Outsourcing is very controversial and affects every part of business from manufacturing through to design, software development, financial control, logistics management, customer support and sales. Outsourcing has been praised as cost-effective, efficient, productive and strategic - but also condemned as evil, money-grabbing, destructive, ruthless, exploiting the poor, destroying communities and nations.
Outsourcing incentives are huge - and can lead to falls in service costs of 50-60%. Up to half of the $19 trillion spent every year by European companies on sales and administration could be outsourced. Despite the publicity, outsourcing is most often to companies in the same nation - for example ISS employs over 500,000 local people in catering, buildings maintenance, facilities management, cleaning and security for hospitals, schools, government buildings, factories and offices.
However, during 1995-2011 there has been a large migation of skilled, semi-skilled and unskilled jobs from high-cost to low-cost nations. Outsourcing has produced labour shortages in many emerging economies. For example, China is now seeing 100% salary inflation at top end and India is not far behind - acute shortage of experienced business leadership. Some companies are now thinking of moving operations to places like Pakistan (50% lower costs and over 200,000 IT graduates looking for work), Bangladesh or Vietnam. Changes are happening very quickly. But other corporations are already moving jobs back home - because cost savings have narrowed, and because outsourcing carries risks - in supply chain delays, language and culture challenges, distance management, loss of intellectual capital and so on.
New outsourcing decisions can generate weeks of hostile media coverage, widespread protests and industrial action. The outsourcing issue is so sensitive that decisions are usually taken behind closed doors at the most senior levels in the organisation, and only announced after much careful research into how the proposals are likely to be received.
If handled badly, business process outsourcing can damage corporate image, weaken a brand, unsettle customers, and result in lower quality of products and services. But when handled well, the results can be good enough to save a failing corporation. It all depends.
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