product quality and access to highly skilled personnel. This is on the client side. For the service providers, it helps create employment and is a source of foreign exchange inflows where the outsourcing is offshore. But a process outsourcing company in the developing world also faces a number of risks and challenges. An outsourcing company can only succeed if it knows the risks and finds a way to deal with the obstacles it meets during the course of business.

One of the greatest challenges facing the process outsourcing company today is the ever-increasing levels of competition. While at the early throes of the outsourcing services industry in developing countries, there seemed to be more opportunities than there were businesses to provide them, that is not the case today. There are new companies making their way into the market. Countries such as India that have held a dominant position in the outsourcing market have to contend with competition from many other Asian countries such as the Philippines, China, Taiwan, Thailand, Malaysia and Sri Lanka. There is also competition from African countries such as South Africa, Nigeria, Egypt, Ghana and Kenya. Thus, the process outsourcing company that will survive must find a way of adding value to the service they provide to their clientele.

The other challenge facing many a process outsourcing company in the developing world is concentration risk. As the market thins out, one must now compete for lucrative contracts with more businesses. Many businesses must now make do with just one major contract. If that contract is for some reason terminated, such businesses in the developed world may not be able to survive much longer.

Another setback for the process outsourcing company especially the ones based overseas is geographical distance and subsequent difference in time zones. Some process outsourcing companies have to resort to having their employees working day or night shifts. Sometimes, this may lead to the lack of sleep and in the long run, the staff mental and physical health as well as overall morale may be affected. Eventually, the outsourcing company may get into a vicious cycle where it tries to meet the client’s expectations but never has the right employees to effectively perform the work to the client’s requirements.

Daven Michaels Author of the book Outsource This!

Today’s globalization, increased competition and rapid technological changes have led most companies to view outsourcing of business as the solution to staying competitive. However despite the fact that outsourcing reduces operational costs and in some cases can help the organization increase its efficiency; it also has negative long term effects that could affect not just the company but the society it operates in as well. A few of the risks and negative impacts that outsourcing exposes organizations to include; unmonitored competition, increased unemployment, unscrupulous providers and possible organizational failure in the long run.

Increased unemployment
Outsourcing of business processes is a relatively new phenomenon that was sparked off by the advent of internet business. As such the full impact of the practice is as of yet unknown, nevertheless it is not the win-win situation that most economists point it out to be. The first major problem of outsourcing can be attributed to the government’s lack of a clear and concise policy that governs the practice. This has bred unchecked and unfair competition among companies in the industry. The tenets of free market economies state that governments should let market forces govern the market, however there is also a need for guidelines that safeguard the existence of small and emerging enterprises. A need that is being largely overlooked thanks to the cut throat competition brought about by outsourcing.

Impact on the local job market
One of the other reasons that organizations give in a bid to justify outsourcing of business to offshore locations is that the labor force is not only cheaper but more educated than the domestic labor market. While this may be beneficial to the third world countries; such as the Philippines and India that get most of the outsourcing work, the impact on the domestic job market is drastic. This has led to company employees being unsure of their current job security and has resulted in low morale levels in organizations. In addition there is the possibility of employees who have lost their jobs going to work for the competition.

Unscrupulous providers
The outsourcing revolution has led most companies to believe that there is no other alternative. So in most cases small companies that can’t afford to set up their own outsourcing departments have to rely on the services of outsourcing companies. However these outsourcing companies handle the business processes for a number of companies, including organizations that may be rivals. In such a situation outsourcing of business may lead to organizations unwittingly exposing their operational secrets. Unscrupulous outsourcing providers may also sell organizational secrets to competing companies or collate the data and use it to start their own business.

Aside from the reasons mentioned above outsourcing may also contribute to changes in the way certain organizational processes are conducted. This leads to a decrease in the efficiency of the company, due to time lapses and delays occasioned by poor coordination which could result in potential conflicts between the company and consumers, the company and the employees or the company and its outsourcing providers. Though outsourcing of business is being touted as the solution for reducing organizational costs, it should also be noted that in some cases the overall cost of the practice may be more than the additional costs that would have been incurred.

Daven Michaels Author of the book Outsource This!

Outsourcing statistics have for many years shown the outsourcing of business is an increasing trend among companies in the US and other Western nations. However, it is since the 1990s that the outsourcing market has grown tremendously. Of course this has also generated a lot of political heat with debates on what outsourcing really means for developed economies and whether it really is for the benefit of their workforce as a whole. Outlined below are some interesting outsourcing statistics.

Outsourcing of business is most significant in the Information Technology industry. In the global outsourcing market, IT takes the lead at 28% of the total outsourcing market. This primarily came about due to the shortage of e- business application developmental skills in developed markets which made it expensive to hire skilled personnel. The Human Resources industry is another increasingly outsourced business process taking   15% share of all outsourced processes. It is closely followed by sales and marketing outsourcing which is at 11%. The remaining fields make up the remaining 32%.

