the syllabus says: Explain the role of ICT in the growth of international outsourcing.
Key terms: What is outsourcing?
Outsourcing - The process of taking internal company functions and paying an outside firm to handle them.
Offshoring - Transferring parts of company operations overseas while keeping them within the company.
Call centre - A centralised location (usually a single office building) used for the purpose of receiving or transmitting high levels of phone calls.
Subcontracting - The process of outsourcing part of your business operations to another company
ITO - Information Technology Outsourcing. The outsourcing of IT activities such as software design.
BPO - Business Processing Outsourcing. The outsourcing of business processing activities such as insurance claim processing and accounting.
Voice - Outsourcing of telephone calls e.g. customer services phone lines
Captive - The outsourcing of activities to a wholly owned subsidiary. In practice this means that the work is sent to an office in a country where labour is cheaper, but skills are still high.
Offshore outsourcing - the practice of hiring an external organisation to perform business functions abroad, rather than a captive.
Outsourcing - The process of taking internal company functions and paying an outside firm to handle them.
Offshoring - Transferring parts of company operations overseas while keeping them within the company.
Call centre - A centralised location (usually a single office building) used for the purpose of receiving or transmitting high levels of phone calls.
Subcontracting - The process of outsourcing part of your business operations to another company
ITO - Information Technology Outsourcing. The outsourcing of IT activities such as software design.
BPO - Business Processing Outsourcing. The outsourcing of business processing activities such as insurance claim processing and accounting.
Voice - Outsourcing of telephone calls e.g. customer services phone lines
Captive - The outsourcing of activities to a wholly owned subsidiary. In practice this means that the work is sent to an office in a country where labour is cheaper, but skills are still high.
Offshore outsourcing - the practice of hiring an external organisation to perform business functions abroad, rather than a captive.
Where does outsourcing occur?
Outsourcing mainly occurs from high income countries to other HICs or to MICs. The map below shows the distribution of manufacturing outsourcing worldwide.
Outsourcing mainly occurs from high income countries to other HICs or to MICs. The map below shows the distribution of manufacturing outsourcing worldwide.
The map below shows the outsourcing of services. A 'centre' refers to locations where outsourcing occurs (such as cities) rather than individual offices. Source. The services that are commonly outsourced are:
- IT Support
- IT Security
- 'Back office' activities such as accounting, insurance, data processing
- Call centres (sales, customer support, customer relations)
To find further information about why it doesn't go to other places, see this page about Africa.
Index of outsourcing: the AT Kearney Global Services Location Index
This index is produced by the AT Kearney Group, who also produce an index of globalization. The graphic below shows the countries that have the most outsourced work worldwide. Source (see Page 2 of report)
It is notable that the top nine countries are developing countries i.e. not HICs.
This index is produced by the AT Kearney Group, who also produce an index of globalization. The graphic below shows the countries that have the most outsourced work worldwide. Source (see Page 2 of report)
It is notable that the top nine countries are developing countries i.e. not HICs.
Why outsource?
Companies who outsource do so for several reasons:
The video below uses the term outsourcing, but in most cases it is really referring to outsourced offshoring. It summarises the benefits in five points:
Companies who outsource do so for several reasons:
- To reduce costs
- To improve quality of service
- To access and benefit from outside expertise
- To avoid training costs
- To focus on core business
- To improve choice
- To reduce risk (less investment, less direct employees)
- Avoid pay health insurance, pension contributions, etc. for workers
The video below uses the term outsourcing, but in most cases it is really referring to outsourced offshoring. It summarises the benefits in five points:
- Focus on core values (not having to do things that distract from the main point of the company)
- Getting high value talent and skills into the company, without having to employ them directly or for long periods
- Reducing costs, through lower labour costs and tax incentives
- Maintain high service e.g. a 24 hour call centre
- Keep up with technology without having to invest directly
Countries are attractive to companies who want to outsource if they fulfill the following requirements:
- Improving internet speed, capacity and reliability (especially important for ITO)
- Improve language skills of workers especially in English
- Improve IT skills and understanding
- Train workers in culture and customs of potential customers home countries
- Ensure reliable telephone connections
- Offer 24 hour service - important the contracting company is in a different time zone or even hemisphere.
- Offer a high quality service cheaper than potential customers can provide themselves
India: Outsourcing capital of the world
The following information is taken directly from the Greenfield Geography.
India is located in South Asia and according the 'Global Services Location Index' is the most attractive location in the world to locate global services, including IT. Although New Delhi is the capital of India and Mumbai its financial centre, it is actually Bangalore (Bengaluru) that has become its most important IT centre. Bangalore has a population of 8.4 million and is known by some as the 'Silicon Valley of India'.
Bangalore is found towards the south of India. It has a new international airport (Bengaluru International Airport) that opened in 2008 and it has quickly become India's fourth busiest airport. The city is also in the process of building a 42km (41 station) rapid transit system and the city is also connected to the Indian national railways system. The city also has an extensive bus network and an improving road network.
