Outsourcing became a catchphrase in business areas in the 1990s. It was a well appreciated addition to the business lexis This market comprises 9 business functions of human resources, procurement, finance and accounting, customer care, logistics, engineering/R&D, sales and marketing, facilities operations and management and training. Outsourcing is a corporate strategy that companies adopt to enhance competitiveness of the company. By outsourcing non-core part of business operation and only concentrating on the core competence, companies can increase the productivity and efficiency in management.
Outsourcing as strategy is not new. Some examples of Outsourcing, such as GM and EDS, Xerox and EDS, Kodak and IBM, are more than a decade old. Over the years, the scale and scope of Outsourcing has evolved considerably. It has also migrated from primarily Fortune 500 companies to large and midsized companies.
Since the 1970s, many Western companies began manufacturing products in offshore locations such as Japan, Korea, Thailand, and Taiwan. Despite the relatively high cost of transporting the goods by sea and air, it was cheaper to make them in the Far East (and in Mexico after the NAFTA treaty) than to keep manufacturing in the United States or Europe.
Most companies are now adjusted to manufacturing being done offshore. What took place in manufacturing is now occurring in back-room processing and services. Ten years ago, if anyone had boldly predicted that by 2003 we would begin to see back-room service centers and call centers housed in India or the Philippines, they would have been laughed at. How could high-touch customer service agents who interact directly with customers work halfway around the world? The cost would be prohibitive given that monitoring the agents would be impossible and every call would be international.
Manufacturing and service outsourcing have changed over the years. It is a macroeconomic trend to which every company needs to react. If your competitor can make a product and provide associated services for less than you, then you need to follow, or risk being put of out of business.
Although initially low-skilled jobs such as manufacturing, call center, and computer coding were shifted abroad, as more companies expand their offerings into outsourcing, new functions like human resources and knowledge skills like technology are being outsourced. As the worldwide migration continues and the movement overseas matures, more high-skilled jobs such as accounting and engineering will likely be sent abroad.
As functions are outsourced, more standards in processes are created. Just like in ERP where business processes such as finance and manufacturing were standardized, a similar thing will happen in HR, logistics, and accounting processes. Also new technologies such as Business Process Management and self service portals will help accelerate the push to outsourcing.