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Outsourcing
FromWikipedia,thefreeencyclopedia

Inbusiness,outsourcinginvolvesthecontractingoutofabusinessprocess(e.g.payrollprocessing,claims
processing)andoperational,and/ornoncorefunctions(e.g.manufacturing,facilitymanagement,callcenter
support)toanotherparty(seealsobusinessprocessoutsourcing).Theconcept"outsourcing"camefromthe
AmericanGlossary'outsideresourcing'anditdatesbacktoatleast1981.[1][2]Outsourcingsometimes,thoughnot
always,involvestransferringemployeesandassetsfromonefirmtoanother.[3]Outsourcingisalsothepracticeof
handingovercontrolofpublicservicestoprivateenterprise.[4]

Outsourcingincludesbothforeignanddomesticcontracting,[5]andsometimesincludesoffshoring(relocatinga
businessfunctiontoadistantcountry)[6]ornearshoring(transferringabusinessprocesstoanearbycountry).
Outsourcingisoftenconfusedwithoffshoring,howevertheycanbedistinguished:acompanycanoutsource(work
withaserviceprovider)andnotoffshoretoadistantcountry.Forexample,in2003Procter&Gambleoutsourced
theirfacilities'managementsupport,butitdidnotinvolveoffshoring.Financialsavingsfromlowerinternational
laborratescanprovideamajormotivationforoutsourcingoroffshoring.Therecanbetremendoussavingsfrom
lowerinternationallaborrateswhenoffshoring.

Incontrast,insourcingentailsbringingprocesseshandledbythirdpartyfirmsinhouse,andissometimes
accomplishedviaverticalintegration.However,abusinesscanprovideacontractservicetoanotherorganization
withoutnecessarilyinsourcingthatbusinessprocess.

Contents
1 Overview
1.1 Reasonsforoutsourcing
1.2 Digitaloutsourcing
2 Implications
2.1 Forbusiness
2.1.1 Managementprocesses
2.1.2 Communicationsandcustomerservice
2.1.3 Governance
2.1.4 Security
2.2 Insourcing
2.3 Standpointoflabor
2.4 Standpointofgovernment
2.4.1 Policymakingstrategy
2.4.1.1 Competitivenessstrategy
2.4.1.2 Educationstrategy
2.4.1.3 Welfarestatestrategy
2.4.1.4 Industrialpolicy
2.4.1.5 Environmentalpolicy
2.5 Globalizationandsocioeconomicimplications
2.5.1 Globalinequalityanddevelopment
2.5.1.1 Industrialization
2.5.1.2 Growthandincome
2.5.1.3 Urbanization
2.5.2 Trade
2.5.3 Migration
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2.5.4 Domesticinequality
3 Bycountry
3.1 UnitedStates
3.2 EuropeanUnion
4 Cosourcing
4.1 Identitymanagementcosourcing
5 Counterwaveoutsourcing
6 Seealso
7 Notesandreferences
8 Externallinks

Overview
Twoorganizationsmayenterintoacontractualagreementinvolvinganexchangeofservices,expertise,and
payments.Outsourcingissaidtohelpfirmstoperformwellintheircorecompetencies,fuelinnovation,and
mitigateashortageofskillorexpertiseintheareaswheretheywanttooutsource.[7]

Intheearly21stcentury,businessesincreasinglyoutsourcedtosuppliersoutsidetheirowncountry,sometimes
referredtoasoffshoringoroffshoreoutsourcing.Severalrelatedtermshaveemergedtorefertovariousaspectsof
thecomplexrelationshipbetweeneconomicorganizationsornetworks,suchasnearshoring,crowdsourcing,
multisourcing,[8][9]strategicalliances/strategicpartnerships,strategicoutsourcing.,[10]andvestedoutsourcing.

Outsourcingcanoffergreaterbudgetflexibilityandcontrol.Outsourcingallowsorganizationstopayforthe
servicesandbusinessfunctionstheyneed,whentheyneedthem.Italsoreducestheneedtohireandtrain
specializedstaff,bringsinfreshengineeringexpertise,andcanreducecapital,operatingexpenses,[11]andrisk.