Multinational companies are currently taking the lead in outsourcing. The most popular countries are India, The Philippines and China.

Despite the positive statistics described above, there are various problems that accompany outsourcing. Outsourcing of business in foreign countries may lead to geographical problems such as language barrier, labor laws that govern that particular country, political upheaval as well as cultural issues. With such problems being encountered, outsourcing may be hindered.

Before settling on an offshore destination for your outsourcing needs, it is advisable to consider some of the key factors that are affecting the particular country. Some countries may be hindered by poor communication infrastructure, low power generation capability as well as poor disaster preparedness. It is also advisable to look into past statistics of offshore outsourcing as well as past success stories of an outsourced project.

In 2006, studies showed that outsourcing activities made up for jobs worth $ 1.2 trillion annually. Economists are forecasting that by 2015, at least 3.3 million U.S jobs and salaries amounting to $136 billion will be moved to developing Asian and African economies. This will come as a result of inexpensive labor markets in the developing countries.

In the US, analysts have concluded that outsourcing of business is the biggest contributor to the current economic recession. The statistics have also shown that the high rate of outsourcing has greatly contributed to the recession. For this reason, the U.S could not offer alternative job opportunities for the laid off workers. This has come to be known as over- outsourcing.

Daven Michaels Author of the book Outsource This!

If a company is considering outsourcing any part of its business which it considers non-core, it should always find a way of making sure that the outsourcing relationship is a success. The business should not only focus its energy on pushing down costs but in improving quality of goods and services. However, outsourcing management is not such an easy task – but it is necessary if both the business and the service provider want to mutually benefit from the relationship.

Outsourcing management starts with both the business and the third party understanding the goals of the business. This will inform how the performance of the outsourcing processes will be assessed. For best results, outsourcing management must involve both parties being familiar with how the respective internal processes of each party. Both parties should ensure that the relationship is carried out to the benefit of all parties. Both should also be prepared to face challenges and develop channels for addressing any differences that arise. The records of all communication between the parties should be maintained properly for future reference and to better resolve any disputes that might arise.

The outsourcing company and the business should develop performance measurements around timeliness, product and service quality results, customer feedback, and regulatory and statutory compliance. Even though the metrics defined in outsourcing management are mainly meant for the business satisfaction, they should be practical, realistic, easy to understand and to measure. Vague and unrealistic goals will strain the service provider and leave the service provider feeling shortchanged. Each party should be given the opportunity to frankly state what they would and would not be comfortable with. These measures should be monitored at regular and agreed upon intervals to make sure any issues are identified before they get out of hand.

Communication is key to outsourcing management success. And this must start at the negotiation stage where each party must keep the other well briefed of their decisions and opinions. After the contract is signed, this communication gains even more importance. This will help preempt problems and ensure that the business is always up to date with the significant goings on at the service provider’s business premises. In order to successfully manage the relationship, both parties ought to set aside time to communicate with each other daily. This can be through daily meetings or through the exchange of daily performance metrics that keep everyone briefed on the state of affairs.

Daven Michaels Author of the book Outsource This!

One of the decisions that companies in the West must make in outsourcing management is which country to outsource the business to. How do the different countries compare and what are the advantages or disadvantages of each? Let’s take a look at some of the more popular countries for hosting outsourced services.

India is by far the leading country in offering offshore services. It has a strong local skill set for IT services, remote infrastructure evaluation and general business process outsourcing (BPO) such as call centers. Indian employees are able to meet the demands of a technology driven market. What’s more their companies have shown precision in keeping records such as employee pay and cost structure. This has seen various US companies outsourcing management of other non-IT areas such as Human Resources (HR), administration and accounting to India. But in the recent past, India’s reputation as a leader in outsourcing has seen some reputation damage due to issues such as weak adherence to US privacy laws, increase in tax rates and financial scandals.

China is another recognized force in offshore outsourcing management. It also boasts low labor costs making it a preferred choice for both IT and manufacturing outsourcing. However one of the biggest hurdles to Chinese firms is the language barrier that hinders US companies from recognizing it as a practical location for outsourcing. Little wonder that as part of outsourcing management, American companies are paying a slight premium to English–speaking employees based in China.

The Philippines is another growing market for outsourcing management. Due to its few cultural barriers and relatively advanced infrastructure, it is able to support American operations. Services offered include application development, call centers, voice transcription and server back end management. Nevertheless, prevailing political instability compounded by sporadic social unrest has led some US companies to reconsider IT outsourcing there. The Filipino labor force is also not as technically educated and savvy as India and China. Moreover, the distance between the US and The Philippines and thus the wide difference in time zone is a major hindrance.

