Advantages of outsourcing
|Advantages of outsourcing|
Outsourcing is a practice of contracting with a third service provider for the management and execution of a certain amount of work, regarding specific time, cost and level of service; the practice is usually associated with IT services, however, today everything is being outsourced from different parts of the world, including payroll, HR management, information technology, research, development and engineering tasks.
The growth of global outsourcing has been associated with many benefits, such as:
- Skilled yet low-cost labor
- Reduce the time-to-market
- Development of telecommunications industry
- Investments in infrastructure and stabilized growth of economy in an outsourced country
- Concentration on a core business which contributes to significant competitive advantage
- Greater flexibility in terms of scale and scope of production in response to changing demand
- Third-party expertise, innovative solutions and global connections
The Economic Argument
We can justify outsourcing both by judging current market forces and social trends and by proposing an economic theory of comparative advantage by D. Ricardo, which states that:
- Trade occurs due to differences in (production) technology
- Trade is advantageous to both sides
- Even a technologically inferior country can benefit from free trade
- A developed country can compete against some low foreign wage countries
Thus, Polish and Indian workers are not as well paid as American workers; they can still compete in the market; and both parties can benefit from the exchange of services. Moreover, a country which can produce a product (for instance- IT services) at a lower opportunity cost than the other country, is believed to have a substantial advantage in the production of that product or service.
Outsourcing in India
India with its staggering 7.4% GDP growth, third largest education system producing 3.1 million graduates from various engineering and IT fields, and 4.75 million young, English-speaking professionals entering a workforce every year has been the most popular outsourcing country since the 90s. In this particular period of time IT companies followed previously outsourcing global airlines and starting to settle in India, which lead transitional companies to rapidly globalize at a very low cost, and, consequently, the Indian government began efforts to open up to the world by starting easing restrictions, liberalizing economy, involving state governments, and allowing privatization - particularly of a telecom industry - which has become a major contributor to the growth of Indian economy. Over the years of rapid growth and infrastructure development, BPO has become the second largest yet fastest growing segment in Indian IT/ITES industry, contributing to the compounded annual growth rate (CAGR) of the outsourcing industry of approximately 25%(main components: IT services, BPO, Engineering Services and Hardware).
Today, Indian companies offer wide variety of outsourced services, including biotech research, tax processing and telemarketing in top cities such as Bangalore, Chennai, Hyderabad, Delhi; being a profitable experience for many companies, the trend is expected to hold despite a current uncertainty of world economy.
Outsourcing in Poland
Due to a steady economic growth since 2008 crisis and post-communism trend for IT and engineering studies, Poland has risen as a strong competitor on an European market, scoring high in international rankings; its popularity has been growing mainly due to highly skilled workforce (3rd best developers according to HackerRank) and estimated 15k Polish IT graduates entering the market annually. Low costs of professionals with good English skills have been attracting many investors, including 7ninjas or Euvic, who has been encouraged by special economic zones and high EU standards of data security.
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- Appelbaum SA Samaha, (2011), 'Business Process Outsourcing: Lessons From Case Studies In India, Poland, And Canada' 4 Journal of Business Case Studies (JBCS)
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- Raghuram S, (2009), 'Outsourcing In India: The Past, Present, And Future' 4 Journal of Asia Business Studies
- 'India's Outsourcing Destinations - Outsource2india' (Outsource2india.com, 2018) <https://www.outsource2india.com/india/india-outsourcing-destinations.asp> accessed 18 November 2018
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- Ungurianu A, 'Top 5 Reasons For Outsourcing In Poland - ITSG Global' (ITSG Global, 2018) <http://itsg-global.com/top-5-reasons-outsourcing-to-poland/> accessed 19 November 2018
Author: Ewa Jackowska, Jacob Elisson, Manpreet Kaur, Dakshay Kumar