First of all what exactly is outsourcing? Perhaps the simplest definition was given by Wiktionary, which says: “The transfer of a business function to an external service provider.”
These days, it seems unavoidable for companies to outsource a number of jobs. But is outsourcing a new concept? History will show that outsourcing has been around for many years. In fact, from 1750 to 1900, during the Industrial Revolution, there was a need to outsource jobs because of the high demand for the production of goods.
In the middle of the 20th century, with the invention of faster means of transportation, outsourcing became more common. Education and skill levels of workers have increased in developing countries thereby increasing outsourced job opportunities.
The 1990s brought on the IT revolution and this made it essential for big companies to outsource jobs. These included human resources, accounting and data processing. Today, most western companies outsource to eastern countries like India, Bangladesh, Pakistan, China, the Philippines, etc.
So, why do companies outsource? Different companies have different reasons for outsourcing jobs. But these are the most common:
1. To reduce company costs
This is perhaps the most obvious reason why western companies outsource. There is a wage gap between industrialized and developing countries. Since the cost of living in third world countries is lower, it is reasonable that service providers from these countries will accept what is seen by Americans or Europeans as low paying jobs.
2. To put more focus on the company’s core business
For example, an insurance company’s main focus is its clientele. It is a customer-centered service. In order to be able to focus on its customer service, it will outsource its IT support. While most transactions utilize computers, the company can still concentrate on giving excellent service to the clients without having to worry about computer or technical breakdown.
3. Access to a larger talent pool
Outsourcing provides businesses with a larger talent pool. There have been a number of cases where western companies have discovered highly skilled computer programmers, engineers, web designers, etc. in other countries.
4. Tax Benefits
Some developing countries offer tax incentives to western companies to move their manufacturing operations in order to counter high corporate taxes in their own country.
5. To have more leisure time
Some businesses outsource work so that their employees can optimize their work-leisure balance.
These are the most common reasons why businesses outsource jobs. These reasons seem to bring out only positive things from outsourcing. But, hold on. Outsourcing also has its share of problems. That is why you have to weigh things before making a final decision whether you will outsource or not.
