Outsourcing: Past, Present and its Future

Undeniably, outsourcing professional jobs from Western countries to other parts of the globe is by far, the biggest phenomenon that the business world has seen these last twenty years. The rapid development of the technology behind communication has helped make outsourcing expand exponentially. But what paved the way for this so-called business maneuver to take hold among many of its present practitioners? How is this business practice faring today? What will this phenomenon bring the global market in 20, 30 or even in 50 years time?

In its simplest terms, outsourcing is the delegation of jobs from an internal production to an external entity; a process that is somewhat similar to handing out jobs to different subcontractors. Although many companies are outsourcing professional tasks the different service providers within their countries boundaries, the term outsourcing in itself has now come to mean the elimination of the native staff, in favor of utilizing the services of the less expensive overseas work force. Outsourcing can also be defined as the management and execution of an entire business function by a 3rd party service provider.

Brief History

Although many studies have shown that this kind of business strategy was practiced by global companies since 1962, it was only in 1989 that outsourcing became formally identified as such (Mullin, 1996). Hiring subcontractors to do jobs with ancillary capacity may have paved the very ground work for outsourcing practices; and soon, as a safeguard for this new business strategy, companies begun establishing outsourcing support services as well.

By the middle of the 1990s, companies started looking at outsourcing as a way of becoming more cost-efficient. Business functions that were necessary in running a company, but not related to the core business were being delegated with the emerging group of service companies: from accounting, to data processing and even security companies. Other types of service providers catered to delivering assistance in human resources, internal main distribution, plant maintenance, etc.

At the turn of the century, outsourcing also paved the way for offshore outsourcing practices or simply, offshoring. Offshoring may be defined as a relocation of business processes like manufacturing and production to a lower cost location. These locations are usually situated overseas. Unlike outsourcing companies which delegates jobs to different service providers (or utilizes different companies for one or more specific tasks,) offshoring utilizes the same internal structure or internal business organization as the mother company.

Outsourcing Today

Today, outsourcing is one of the most prominently used business strategy in the world. This business phenomenon has created new jobs for many countries - and some of these job vacancies are unprecedented until outsourcing became a substantial force in the market. Only upon the onset of the new millennium are managers and engineers finally outsourced. There is now room for work force that can generate weekly activity reports, weekly update reports, all to answer the specifications of an evolving market. Auxiliary tasks like customer support, technical support and front desk services are also being outsourced.

Many companies now are subscribing to outsourcing for a variety of reasons. However, the primary cause seems to lean more on a companys desire to cut costs or at the very least, to streamline the companys expenses. Others prefer handing out auxiliary tasks or jobs with ancillary capacity so that the mother company can focus its energy on running its core business. Other small companies rely on outsourcing in their bids to access skills and technology which may be otherwise unattainable to them due to financial or time restraints.

However, outsourcing in itself is often plagued with its own set of problems. Although this business strategy is often used as a cost-saving device, there are still considerable transaction costs to contend with. There are also emerging problems when it comes to confidentiality and privacy of company matters, as well as infringement of intellectual property rights. These are but a few of the problems when it comes to hiring human resources overseas. On the other hand, there are also incessant rumblings about how outsourcing deliberately affects the unemployment rate in the western countries when jobs are shipped overseas.

A Future Market for Outsourcing

These days, market analysts are predicting that ASP or Application Service Providers will come to its own in the future. Already, there are growing numbers of ASP with companies practicing outsourcing methods. ASP can offer deployment and management of application through the Internet or some other private network on a monthly or per-user basis. Basically, it provides software as a service driven by the Internet, helping IT infrastructure markets and software program markets converge. Examples of this technology include: application monitoring, data centers, customer support from consulting firms, connectivity offers to and from hosting companies, hardware monitoring, software applications created by independent software vendors, system implementation created by system integrators, telecommunication providers, etc. ASP offers these advantages over outsourcing: ease of use, faster marketing time, IT expertise, and of course, lower fees and expenses.