Outsourcing and the Indian Economy

The buzz word of today's IT world is outsourcing. My article gives an overall view and idea of outsourcing. Remember, it can be totally meaningless!

Outsourcing can be shortly told as the transfer of ownership of a process to some other organization. Thereby an organization can concentrate on its core products without deviation over others. The supplier will provide strict guidelines regarding requirements and specifications. This is where, outsourcing differs from business relationships coz in business relationship, the buyer retains the full control and instructs the supplier, how to do the work. This outsourcing process will be beneficial as the outsourcer can reduce his costs by giving the work to places where wages are cheaper and quality is high (like India). Thereby he can concentrate in his core area of business and utilize his expertise to the maximum.

A baker in NewYork makes very good hand made cakes and people prefer his handmade cakes than the machine made ones there. So more and more people started buying his cakes and he was very happy. As his business went fine and started expanding, he thinks of giving the cakes to customers in a colorful box. To make those colorful boxes there, in NewYork, is costly. He thought of making them, himself but he couldn’t as he wanted to concentrate more on his core of business in which he is an expert i.e making handmade cakes. So what he thought was giving the work of making those colorful boxes to some company XYZ in India where the making of those boxes is very cheap and good. This is how the need for Outsourcing arises.

It all started with globalization. Big companies started to expand their operations all over the world. And when they came to India, they were attracted by the resources available here and the low cost. What I mean as the resources is the human power mainly. The quality of education imparted to Indians is far better when compared with the US peers. I accept that a lot of very good universities are there in US than in India. But if we consider the education system overall, India is the better one. Good techied English speaking people are available here willing to work for less wages. As the cost of living is low in India compared to US, employees in India could easily afford with those salaries. So, slowly the companies started to expand their operations in India by getting done more of their work here. On the other end, i.e in US, unemployment started to bud. Also the Indian government constructed Software Technology Parks offering world class infrastructure and encouraging foreign investment and promoting software development. India now possesses more number of companies which have obtained the SEI-CMM level 5 than any other country in the world.

The biggest hurdle that outsourcing companies are facing now is the method in which the work is managed once it has been sent offshore. Once the work has been sent offshore, it will be tedious for to schedule meetings with the offshore employees because of the time zone differences. So it is not very easy to schedule meetings and to interact with the offshore employees. The one who guides you in your work may be there in US. There is no possibility of having inperson meetings. So as the communication link is weak, automatically team work will get affected. Eventhough technology has improved a lot, for many things, we need inperson meetings. Also following process based work or proper security will be hard. Project managing technical IT work is more complicated even if it is in the same building. So how can we expect it to be easy after moving the work it to some remote location ?

So, what companies do is they don’t outsource the core of their business. For example if you take Norton Antivirus, they can outsource everything other than their virus definition files and the engine which works around them. Because, they wont like to let their products code appearing in someones website! So normally companies wont outsource their strategic planning, design and development of their architecture. That’s why companies, keep more of their development work in-house and outsource the maintainence work.

BPO, business process outsourcing is the outsourcing of a business process or function of a company to specialized service providers. This includes functions such as payroll, accounting, billing, finance, Human resources and other non-core business activities. It is done by creatively examining the process and re-engineering the way it is completely done. This re-engineering will include putting in new technology to accomplish or modifying the existing technology in a new way to improve the process followed. Also IT enabled services such as Helpdesk support, call centres etc are also being largely outsourced. It is obvious to all that outsourcing creates unemployment in US as most of the jobs are shifted to India. But there are some reports telling that outsourcing saves overall spent money, boosts economy and which in turn is used to create jobs in US !