Information Technology Outsourcing - Research Paper Example

International Economics – Outsourcing Why Outsourcing Occurred Outsourcing is a process through which a company obtains services or inputs from a corporation outside of the organization. This form of outsourcing has been practiced for many years by organizations in the United States, and happens when a company has another business execute some tasks for it because the other company can perform it for a lower price or some other reason. Some off the tasks commonly outsourced include legal practices, part manufacturing, and accounting practices. Normally, the other company has a comparative advantage in that job which makes outsourcing profits both sides. Offshore outsourcing (international outsourcing or off-shoring) is a process through which a company obtains services or inputs from a company in a foreign nation. The aim of offshore outsourcing is the transfer of services or goods between nations. Across, outsourcing has matured or grown and become an increasingly complex means of carrying out public services. The private sector has not been left behind in the practice of outsourcing. The origin of outsourcing is linked with the crude materialization of the 1980s when majority of the large-scale public segment outsourcing projects started to take place. In the 1980s, outsourcing occurred generally in the form of blue-collar tasks such as waste collection and grounds maintenance. Much emphasis was put on the lowest cost provider, and this is the individual who won the contract. In the United States, the off-shoring trend in the service sector became significantly prominent in the late 1990s. Between the year 1997 and 2000, various public services including the white-collar roles were exposed to serious competition. The notion of competition became dictated by the best value rather than just the lowest cost. Best value is an equation, which includes both cost and service quality. It is worth noting that outsourcing was initially viewed as a way of reducing cost, passing clerical and low-level consumer contact duties to other businesses or nations. This happened at a time when industries had to go overseas to cater for the IT labor shortage caused by the excessive workload experienced in 2000, and the dot-com economy boom. This was enabled by advances in IT and influenced by the large cost savings, and thus, companies continued to offshore labor demanding IT services like low level coding and legacy software maintenance. At the moment, complex IT tasks such as XML, software management, software design, web applications development, and software architecture are going offshore. Additionally, an increasing number of United States companies are shifting their IT enabled business services (also referred to as Business Process Outsourcing) abroad. Insurance firms, credit card companies, utility providers, airlines, mortgage lenders, and banks are among the companies that offshore outsource business practices such as low level processing, telemarketing, accounting, procurement, help desks, human resources, collections, customer call centers, and data entry. It is worth noting that concerns about job security had grown “due in part to increased global economic integration since the early 2000s, when off-shoring started spreading from the jobs of blue-collar manufacturing workers to those of white-collar service sector workers”. White-collar workers entail the majority of United States workers and most of them are employed in the service sector, which accounts for a major portion of United States jobs. This indicates that many people believe that their jobs are at a risk of being moved overseas if the organizations that they work for opt to offshore some of their services or activities. The Current Status of Outsourcing Along With Its Trends A new trend is emerging in the service industry; the increase in offshore outsourcing. Prior to the previous decade, it was not common for developing nations like India or China to export high-skilled or high-valued services. Researchers have offered several reasons for the recent growth in off-shoring services, especially with respect to Information Technology. These reasons include openness to trade, the advent of innovative technologies, globalization of finances, minimization of entry costs globally, improvements in telecommunications, declining tariffs, technology changes, deregulation, lower production costs in foreign nations, fewer barriers to trade, a huge pool of skilled English-speaking individuals in other nations, cost savings that happen, and technological innovation. Finding workers in different time zones permits 24-hour service, a significant benefit that arises from international outsourcing. Corporations have found means to access well-trained and cheap labor forces in other nations. For example, a company can opt to rely on the expert IT services provided by professionals based in India where the cost of labor is much cheaper compared to the United States. Previously, individuals in the service industry had the notion that their jobs were safe due to the necessity of dealing with their customers face-to-face. This is, however, no longer the case today. With the Internet, face-to-face communication is not always a requirement. Workers in these occupations can get the necessary information via advanced communication networks or even through the Internet. The Internet makes the transfer of data easier, and it is more cost effective. Majority of individuals are of the opinion that offshore outsourcing will continue to grow. This will be so as long as workers in nations will be willing and able to work for lower