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Outsourcing business models

Page history last edited by PBworks 12 years, 6 months ago


Outsourcing Business Models


 see also, our general discussion on Outsourcing





Outsourcing popular in tech startup community


There is an increasing trend even among the smallest of startup companies to outsource talent to emerging markets such as India, Argentina, Mexico, and Eastern Europe.   See more in our coverage of innovation clusters





Is your job threatened by outsourcing?

maybe not as much as you think...


Despite much concern, the US software sector has so far not relocated to India and has in fact thrived in global competition in recent years. Recovering from the collapse of the Internet bubble, US total software employment at 1.2 million jobs in 2006 surpassed its erstwhile 2001 peak, while the unemployment rate for US software workers returned to the 2–3 percent range in late 2005. It has since remained at this low level, normally associated with full employment.



Recent anecdotal data suggest that salaries for top Bangalore-based software engineers have risen from 20 to 75 percent of US levels in just two years from 2005 to 2007. Given this rapidly declining wage differential and the fact that thousands of US-based high-skilled software positions are available, the present and future labor market for US software workers in the global economy seems secure.



Considering that many less-skilled US workers, for instance, in the manufacturing sector, face genuine hardships—the loss of both job and employment security—as a result of rapid technological innovation and increased global competition, it seems improbable that high-skilled US software workers would have any credible claim for scarce congressional attention or support.



>> Read full op-ed






Wikipedia on "Outsourcing":


Outsourcing entered the business lexicon in the 1980s and often refers to the delegation of non-core operations from internal production to an external entity specialising in the management of that operation. The decision to outsource is often made in the interest of lowering firm costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of worldwide labour, capital, technology and resources. Though often used interchangeably, outsourcing differs from offshoring in that outsourcing is relative to the restructuring of the firm while offshoring is relative to the nation(see below), though the two are not mutually exclusive, especially under conditions of globalization. Fundamentally and historically, outsourcing is a term relative to the organisation of labour within and between societies.


Business segments typically outsourced include information technology, human resources, facilities and real estate management, and accounting. Many companies also outsource customer support and call center functions, manufacturing and engineering. Consequently, a debate has ensued concerning the benefits and costs of the practice


Benefits of outsourcing


It is apparent that many organisations today are making the decision to outsource. In today’s global marketplace outsourcing has made itself accessible to many organisations on a National and International level. Offshore outsourcing has provided many businesses with the opportunity to harvest the benefits of lower labour costs and to exploit the value of less than par foreign currencies. Through outsourcing, companies today have the ability to develop competitive strategies that will leverage their financial positions in the ever competitive global marketplace. Outsourcing is also successful in increasing product quality and/or substantially lowering firm and consumer costs (e.g., increases the quality to cost ratio). Because outsourcing allows for lower costs, even if quality reduces slightly or not at all, productivity increases, which benefits the economy in aggregate. Outsourcing can also present advantages to non-Western states. "Developing" countries, such as China or India, benefit from the patronage of companies that outsource to them - in terms of increased wages, job prestige, education, and quality of life.


Some of the major advantages that today’s organisations can expect to obtain through outsourcing include the ability to purchase intellectual capital, to focus on core competencies, to better anticipate future costs, to lower costs. Overall outsourcing is viewed by many organisations as a strong business tactic that ultimately is a superior economical approach to developing products and services.




The advent of the Internet has created new opportunities for freelancing, particularly for software developers from countries with low average salaries. A number of websites have become bustling marketplaces for farming out software development projects to freelancers at rates generally considered rock-bottom by Western standards. Such websites typically provide a convenient central forum for posting job requests, rating and documenting history to judge potential buyers and sellers, an escrow system to protect participants from fraud, and arbitration in the event of disagreements between the coder and the buyer. The system for setting prices is usually organized as a reverse auction.









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