"Dowhatyoudobestandoutsourcetherest"hasbecomeaninternationallyrecognizedbusinesstaglinefirst
"coinedanddeveloped"[12]inthe1990sbythe"legendarymanagementconsultant"PeterDrucker.[13]Theslogan
wasprimarilyusedtoadvocateoutsourcingasaviablebusinessstrategy.IthasbeensaidthatMr.Druckerbegan
explainingtheconceptof"Outsourcing"asearlyas1989inhisWallStreetJournalarticleentitled"Sellthe
Mailroom."[14]

FromDrucker'sperspective,acompanyshouldonlyseektosubcontractinthoseareasinwhichitdemonstratedno
specialability.[15]Thebusinessstrategyoutlinedbyhissloganrecommendedthatcompaniesshouldtake
advantageofaspecialistprovider'sknowledgeandeconomiesofscaletoimproveperformanceandachievethe
serviceneeded.[16]

In2009bywayofrecognition,PeterDruckerposthumouslyreceivedasignificanthonor,whenhewasinducted
intotheOutsourcingHallofFameforhisoutstandingworkinthefield.[17]

Recently,innovativebusinessmodelshavebeendevelopedtohelpreducethecostforoutsourcing.Inparticular,
thesebusinessmodelsmayleverageongroupbargainingpowerbyaggregatingsimilaroutsourcingdemandsfrom
variousorganizationswhennegotiatingwithexternalcontractors.[18]Thispotentiallypresentsawinwinsituation
forboththeoutsourcerandoutsorceewhiletheoutsourceeofferstheirservicesatlowerratestotheoutsourcer,it
isstilladvantageoustotheoutsourceebecausetheprojectvolumeisincreased.

Reasonsforoutsourcing

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Companiesprimarilyoutsourcetoreducecertaincosts,whichmayincludeperipheralor"noncore"business
expenses,[19]hightaxes,highenergycosts,excessivegovernmentregulationormandates,andproductionorlabor
costs.TheincentivetooutsourcemaybegreaterforU.S.companiesduetounusuallyhighcorporatetaxesand
mandatedbenefitslikesocialsecurity,Medicare,andsafetyprotection(OSHAregulations).[20]Atthesametime,it
appearsU.S.companiesdonotoutsourcetoreduceexecutiveormanagerialcosts.Forinstance,executivepayin
theUnitedStatesin2007wasmorethan400timesmorethanaverageworkersagap20timesbiggerthanitwas
in1965.[21]

Digitaloutsourcing

Manythinkofoutsourcingasitrelatestomanufacturing(e.g.the"madeinChina"labelontheproductsyoubuy).
However,outsourcingofwhitecollarworkhasgrownrapidlysincetheearly21stcentury.Thedigitalworkforce
ofcountrieslikeIndiaandChinaareonlypaidafractionofwhatwouldbeminimumwageintheUS.Onaverage,
softwareengineersaregettingpaidbetween250,000and1,500,000rupees(US$4,000toUS$23,000)inIndiaas
opposedto$40,000$100,000incountriessuchastheUSandCanada.[22]Outsourcinghasalsoexpandedto
includemanydifferentcountriesCostaRicahasbecomeabigsourceforoutsourcingworkasitoffersthe
advantageofahighlyeducatedlaborforce,alargebilingualpopulation,stabledemocraticgovernment,shares
similartimezoneswiththeUnitedStates,andittakesonlyafewhourstotravelbetweenCostaRicaandtheUS.
CompaniessuchasIntel,Procter&Gamble,HP,Gensler,AmazonandBankofAmericahavebigoperationsin
CostaRica.Intherecentyearstherehasbeenanexponentialgrowthinwhitecollarworkwithserviceproviders
emerginginawiderangeofactivities,frombankingandlegalservicestocompanieslikeResourcesusUS,[23]a
pioneerinoutsourcingservicesforarchitecturefirmsinUnitedStates.Unlikeoutsourcedmanufacturing,
outsourcedwhitecollarwork,offersworkerstheflexibilitytochoosetheirworkinghours,andwhichcompaniesto
workfor.Withmanyindividualstelecommutingfromhome,thecompaniesthatrequirethistypeofworkdonot
needtoallocateadditionalfundsforsettingupofofficespace,managementsalary,andemployeebenefitsasthese
individualsarecontractedworkers.[24]

Implications
Forbusiness

Managementprocesses

Globalizationandcomplexsupplychains,alongwithgreaterphysicaldistancebetweenhighermanagementand
theproductionflooremployeesoftenrequiresachangeinmanagementmethodologies,asinspectionandfeedback
maynotbeasdirectandfrequentasininternalprocesses.Thisoftenrequirestheassimilationofnew
communicationmethodssuchasvoiceoverIP,instantmessaging,andIssuetrackingsystems,newtime
managementmethodssuchastimetrackingsoftware,andnewcostandscheduleassessmenttoolssuchascost
estimationsoftware.