pay than those in the home country. Thus, corporations will evaluate offshore outsourcing as an alternative to increase their competitiveness in the world and minimize the costs of production. It is important to note that as long as comparative advantage is present, corporations will opt for offshore production. Since the year 2000, United States has lost more than 2.7 million manufacturing jobs. 500,000 of the jobs misplaced were in the high tech industries distinguished by the large R&D investment to sales ratios. Majority of them were in the IT industries such as electronics, semiconductor component manufacturing, and telecommunications. Among these high tech manufacturing industries, 28 percent of them disappeared since the year 2000. Most of these jobs went to the foreign nations who are aggressively looking for technological leadership with their industrial incentives, subsidies, and policies. The table and the figure below show the employment in high technology manufacturing industries. It is worth noting that a new form of globalization is eminent in the United States, shifting jobs overseas in services industries that depend heavily on the utilization of information technology. Job losses are affecting both the IT sector and other industries that use IT in their business operations and functions. Various research analysts have made speculative prospects on the intensity of off-shoring. According to the Forrester report, in the next fifteen years, more than $136 billion in wages and 3.3 million United States services jobs will be moved offshore. 473,000 of the total will be jobs related to IT, and this represents 8 percent of the current IT jobs in the nations. The largest outsourcing levels are anticipated in customer service, call centers, and software development. Another research analyst Gartner estimates that 5 percent of all the IT jobs will move offshore (Lieberman 11). According to Kirkegaard, some specific high-tech jobs have undergone significant job losses in the past few years. The trend is common in the relatively low-wage and low-skilled IT occupations or those dominated by the economy-wide trends. Some of the jobs commonly off-shored to countries like India and China in the IT sector include data entry, web design, computer programming, print ads design, online marketing, and graphics design, the list being endless. Should Outsourcing be Prevented? Whether outsourcing should be allowed or prevented, has attracted considerable attention from the policymakers, businesses, and the public. However, it is vital to appreciate the factors that make organizations consider offshore outsourcing alternatives. The main factor is the continued pressure to reduce costs linked with IT while at the same time improving and maintaining processes. Therefore, the availability of cheap but qualified resources in other nations makes offshore outsourcing an attractive alternative to these client organizations. Another important factor is the absence of IT resources to do certain IT duties. Thus, organizations seek foreign nations to gain access to valuable IT assets and knowledgeable when they encounter unavailability of trained professionals. There are those who oppose and propose offshore outsourcing. Generally, those who support offshore outsourcing argue that it reduces capital and labor costs. Outsourcing results in (a) better use of time, for instance, nighttime in the United States corresponds to work in India, (b) high quality (this is due to the high motivation to succeed and an educated workforce), (c) easy coordination (because of knowledge in foreign languages such as English and local supportive legislation). It also leads to the liberation of the outsourcing company to focus on its main business. Those opposing offshore outsourcing argue that it has contributed to record levels of unemployment among American computer engineers, electronics, and electrical. They further argue that it poses a long term and a very serious challenge to the United States’ leadership in innovation and technology, its military, homeland security, and economic prosperity. From both sides of arguments, it is evident that offshore outsourcing has benefits and disadvantages to the nation, companies, and the public. However, offshore outsourcing should not be prevented because of the benefits it has to the companies and those offering outsourcing services. Works Cited Bennatan, E. M. “Two Positions: The Offshore Outsourcing Debate.” The Cutter Edge, 20 Dec. 2005. Web. 14 April 2012. George, B., Hirschheim, R., & Wong, S. F. Information Technology Outsourcing: The Move towards Offshoring. 2004. Print. Goldwag, Wanda. “Why Recruitment Outsourcing Is Growing In Importance.” HR, 1 June 2010. Web. 14 April 2012. Kirkegaard, Jacob F. Outsourcing – Stains on the White Collar? Institute for International Economics, 2004. Print. Leeder, Adam. “Sorting Out Outsourcing: What It Is, And What It Isn’t.” The Business Services Association 2 (2011): 1. Print. Levine, Linda. “Offshoring (Or Offshore Outsourcing) and Job Loss among U.S. Workers.” Congressional Research Service (2011): 1-17. Print. Lieberman, Joseph I. Offshore Outsourcing and America’s Competitive Edge: Losing Out in the High Technology R&D and Services Sectors. Washington, DC: United States Senate, 2004. Print. VanderWeerdt, Gwyn. “Analyzing the Debate over Offshore Outsourcing in the Service Industry: Is There a Reason for Concern?” Major Themes in Economics (2006): 11-25. Print. Appendix 1: Table 1: Employment in the high technology manufacturing industries Source: Lieberman Appendix 2: Employment in the high technology manufacturing industries Source: Lieberman 9 Read More