What Does IT Outsourcing Mean?

Internet it outsourcing


In the 1990s, the global phenomenon that was the internet began to change the world in many ways. One of the biggest changes was in the way that people worked. Many companies in the advanced countries like the USA and Europe began to assign jobs electronically to ‘telecommuters’ who did the job on their PC at home and sent back the end result the same way. This worked for the mutual benefit of both the companies and employees. But as the labor costs and other costs, such as social security, taxes and Medicare, ate into the profit margins of the US companies, they began to look elsewhere to reduce the costs. And their eyes fell on developing countries India and China which were just opening up and had a large pool of skilled IT workers that they didn’t know what to do with. This was the beginning of IT outsourcing that soon turned into a multi-billion dollar business.


Outsourcing must not be confused with off shoring as these two words stand for entirely different things. Outsourcing means contracting out a business function or process to a company or worker based in another country. For example, when a software company in the US gives a software company in India a contract to build a component of a computer program, it is known as IT outsourcing. In this case the component that has been contracted out becomes the complete responsibility of the foreign contractor. Usually companies contract out only non-core components of their business to foreign contractors so that they can concentrate on the core components. Besides ensuring the quality of the final product, this ensures that the company’s secret remains safe with the company. Off shoring, on the other hand, means relocating a function or a process to another country. For example, when a US based company shifts a part of its manufacturing process to China by opening a plant there, it is called off shoring.


Many US and European companies outsource everything from data entry to call centers to software components and web contents because it helps them cut cost on high employee salaries in their own country. In the US, companies are also required to dole out social security, medical care, taxes and safety protection for domestic employees. With foreign-based contractors, they are totally free of these obligations. Also, educating and training in the US costs a fortune, while the same costs only a fraction of what they would cost in the US. And, of course, foreign contractors can always be dropped if they fail to provide quality work or are in breach of contract. The same cannot be said about domestic employees.


IT outsourcing is not only beneficial to domestic companies, it is also beneficial to foreign countries because it provides employment to the large number of university graduates who would otherwise be unemployed, and because it brings in the much needed dollar. This is what riles the opponents of outsourcing in the US who accuse companies that outsource IT jobs of taking the job away from domestic worker because of their greed. But what must be understood is that by making products and services more affordable, these companies are actually making life easier for domestic consumers.

Be the first to comment - What do you think?  Posted by admin - August 21, 2012 at 11:13 am

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Weighing in on the Pros and Cons of IT Outsourcing

When the internet became a global phenomenon in the late ’90s, many US and European IT companies discovered that they could cut down cost by almost half by outsourcing the non-core components of their production and services to companies in the less developed but rising Asian countries like India, China and the Philippines. This resulted in a huge profit margin that made the shareholder happy and clamoring for more. Thus began the trend of IT outsourcing that soon turned into a multi-billion worldwide business.


There were a number of reasons for this. The first, of course, was the abundance of qualified but cheaper workforce. By this time, Asian countries like China and India had produced IT workers who were able to provide the same quality of work that US and European workers could produce at half the cost. In addition, US companies found that IT outsourcing could save a lot of money on social security, Medicare, safety protection and taxes that they had to provide to domestic workers, but did not have to provide to their employees in Asia. They also found that it cost much less to train and educate foreign workers in their own country.


The situation remains still the same despite the fact that in the following decade both US and Europe went through a deep recession while many Asian countries moved forward by leaps and bounds. But this may be the preceding sentence should be rephrased as ‘because of the fact’ instead of ‘despite the fact’. The very misfortunes that the US and European economies have suffered could be the number one reason that companies in these countries had to resort to IT outsourcing. The focus may have shifted from one developing country to another, but the number of companies outsourcing their products and services is still growing. However, lately voices are being heard, especially in the US, against outsourcing to safeguard the jobs of domestic workers. To understand whether the voices of dissent are justified, let’s examine the pros and cons of outsourcing:


Pros of Outsourcing:


  • Companies are able to provide products and services to customers at a cheaper price.


  • The companies have a larger profit margin which makes the employees and shareholders richer.


  • The cheaper prices allow customers to make more purchases which ultimately help boost the country’s economy.


  • By outsourcing the non-core component of their business, domestic companies can focus on the core components and increase their productivity and profit margin.


Cons of Outsourcing:


  • The biggest complaint against outsourcing is that the job that could have put food on the table of a domestic worker goes to a worker in a foreign country which may not even be supportive of the US in the international arena.


  • The outflow of work and money (in wages, salaries, allowances and bonuses) hurts the country’s economy in the long run.


  • When companies provide foreign companies/workers with passwords to their accounts, they may become victims of fraud.


  • The political situation in foreign country may disrupt production and services causing huge losses to the outsourcing companies.

Be the first to comment - What do you think?  Posted by admin - May 24, 2012 at 3:30 am

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