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Critically Assessing the Benefits of Outsourcing to the Host Country with Examples
1.0 Introduction
In recent years the subject of outsourcing have increasingly gained an enormous attention
from journalists, politicians and practitioners; due to the emergence of globalisation which
has become a phenomenon in the means of communication. Outsorcing through the use of
call centres in low-cost locations is an example of location advanatges which offers many
advanatges and disadvantages to the home countries as well as the host countries
(Whittington and Molloy, 2005). As a result of this organisations consider outsourcing when
it considers that certain support functions can be completed cheaper, faster or even better by
an outside organisation and at the same time allows the organisation to concentrate more on
among the top countries for outsourcing India is on top of the list with an overall score of
6.9%; followed by China at 6.6% and Malaysia at 6.1%; and the areas that are mostly
outsourced within an organisation includes the Information Technology and the Human
note that for every dollar of value created by US outsourcing, the US managers captures 78%,
and 22% accrues to the receiving country; which means that the full $1.45 to $1,47 of the
value created globally from outsourcing $1 of US labor cost, the US alone captures $1.12 to
$1.14 of value while receiving contries like India, China and Malaysia capture on an average
just 33 cents (McKinsey Global Institute, 2010). This overwhelming wave towards
outsourcing has been motivated as 92% managers hope on reducing costs and increasing
profits for the organisation through outsourcing; one in 10 private organisations also plan to
outsource jobs abroad in the next 12 months; with almost 17% of manufacturing and 44% of
IT companies planing to outsource employment abroad (CIPD, 2010). The purpose of this
report is to analyse the current practice of outsourcing by critically assessing the benefits of
report as a host counrty because of its vast experiences in outsourcing and for the fact that is
one of the leading countries in terms of outsorcing whereas the developed countries of the
world such as United Kingdom and United States of America will be referred to as the home
country in the process of writing this report. The study starts by shedding light on the
meaning and background of outsourcing together with the reasons for outsourcing and give a
practiacl examples of some of the organisations in the United Kingdom and the United States
of America that outsource their non core competence to India; then it will move on to
critically assess how outsourcing have benefitted the Indian economy recently in terms of the
countries GDP growth, employment; market share and Foreign Exchange Inflows of the
country; together with the negative impacts of outsouring to the Indian economy and some of
the risks faced by the home countries in their outsourcing activities with Indian software
development companies.
According to Bravard and Morgan (2009) outsourcing simply means the delegation of one or
more business processes to an external provider, who then owns, manages and administers
the selected processes based on the defined and measurable performance metric. This implies
that outsourcing is used in the leverage of third-party resources, assets and skills, with
guaranteed levels of quality, resilience and value to cost criteria and measurement to deliver
services previously provided in-house possibly involving the transfer of existing staff to the
service provider and transformation of the business support processes and technology (CIPD,
2010). The models of outsourcing includes the following such as Application Service
Joint Venture; Offshoring and Service Bureaux (Palmer, 2009). According to Financial Wire
(2009) before considering the need for outsourcing the organisation in a home country should
be able to have a granular knowledge about the full cost involved in outsourcing in order for
them to be able to compare operational performance data against various alternatives whether
driven by their own needs or by various constructs pushed by the service providers. At the
same time the organisation should be able to determine their strategic intention for
outsourcing in order to be able to determine if outsourcing fits into their longer strategic and
competitiive planning especially in the light of other large scale change programmes in the
outsourcing. The organisation should alo be able to define the business benefits outsourcing
will bring to the organisation; generally organisations go into outsourcing in order to be able
to save cost and be able to focus on the core competencies and be able to gain flexibility
within the organisation. At the same time organisations should be able to resolve on the
Benefits of Outsourcing to the Host Country Page 4
capabilities they will let go and be able to commit to the ongoing relationship to its host
As identified by Towers (2008) the main reasons for outsourcing includes to have access to a
larger pool of workers; save money; improve on quality of services rendered by the
organisation; benefit from an improved customer service and be able to assess expertise not
otherwise available within the organisation. Organisations within the financial, insurance,
manufacturing, health care and government agencies are recently moving their call centres to
India because of their specialized call centre outsourcing services and their latest technology
and high-end infrastructure which have earned them resepct and trust from global
organisations (Taylor and Bain, 2008). According to CIO (2010) some of the reason why
India is an ideal place for outsourcing is because of the fact that the country is a place where
a business can achieve more with less mainly because of the cheap skilled labour that is
readily available. This simply means that outsourcing to India helps organisations to be able
to focus their business activities on their core competencies without having to face any kind
the organisation from focusing its core competencies may be considered for outsourcing; and
organisations should outsource their non-core activities in order to help them focus on their
core activities; this is because an organisations success depends hugely on building its core
competencies and serving its customer needs. It is also important to note that non-core
activities were outsourced for two reasons which includes firstly to allow the organisation to
focus in on its core competencies or the activities they do best within the organisation and
secondly allow them to transfer non-core activities to specilaized vendors who can help the
organisation to improve on the performance of such activities and at the same time reduce the
outsourcing as a very powerful tool to cut costs and improve on organisational performance;
at the same time the principal idea behind outsourcing is to obtain services of specialist in
their different field of study who will perform the function more better at a lower cost.