Communicationsandcustomerservice

Intheareaofcallcenteroutsourcing,organizationsthatarenotexperiencedinworkingwithoutsourcedcall
centersmaysufferfromlowerenduserexperienceasaresultofoutsourcing.Thisisexacerbatedwhen
outsourcingiscombinedwithoffshoringinregionswherethefirstlanguageandculturearedifferent.[25]

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Forexample,foreigncallcenteragentsmayspeakwithdifferentlinguisticfeaturessuchasaccents,worduseand
phraseology,whichmayimpedecomprehension.Thevisualcuesthataremissinginatelephonecallmayleadto
misunderstandingsanddifficulties.[26]

Governance

In1979,NobellaureateOliverE.Williamsonwrotethatthegovernancestructureisthe"frameworkwithinwhich
theintegrityofatransactionisdecided."Addingfurtherthat"becausecontractsarevariedandcomplex,
governancestructuresvarywiththenatureofthetransaction."[27]UniversityofTennesseeresearchershavebeen
studyingcomplexoutsourcingrelationshipssince2003.Emergingthinkingregardingstrategicoutsourcingis
focusingoncreatingacontractstructureinwhichthepartieshaveavestedinterestinmanagingwhatareoften
highlycomplexbusinessarrangementsinamorecollaborative,aligned,exible,andcredibleway.[28](Alsosee
relationalcontract,governance,Vestedoutsourcing.)

Security

Beforeoutsourcing,anorganizationisresponsiblefortheactionsoftheirentirestaff,sometimesasubstantial
liability.Whenthesesamepeoplearetransferredtoanoutsourceserviceprovider,theymaynotevenchange
desks.Buttheirlegalstatuschanges.Theyarenolongerdirectlyemployedby(andresponsibleto)the
organization.Thiscreateslegal,securityandcomplianceissuesthatareoftenaddressedthroughthecontract
betweentheclientandthesuppliers.Thisisoneofthemostcomplexareasofoutsourcingandsometimesinvolves
aspecialistthirdpartyadviser.

Fraudisaspecificsecurityissueaswellascriminalactivity,whetheritisbyemployeesorthesupplierstaff.
However,itcanbedisputedthatfraudismorelikelywhenoutsourcingisinvolved.Forexample,inApril2005,a
highprofilecaseinvolvedthetheftof$350,000fromfourCitibankcustomerswhencallcenterworkersacquired
thepasswordstocustomeraccountsandtransferredthemoneytotheirownaccountsopenedunderfictitious
names.CitibankdidnotfindoutabouttheproblemuntiltheAmericancustomersnoticeddiscrepancieswiththeir
accountsandnotifiedthebank.[29]

Insourcing

Outsourcinghasgonethroughmanyiterationsandreinventions.Someoutsourcingcontractshavebeenpartiallyor
fullyreversed,citinganinabilitytoexecutestrategy,losttransparency&control,onerouscontractualmodels,a
lackofcompetition,recurringcosts,hiddencosts,andsoon.Companiesshiftingtoinsourcingoftencitethedesire
toincreasecontrol,complianceandtogaincompetitivedifferentiationthroughverticalintegrationorthe
developmentofsharedservices,commonlycalledacenterofexcellence.