In recent years Bangalore has become India's most important centre for hi-tech industries. The government has aerospace, defence, IT, software and telecommunication research facilities based in the city. This has meant that Bangalore has enjoyed sustained growth nearing 10% per annum and now has India's third highest GDP per capita. As well as enjoying domestic investment, Bangalore has also enjoyed FDI.
Bangalore's BPO clients now include; Reuters, HSBC, Dell, JP Morgan and Citi. Their ITO clients also include Microsoft, Google, Yahoo, Cisco, Samsung, Motorola and Intel.
Bangalore has managed to attract FDI and become home of IT outsourcing for a number of reasons including:
The following information is taken directly from the Greenfield Geography.
India is located in South Asia and according the 'Global Services Location Index' is the most attractive location in the world to locate global services, including IT. Although New Delhi is the capital of India and Mumbai its financial centre, it is actually Bangalore (Bengaluru) that has become its most important IT centre. Bangalore has a population of 8.4 million and is known by some as the 'Silicon Valley of India'.
Bangalore is found towards the south of India. It has a new international airport (Bengaluru International Airport) that opened in 2008 and it has quickly become India's fourth busiest airport. The city is also in the process of building a 42km (41 station) rapid transit system and the city is also connected to the Indian national railways system. The city also has an extensive bus network and an improving road network.
In recent years Bangalore has become India's most important centre for hi-tech industries. The government has aerospace, defence, IT, software and telecommunication research facilities based in the city. This has meant that Bangalore has enjoyed sustained growth nearing 10% per annum and now has India's third highest GDP per capita. As well as enjoying domestic investment, Bangalore has also enjoyed FDI.
Bangalore's BPO clients now include; Reuters, HSBC, Dell, JP Morgan and Citi. Their ITO clients also include Microsoft, Google, Yahoo, Cisco, Samsung, Motorola and Intel.
Bangalore has managed to attract FDI and become home of IT outsourcing for a number of reasons including:
- Most Indians speak English either as their first or second language
- India has a growing number of high skilled graduates
- Indian workers are prepared to work unsociable hours (night shifts to coincide with working hours in Europe and US).
- Indian pay is lower
- They have strong historical links with UK and other commonwealth countries
- They are a democracy
- Bangalore is home to some of India's best universities e.g. Indian Institute of Science
- India has improving transport and communication links
- India is an emerging market
- Reputation and growing success
- Geographical location near to Europe, Middle East and East Asia
Some specifics about this include:
35 million Indians speak English (source http://www.ihds.info/)
Since a 2015 Supreme Court ruling, the only court language in India is English (because it is the language that the most people from different parts of India have in common)
India was part of the British Empire until 1948 and much of the legislative and judicial aspects are based on the UK
Though only 8.5% of Indians have graduated university (source), unemployment amongst some skills sectors such as engineering is up to 80% because of low educational standards, though these graduates could do low level work that is easy to outsource (source)
35 million Indians speak English (source http://www.ihds.info/)
Since a 2015 Supreme Court ruling, the only court language in India is English (because it is the language that the most people from different parts of India have in common)
India was part of the British Empire until 1948 and much of the legislative and judicial aspects are based on the UK
Though only 8.5% of Indians have graduated university (source), unemployment amongst some skills sectors such as engineering is up to 80% because of low educational standards, though these graduates could do low level work that is easy to outsource (source)
The impacts of outsourcing
The video below (1 hour) is from the Discovery Channel. Although it was produced in 2004, it summarises very effectively some of the major issues with outsourcing.
It summarises:
The video below (1 hour) is from the Discovery Channel. Although it was produced in 2004, it summarises very effectively some of the major issues with outsourcing.
It summarises:
- Economic development as outsource workers earn more money
- The increasing necessity for speaking good English in order to work in call centres, and the attempt by companies to change the accents of their employees to make them sound more like the country where people are calling from
- Cultural changes as young people who are skilled earn more money and demand more freedom from their parents
- An increasing disparity between the urbanised professional outsource employees, and the rural population
- Tension as some groups in Indian society argue against the incursion of perceived 'Western' values that outsourcing brings
Outsourcing today
The provision of outsourcing has evolved over time and today there are different issues involved. The video below explains how outsourcing, while historically focused on call centres, ICT and 'back room' business processes, is today helping countries move towards a much more highly skilled set of industries.
The provision of outsourcing has evolved over time and today there are different issues involved. The video below explains how outsourcing, while historically focused on call centres, ICT and 'back room' business processes, is today helping countries move towards a much more highly skilled set of industries.
Going further
If you want more information, look at the excellent section on Greenfield Geography.
If you are doing something for your Extended Essay, you might want to read this very lengthy Handbook of Global Outsourcing and Offshoring.
The AT Kearney Foreign Direct Investment Confidence Index is also a lengthy but interesting report,
If you want more information, look at the excellent section on Greenfield Geography.
If you are doing something for your Extended Essay, you might want to read this very lengthy Handbook of Global Outsourcing and Offshoring.
The AT Kearney Foreign Direct Investment Confidence Index is also a lengthy but interesting report,