According to recent survey by the Outsourcing Institue (2008) the five main reasons for
outsourcing includes to improve company focus, access to world class capabilities, share
risks, free resources for other purposes, accelerating benefits from reengineering and improve
At the same time as stated by Rao (2008) large number of companies are going offshore in
some countries like India in order to develop their softwares and some of these companies
includes American Express, Bank of America, General Electric and Target. According to a
recent survey by carried out by NASSCOM (2010) concluded that almost two out of five
Fortune 500 companies currently outsource their software requirements to India with Indian
firms such as Wipro, Infosys and Tata Consultancy Services. The reason behind their action
is for the fact that outsourcing to India saves money, time and better work ethics and also for
the fact that India is top of the table with an overall score of 6.9% whereas its competitors
like China which is another powerhouse of information Technology has an overall score of
6.6%; and at the same time the cost involved in sending business to India is relatively low
(2008) other reasons why India has become an ideal location for outsourcing is as a result of
its labor pool with about 75,000 English speaking IT professionals graduating annually with a
full knowledge of the I.T industry well qualified and ready to work; at the same time its
10hrs time difference allows for 24hrs service and communication; outsourcing to India
programmers are Indian’s and the IT sector has attracted government support and presently in
the country their is a National Minister who is responsible for the Information Technology
(NASSCOM, 2010). In the UK organisations like the Barclays Bank plc in 2005 outsourced
its internal helpdesk and the techncal support centre from its branches in Cheshire to India in
order to be able to save cost, improve on quality and at the same time be able to benefit from
According to McKinsey Global Institute (2010) India’s nominal GDP plus its Purchsing
Power Parity in the year 2009 stood at a record US$3.561 Trillion making it the fourth largest
economy in the world; as argued by Taylor and Bain (2008) outsourcing brings about cost
savings and increase in profits not only to business firms, but to the host country such as
India in macro-economic terms; in India its IT and IT-enabled services industry is said to be
the most powerful drivers of its economic growth over the years. As identified by Main
(2009) outsourcing has benefitted the Indian economy tremendously over the years and have
led to the growth in the country’s Gross Domestc Product from 1.4% in 2001 to 7% by 2008
and presently have contributed to an increase of about 19% to its economy; and at the same
time have recorded a high compounded annual growth rates of about 40% per annum which
has also led to its market size by more than 4% since 2008 (NASSCOM, 2010). It is also
important to note that the outsourcing has also led to the increase in India’s Foreign
Exchange Inflows and its ITS and ITES exports have grown significantly higher rate than
other exports and invisibles and have contributed over 30% of foreign exchange inflows to
the contrys economy since 2008 (NASSCOM, 2010). Outsouring industry has improved
Indian economy primary by creating enormous employment opportunities within the country
employed over four million and have also created significant entrepreneurial and employment
and support services (Smith, 2009). As noted by the CIPD (2010) the sky is the limit for India
eduction because as a result of outsourcing to the country the education system has improved
drastically and the country now enjoys a high level of stability due to the assumption of
limited demand. At the same time the country has also witnessed a tremendous reforms in
terms of power, rural development, labour policies, telecommunications and at the same time
the country spending capacity in terms of the economy has over the years increased
On the other hand outsouring on its own in relation to India has been criticised because of the
fact that the emergence of outsourcing brought about the migration of qualified Indians to
developed countries of the world; where they think that they will paid based on their worth
without being relegated to cheap labour (Yee, 2008). This means that outsourcing to India
acted as an eye opener for the its citizens; and as argued by Gospal and Srinivasan (2009) the
emergence of outsourcing has brought about brain drain to the host country because India has
lost its highly skilled citizens to the developed countries of the world such as the United
Kingdom, United States of America, France and Germany. This has also hampered and
delayed on the developement of India because the people who will contribute their quota to
the development of the country are migrating to other countries to help them in developing
their own country (Kavilanz, 2010). At the same time it is important to note that the resources
and I.T expertise of of India and its citizens are being under utilized; because its I.T highly
skilled workers are not remunerated properly when compared to their counterparts in the
important to note that the outsourcing activities and the availability of I.T jobs and other
customer service jobs in the country; will bring about increase in the countries population
which will become a burden on its shelter, food and the countrys inadequate infrastructure.
As a result of this before embarking on outsourcing activities to India the home country
should be able to ensure that the software development comapnies have plans for business
continuity and disaster recovery in order to help the business to progress in the midst of all
the risks it will face in the process of establishing itself in India; or alternatively the home
partners (Khanna and Palepu, 2008). At the same time it is important to note that in terms of
outsourcing organisations in the home countries should be aware of the risks involved in
outsourcing software development to India; this because the offshore software developments
in India is at a development stage and largely unproved yet but over the years has proved
itself as the best when compared to other Asian countries. On the other hand India is a
country characterised by political instability and religious activities; as a result of this makes
it a risky place for the home country to outsource its non core activities. Riot in some parts of
the country has delayed the software development in the country and this are making
organisations that are located in a particular city to move to another city as a result of the
Having examined the benefits of outsourcing to the host country which India; it can be said
that outsourcing is the delegation of one or more business processes to an external provider
who manages and administers the selected processes based on the measurable performance
metric (Bravard and Morgan, 2009). In order to carry out outsourcing of non core activities
the organisation in the home country uses models such as apllication service provision, build
operate transfer, joint venture and offshoring in order to be able to carry out its operations
successfully in the host country. It is also important to note that the main reason of
outsourcing is for organisations to be able to save cost, improve on quality and be able to
assess expertise not otherwise available within the home country. Outsourcing poses as a
benefit to the host country as well as has a negative impact for the organisation; apart from
providing jobs for the citizens of the host country outsourcing also benefits them in terms of
developing the contries economy (Towers, 2008). As a result of this before embarking on
outsourcing activities to India the home country should be able to ensure that the software
development comapnies have plans for business continuity and disaster recovery in order to
help the business to progress in the midst of all the risks it will face in the process of
establishing itself in India; or alternatively the home country should be prepared to for the
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