Wednesday, June 21, 2006

Outsourcing & Offshoring...Any difference?

Why is there so much uproar over outsourcing to India across the developed nations in the world? Quite a pertinent question considering that such an uproar had the power to considerably lower the popularity rankings of the most powerful man on the planet, Mr Bush, the President of America. Reasons differ and also range from people losing jobs in the developed world to blatant offshoring by companies that seek full advantage of globalization by hiring cheap labour. Mohan Babu in ComputerWorld adds quite an interesting dimension to the whole debate. In trying to get to the reason at the heart of the uproar, he mentions what could be the cause of the continued protests against outsourcing to India and other parts of the world - the confusion between the terms 'offshoring' and 'outsourcing'.

Offshoring by its very definition, he says, is a subset of Outsourcing. It was present 2-3 decades back when players like IBM, Electronic Data Systems and Accenture began supplementing their IT staffs with contractors and consultants, a trend that also led to outsourcing units of work. Outsourcing started gaining centre-stage in the late 90s when companies went on a vendor-contracting spree to address the twin challenges of Y2k and the e-commerce revolution. Outsourcing was the procuring of services or products, such as the parts used in manufacturing a motor vehicle, from an outside supplier or manufacturer in order to cut costs. Thus the initial way of outsourcing began right within the US with institutions in one state awarding contracts to vendors, usually in other states, who could help them cut down costs.

Offshoring on the other hand was the logical extension of outsourcing when the globalization wave hit the planet. When American IT companies found that costs could be further brought down by hiring Indian engineers on contract basis and getting them to the US on work visas, outsourcing acquired a new dimension with Indian companies too sharing the pie. However governments under pressure clamped down with restrictions on the number of work permits being handed out. This paved the way for offshoring to take over. Companies realized that offshoring was the way out. Completely award work to Indians and get them to work from their own country. This meant even higher savings. IT companies had tasted blood for the first time and more and more followed. And with media reports misquoting, the terms offshoring and outsourcing were both liberally used to refer to any work that was being sent out of the country. Now that definitely doesn't help matters, does it?

So when a company in America says its outsourcing work, it does not necessarily mean that it is sending work to India or any other place outside the country. Getting this notion clear would help blow clear the clouds of suspicion that start gathering in the minds of locals when a company in the developed world starts mentioning that it is looking at outsourcing as a means to cut costs.

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1 comment:

dionysis said...

Being a former HP employee, I definitely know the difference between Outsourced and Offshored.

I agree about the misconception of outsourcing all going to India. Most of HP's current outsourcing in most divisions are either to companies in the US or Canada. This doesn't mean that they didn't have outsourced labor in India, at one point pre-Compaq merger HP did.

Post Merger they changed positions from outsourcing to offshoring. The biggest difference between the two in the corporate world is ownership. If you are sending work to India it is cheaper to own your employees vs. outsource them. With offshoring, all of the people in India, Costa Rica, etc. were all genuine HP employees. They did this only because it was cheaper than outsourcing them to another company.

When you are trying to "Follow the Sun" with your globalization policy there is not much choice but to either offshore or outsource. However I don't think that it is necessarily beneficial to send English speaking jobs to a country where English is not their native language.

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