Then there is Vietnam which is a budding destination for IT outsourcing management. But like the Philippines, its major barrier is the lack of technical knowledge in its workforce- there are not very many IT experts as would be required to support both local and overseas businesses. This means employing a local IT expert can be expensive.

Daven Michaels Author of the book Outsource This!

Outsourcing for business is a fast growing trend and has increasingly been accepted as an integral part of conducting modern day business. The benefits of outsourcing are well known and revolve around time and cost savings. However, just like every coin has two sides, so does outsourcing for business. A company should be careful that these shortcomings, however negligible do not negate the benefits that would otherwise be realized by outsourcing.

The first drawback in outsourcing for businesses is that it poses a major threat to a company’s internal innovation capacity. When a company develops a habit of taking on a third party service provider for key internal processes, the company’s internal knowledge base starts to diminish. Thus, the company’s delivery of a quality experience to its customers may deteriorate since internal staff may not be able to keep up with changing market trends.

Another downside of outsourcing for business is that it sometimes leads to product uniformity and the lack of variety. Over time, outsourcing service providers in the same country may start to use almost identical techniques in the delivery of goods and services to their clients. The result is that competing businesses that outsource to the same country may start to have products whose only difference is in the branding and packaging. Customers eventually latch onto this and it becomes difficult for a business to have a competitive edge in the market since products from different manufacturers become almost indistinguishable in function and design.

Outsourcing for business can also lead to the establishment of a dependency syndrome. This dependence on third- party service providers to carry out important company functions can see the business hamstrung if any of the third service providers were to pull out or collapse without warning. Through outsourcing, a business starts to lose control of its operations. Even though there is a contract between the business and the service provider, the truth is that trust still comes into play in the sense that the business expects the service provider to deliver on what they promise. A business also expects the service provider to be in familiar with certain small nuances that in actual sense can have a major impact on customers.

When a company opts for outsourcing for business, this will almost always lead to the loss of jobs of some of its staff. For businesses operating in a closely knit community, the community may be dissatisfied with the company’s actions. If this belief and perception spreads, it might lead to boycotts of the company’s products.

Daven Michaels Author of the book Outsource This!

Offshore outsourcing kicked off in earnest with the administration of former American president Bill Clinton. At the time, the U.S had been trying to fight with inflation so as to revive the struggling economy. This brought about numerous changes in economic policies including the implementation of the North American Free Trade Agreement (NAFTA). This saw businesses using this and other means of staying a step ahead of their competition. Due to the high cost of American labor, offshore outsourcing became an option that many corporations had to consider.

Outsourcing has of course been considered by some as too radical a remedy for doing business. This is probably informed by the fact that it has led to many families in American and other Western nations being left jobless and with no source of income. This is because organizations are contracting other companies to render services that were previously handled locally such as payroll, software and customer service. Political interference and what might be perceived as populism has seen offshore outsourcing increasingly portrayed in bad light.

However, the counter argument is that the distribution of resources is important if productivity is to be increased. From this, economic expansion and job creation is inevitable albeit on a global scale. Despite what many might think, the idea of outsourcing dates back to the history of trade. It started with inshore outsourcing (or contracting as it is better known) which came into effect when the cost of in house labor continued to shoot up to high levels such that the profits of various companies saw a substantial drop.

Today, many companies view offshore outsourcing as a means of having an edge over their competitors. It helps bring down labor costs, lowers the payroll taxes the company must pay and get rids of additional costs of staff benefits and training. With the contracted companies taking over certain processes, businesses are in a better position to focus on in house matters such as the production of company reports and staff meetings.

Unions have been at the forefront of encouraging successive US governments to protect American jobs. Which is good. But ironically, some government policies meant to make more jobs available for locals might not necessarily reduce unemployment. For instance, the attempt to ensure that non-American employees are not allowed to migrate permanently to America but only to get training in America before they go back to their country. These are the same persons to whom US jobs will be outsourced through offshore outsourcing.

Daven Michaels Author of the book Outsource This!

In some instances, companies may opt for offshore outsourcing to enable them to focus their attention on the core values of the firm. Paying small scale contractors on the other side of the world is now possible through online payment channels such as PayPal, MoneyBookers, Xoom, Payoneer, 2CheckOut and many more. Outsourcing enables the organization to cut down on labor costs and the cost of procuring expensive technology.

And it is not just American manufacturers offshore outsourcing their work to Asia, South America and Africa. A number of large companies in other countries are contracting American employees for work. For instance, major non-American automobile manufacturers such as Toyota, Mercedes Benz and BMW have set up huge manufacturing plants in the United States. However even as the company tries to maximize its profits, certain ethical questions beg answers.

Offshore outsourcing is gaining popularity among many businesses but sometimes for completely different reasons. Some companies choose this option in order to avoid paying hefty taxes in their home country or adhering to stringent local regulations. Is this ethical? You be the judge. While relocating the entire company may be an option, this may end up costing more in the long run. Therefore contracting part of the work to a foreign company might be the cheaper option.