Further,thelabeloutsourcinghasbeenfoundtobeusedfortoomanydifferentkindsofexchangesoftenin
confusingways.Forexample,globalsoftwaredevelopment,whichofteninvolvespeopleworkingindifferent
countries,cannotsimplybecalledoutsourcing.Theoutsourcingbasedmarketmodelfailstoexplainwhythese
developmentprojectsarejointlydeveloped,andnotsimplyboughtandsoldinthemarketplace.Recently,astudy
hasidentifiedanadditionalsystemofgovernance,termedalgocracy,whichappearstogovernglobalsoftware
projectsalongsidebureaucraticandmarketbasedmechanisms.Thestudy[30]distinguishescodebasedgovernance
systemfrombureaucracyandthemarket,andunderscorestheprominentfeaturesofeachorganizationalformin
termsofitsrulingmechanism:bureaucracy(legalrational),themarket(price),andalgocracy(programmingor
algorithm).So,globalsoftwaredevelopmentprojects,thoughnotinsourced,arenotoutsourcedeither.Theyarein
between,inaprocessthatissometimestermed"remoteinsourcing."[31]Projectsaredevelopedtogetherwherea
commonsoftwareplatformallowsdifferentteamsaroundtheworldtoworkonthesameprojecttogether.

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Standpointoflabor

Fromthestandpointoflabor,outsourcingmayrepresentanewthreat,contributingtoworkerinsecurity,andis
reflectiveofthegeneralprocessofglobalizationandeconomicpolarization.[32]

OnJune26,2009,JeffImmelt,theCEOofGeneralElectric,calledfortheUnitedStatestoincreaseits
manufacturingbaseemploymentto20%oftheworkforce,commentingthattheU.S.hasoutsourcedtoomuchand
cannolongerrelyonconsumerspendingtodrivedemand.[33]

Standpointofgovernment

Westerngovernmentsmayattempttocompensateworkersaffectedbyoutsourcingthroughvariousformsof
legislation.InEurope,theAcquiredRightsDirectiveattemptstoaddresstheissue.TheDirectiveisimplemented
differentlyindifferentnations.IntheUnitedStates,theTradeAdjustmentAssistanceActismeanttoprovide
compensationforworkersdirectlyaffectedbyinternationaltradeagreements.Whetherornotthesepolicies
providethesecurityandfaircompensationtheypromiseisdebatable.

Policymakingstrategy

Amainfeatureofoutsourcinginfluencingpolicymakingistheunpredictabilityitgeneratesregardingthefutureof
anyparticularsectororskillgroup.Theuncertaintyoffutureconditionsinfluencesgovernanceapproachesto
differentaspectsoflongtermpolicies.

Competitivenessstrategy

Economicgrowthrequireschange,thereforeagovernancedisposedtohelpingsocialandeconomicstructures
adapttothechangingenvironmentwillfacilitategrowthandastabletransitiontoneweconomicstructures[34]until
theeconomicstructuresbecomedetrimentaltothesocial,politicalandculturalstructures.

Indevelopingcountries,policiesthatembracetheglobalphenomenonofoutsourcingarealogicalresponsetothe
ongoingmovementtowards"openmarkets"and"tradeliberalization."Outsourcing,wheninterpretedasatrade
phenomenon,complementstradeliberalizationstrategiesnotonlybypromotingtechnologicalspilloversand
capitalinflowsbutalsobyoffsettingtheincreasinglevelsofunemploymentwhichresultfromopeningup
domesticmarkets.Aspricesadjusttothoseintheglobalmarkettheynolongerreflectdomesticproductivity,
drivinglowerproductivityfirmsinthepreviouslyprotectedsectorsoutofbusiness.Economictheoristsarguethat
theresultingunemploymentisonlytemporaryasworkersreadjustandareeventuallyincorporatedintothe
country'smostproductivesectors,namelythosewhichenjoyacompetitiveedgeoverotherplayersinthe
internationalmarket.Nonetheless,rapidliberalizationofmarketsindevelopingcountrieshasnotmaximizedthe
productivitypotentialoftheregion.IntheGlobalSouth,wheretechnologicaldevelopmentisdrasticallylowerthan
intheNorth,theredeploymentofhumanandcapitalresourcesintonewexportmarketshasnotcomeatthecostof
necessarilylowproductivitysectorsbutratherunderdevelopedones.Inotherwords,manyofthepreviously
protectedsectorswerenotcompetitiveyetonaglobalscale,notbecausetheynaturallylackedthecomparative
advantage,butbecauseindustryefficiencyhadnotyetbeenreached.[35]Insuchcaseswhereliberalizationstunts
thegrowthofpotentialindustries,unemploymentisareflectionofmanyunderemployedresources.

