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Firms in the United States or the United Kingdom usually gain from the lower wages in the LCCs, which are 40% to 60% below the prevailing rates in the United States and the United Kingdom.Firms evaluate outsourcing to determine if the current operating costs can be reduced and if saved resources can be reinvested in more competitive processes.
Broadly, the form of outsourcing can be any or a combination of the following depending on the vendor location: Most of the initial outsourcing happened in manufacturing sector when automobile and apparel manufacturing companies used companies in China and Far East Asian countries to manufacture relevant components and accessories for their end products. However, the recent advances in telecommunication and information technologies have enabled the possibility of outsourcing even “white-collar” tasks.
Today India is a leading destination for outsourcing IT and business process outsourcing (BPO) work.
The most frequently cited benefits of IT outsourcing include cost reduction, service-quality improvement, and the ability to focus on the core business.
Cost reduction is an immediate benefit that many outsourcing companies are able to achieve.
In addition to cost reduction, service-quality improvement, and focus on core business, the following reasons are usually cited as possible reasons for outsourcing IT services: One often finds that even large companies that have efficient and innovative IT departments (examples include Dupont, British Petroleum Exploration, Lufthansa, Swiss Bank Corporation, and J. Morgan) and are large enough to provide the same scale and specialization benefits as an outsourcing vendor are nevertheless engaged in significant outsourcing deals.
There are two reasons for the advances that support the rationale for outsourcing by such large firms.
Today, the outsourcing of software services has become a standard business practice in organizations rather than an exception.
The Outsourcing Institute’s survey of 1,200 companies indicates that 50% of all companies with IS budgets of million or more are either outsourcing or evaluating the option of outsourcing.
Some are summarized here: Though organizations initially outsourced only what can be considered support (noncore) activities, the scope of activities has now significantly expanded to include what can be considered core activities as well.
This paper is structured in eight broad sections dealing with the following topics: different types of outsourcing, outsourcing of information technology (IT) and related services, IT outsourcing to India, advantages of outsourcing to India, evolution of outsourcing to India, trends in Indian IT off-shoring, and outsourcing to India in non-IT-related areas.