While employers might justify this move by saying that they are assisting the poor people in developing countries, in the real sense this is all meant to benefit the company. And since it is a for profit institution, many may argue that there is nothing wrong with that. Outsourcing can cause internal discontent and lower employee morale. Some employees may consider offshore outsourcing as a way of showing them that they are incompetent and leaves them feeling inadequate. Of course, this was likely not the intention of the employer. Outsourcing pushes down salaries significantly.

Many other questions may need to be addressed if an organization decides to venture into another country. Certain laws that are being adhered to by the organization in another country may not be applicable or acceptable in their country of origin. Other key ethics questions that come into focus when a company opts for offshore outsourcing include environmental pollution standards that may be more lax in the host country than in the company’s home country.

Daven Michaels Author of the book Outsource This!

Outsourcing of business processes is an organizational practice wherein a company solicits a third party to conduct various activities on its behalf. This solicitation is usually done under contract to a company that either specializes or has the technical know how to best perform those particular activities. Though outsourcing has been around for years; initially existing mostly as accounting outsourcing, its use has only recently become wide spread. This can be attributed in part to the dynamism of the business environment and the continuous pursuit for higher profits at lower costs.

The main goals in outsourcing of business are to reduce operational costs and focus on meeting the primary objectives of the organization. As a result the activities that are outsourced include operational activities such as billing, payroll and customer service call center services. To get a clear view of business process outsourcing, it can be separated into two categories; front and back office outsourcing. The first deals with activities that cater to the consumer while the second deals with processes that deal with employees and internal office operations.

Outsourcing of business in front office, includes activities such as advertising and marketing, consumer service and technical assistance through call centers. Outsourcing of such activities has the positive effect of improving the organization’s bottom line however in some cases it negatively affects them by tainting their customer’s perception of them. Examples of outsourced activities that turn consumers in the USA off are the offshore call centers. Outsourcing technical assistance to foreign countries drastically cuts operational costs but it also increases customer dissatisfaction. Most consumers in North America argue that these offshore center employees are not only hard to understand; due to heavy foreign accents but are also not much help; as the assistance they give is often scripted.

The second category in outsourcing of business processes deals with activities such as logistics, human resource, job recruitment, insurance, credit analysis and collection services. By using this technique organizations can reduce the number of departments they have and in relation personnel. Thus management of the company becomes easier and they can retain a pool of capital that can be utilized for speculative purposes. As competition becomes stiffer and companies are forced to find new profit generating ventures, outsourcing is becoming more of a competitive strategy than an operational option. As with most organizational practices though there are proponents and opponents.

Proponents of outsourcing of business not only argue the improved bottom line but also enhanced services as most of the offshore locations they outsource to have a large base of cheap labor more qualified than their counterparts in the home country. Opponents on the other hand argue that the only benefits of the practice are to the organization and that the job seeking public and consumers do not receive adequate consideration. Unfortunately these criticisms have influenced government legislation and taxation that may eventually reduce the benefits of the practice.

Daven Michaels Author of the book Outsource This!

As opposed to trying to develop all business applications in house, using a software outsourcing company is the way to go for businesses that want to make more profits and offer their clients excellent service. The contracted organization is likely to frequently upgrade its technical knowledge base to be able to keep up with the competition. This is important given that the current business environment requires that organizations be fast paced and efficient. And since technology is ever changing, businesses may not always be able to have employees that have the necessary skills to develop world class software solutions.

Training employees may seem worthwhile at the onset but this will only end up eating into the organization’s capital. All this is what makes software outsourcing increasingly attractive. That said, software outsourcing can be a complex process despite its numerous advantages. It would be wise to select carefully your software provider to get the desired results. Before engaging the services of a software outsourcing company, always ask for work samples beforehand. It is always advisable to look into any references provided so as to assess the quality of work the company does. Make sure that the company keeps up with changing technology trends. The software business is indeed growing at a fast rate. Knowledgeable software professionals are being sought after by business owners, both small and large and this increases the level of remuneration such professionals demand.

In the past, a software outsourcing company was not that common a form of business. However, this has changed as more people see the massive opportunities. The market will always need new software to keep with the ever evolving demands of their clients and the competition. And this advantage applies to both small and larger companies. Despite the size of the company, an organization will almost always benefit greatly from contracting its software requirements as it saves on time and money. Even major software houses such as Microsoft outsource a substantial proportion of their software development projects. This way, the company is able to make huge returns for shareholders by cutting down on expenditure while not compromising on product quality.

All this notwithstanding, it would be important to note that the stability of the software outsourcing company is important for software outsourcing to succeed. An unstable company has direct repercussions on the timely delivery of a high quality finished product.

Daven Michaels Author of the book Outsource This!