- Business and Employment
History of Offshoring
At some point we will have equalization, where an employer will be indifferent between hiring someone in Bangalore or Chicago. - Paul Kasriel
Enyclopedia Britannica defines Off shoring as - the practice of outsourcing operations overseas, usually by companies from industrialized countries to less-developed countries, with the intention of reducing the cost of doing business. Chief among the specific reasons for locating operations outside a corporation’s home country are lower labour costs, more lenient environmental regulations, less stringent labour regulations, favourable tax conditions, and proximity to raw materials.
The aim of every business is to make profits and to cut costs. Ever since firms have been in the business of ‘business’ they have been constantly finding newer ways to increase their profit margins. Off shoring has been a result of nothing else but these innovative ideas that led to the trials and experiments of cutting costs by dissecting core and non core work. What the firms really do is define those tasks that are not what they essentially do, but do as a requirement to their core business processes. That secondary work then is given to other firms for whom it becomes the primary or core business.
Off shoring as a practice is not new. It has been happening for a long time. The modes of off shoring and the complexity of the model have undergone significant changes. Earlier it was something as simple as imports and exports. The question asked was -Why import goods when we can produce them ourselves? All that firms had to do was up skill, learn, adapt or even copy and start doing the work themselves, so that the higher import costs could be avoided. This is what American firms did post the Revolutionary War; they started to manufacture good themselves instead of importing them from England.
Years later America faced a similar situation that England did, when Asian countries started producing those goods at lower costs.
During the 70s and 80s, companies tried various techniques of re engineering and innovation labs in order to cut costs. But later on these methodologies took a new turn, especially during the mid 90s to start of the new millennium where they decided to open an extension arm of their business in other less developed countries. This helped achieve economies of scale as well as ensure a similar culture, work environment and rigour of work practices which was maintained in the new operating facility. Thus was Off Shoring born. These were called Captive Arms or Captive Off shore.
Just like any experiment, the work that was initially off shored was low skilled and transactional work. Later as this experiment gained confidence, success and approval, the level of work off shored also saw a shift from low end to mid and higher end work such as Information Technology support, medical transcription, tax and legal support etc. Basically work that could be done remote and off a computer, could be off shored, it didn’t warrant the worked to be onsite or client facing , the worker could practically be anywhere in the world, it wasn’t really relevant! All of us have experienced, calling up a support center and having absolutely no clue that we were talking to somebody thousands of miles away!
Was it all smooth sailing and easy? No. But what facilitated and helped this trend was the improved infrastructure & technology, better internet connectivity and enhanced modes of communication that also fostered the growth of off shoring higher end work to other countries.
In the year 2000, dawn of a new century- the world was faced with a new dilemma of updating all their computer programs to ensure they were not hit by the Y2K bug. This was a must do and it gave the opportunity to the many software engineers especially in India to carry out these projects for firms all over the world. With English being a commonly spoken language and with labour costs being much lower than in developed countries, Y2K work gave them the chance of displaying their talent and skill in an off shored environment. Since then companies have continued to tap into the many talents and skills (and cost savings) made available by not only Indian but other countries like Philippines, Malaysia, Sri Lanka, Chile, Brazil and other offshore service providers.
2011 Best Outsourcing Advisors:
2. KPMG (Equaterra was acquired by KPMG in early 2011)
4. Kirkland & Ellis
6. Booz & Company
Source : International Association of Outsourcing Professionals (IAOP)
Once set into pace, this industry has grown to dizzying heights. With the rapid rise in demand for work being off shored or near shored, most major business consulting firms started a division that focussed primarily on business outsourcing.
Most manufacturing firms around the world realized that in order to be competitive, they had to cut costs and had to increase efficiency. Many had heard about off shoring or giving out work to third parties but yet were unsure how to go about it. It was a mammoth task to even figure who the major off shoring players were out there, what is the process to initiate talks and how to get into win-win contract agreements. In the last seven to eight years we have seen the rise of Global Outsourcing Advisors such as the TPIs, Equaterra’s and Everests of the world, gain prominence in this very arena.
These firms liaise with the major Off shoring business firms all over the world and keep themselves abreast of the latest and best happening in the off shoring industry, Armed with this knowledge, they can help companies who are looking to offshore some part of their work and help them to do so in a professional, organized and secure manner. For large deals they have dedicated resources who hand hold the firm and take them all through the bidding, contracting, negotiations, transitions and Go Live stage of the partnership. They ensure that the best interests of the firm off shoring as well as the service providers (who take on the outsourced work) is taken into account.
Plethora of books written on the Off Shoring Trend
So where does this all leave us?
Today, we see almost every type of company is looking to off shore and remain competitive. This cuts across industries and is not just restricted to manufacturing companies. Huge retail & pharmaceutical companies, as well as major financial and banking institutions off shore their non tactical work.
The world has shrunk, distances don’t seem as far and globalization has taken a new meaning altogether. Off shoring has facilitated the mixing of cultures, the sharing of experiences, the enhancement of opportunities and the chance for greater interactions between the human race. On the flip side, as this trend has expanded, it has led to bitterness and derangement for those who are part of the unemployed labour force and blame it on the off shoring policies of the business corporation. The argument is twin sided and ongoing. It rather helps for everybody to keep an open mind and try to understand that off shoring is not new, nor is it inherently good or bad. It is the result of economic forces, of competition, of free trade and that it has been thriving in the business world for a long time now.
It is also important to understand that off shoring is not spearheaded by ‘bad cops" in the sense that there are not evil executives high up in the echelons of boardrooms who are racking their brains to find ways to fire people. Though it may also be true that neither are they really bothered about what happens to local jobs which are lost when it makes business sense to off shore especially due to the pressures of global competition. Their sole concern has always been “show me the money”, and it will always be.....