Outsourcingfillsinthegapofrecedingprotectednationalindustries,improvingemploymentandlivingstandards.
Amongothereconomicexternalities,outsourcingpromotescapitalinflowsandinfrastructure.InMexico,wage
convergencewasfasterincitieswhereoutsourcingfirsttookholdthroughmaquiladoras,alongtheMexicoUnited
Statesborder.Studiessuggestthatforevery10%increaseinUSwages,northerncitiesinMexicowhicharemost
influencedbyoutsourcingwouldexperiencewagerisesof2.5%,about0.69%higherthanininnercities.[36]
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CorruptionandreducedtaxrevenuesafterthesigningofNAFTAhavelimitedtheeconomicresourcesavailableto
theMexicangovernment,thusexplainingthedifferenceininvestmentpoliciesbetweenMexicoandChina.[35]
Conversely,oneofthesuccessesofAsiancountriesinthetwentiethcenturyhasbeentheirpromotionofhigher
ratesofsavingandinvestment.StudiessuggestthattheincreaseincapitalinputfueledtheAsianmiraclerather
thanimprovementsinproductivityandindustrialefficiency.Thoughthepreviousconclusionsuggestsproduction
conditionsintheregionremainedstatic,thesituationinEastAsiaexperiencedrapidtransformations.Notonly
werenationaleducationalratesraiseddrastically,buttherewasalsoanincreaseinpatentingandresearchand
developmentexpenditures.Risinglevelsofeducation,urbanizationandevenofpatentingillustratetheactiverole
ofthegovernmentinadvancingeducationaswellasencouragingresearchanddevelopment.[37]

Educationstrategy

Jobsbecomeoutsourcednotbasedontheskilllevelgroupitrepresents,butratherbasedonavarietyofother
factorsincludingtransportationcostofideas,wageandlabourproductivityedge.[34]Becauseoftheoverall
uncertaintyregardingthefuturedynamicsofoutsourcingitisnotpossibletopredictthenatureoflabourdemand
indifferentregions.Tobetterpreparethedomesticworkforcetofutureindustrydemands,therefore,national
educationprogramsoughttofocusonflexibilityanddiversityofskillsratherthanonanyspecifictaskoriented
skills.Emphasisshouldgoonpreparingstudentsbothtosucceedinnonhabitualtasksandtoadapttochangesin
labourdemandsinthemarket.[38]Aspecificgoalthatoughttobeadoptedisteachingstudentshowtolearnrather
thanteachthemparticularskills.Thisstrategywouldhelpstudentsadapttochangingskillrequirementsinthe
futurethusreducingfrictionfromstructuralunemployment.[34]

Welfarestatestrategy

Theuncertaintyregardingthedomesticproductivityedgerenderscautionakeyelementofgovernancetoensurea
sustainableregionaldevelopmenloyedreentertheworkforceandsmoothlytransitionintohighdemandlabour
opportunities,potentiallythroughretrainingprograms,thegovernmentshouldalsoaddressthesocioeconomic
struggleandotherwelfareconcernsofdisplacedemployees.[39]

Negativewelfareeffectsofoutsourcinghavegatheredsubstantialpublicattention.Thepossibilityofoutsourcing
hasinternationalizedlabourmarketswhichusedtobelocal,openingupjobswhichweretraditionallynontraded
tointernationalcompetition.Theresultingcombinationoflowerwagesandunemploymentforcertainjobshas
driventheperceivedloserstoengageinheatedpoliticaldebate.

LabourunionsintheEuropeanUnionhavesucceededinpushingthroughprotectionistpoliciesinfavourorlower
skilledgroupsthroughoutthe1970sand1980s,includingtheCommonAgriculturalPolicyonfarming.[34]Interest
groupsopposingoutsourcinghavebeenmoreactivetovoicetheirdisapprovalbecausethenegativeoutcomesof
thephenomenonaremoreconcentratedonspecificgroupsofpeople,namelythoselosingjobstoexternal
competition,whereasthebenefitsfromitbecomedissipatedamongthepopulationatlarge.Overalllowerprices
andgreaterqualityandvarietyofgoodsindomesticmarketsaresomeofthebenefitsofexploitingacountry's
comparativeadvantagethroughoutsourcing.

Unliketheallegedlosersfromoutsourcing,thoseaffectedpositivelybyitlackthemotivationtoorganizetovoice
theirsupport.Therehasbeenawaveofprotectionismconcernedwithdeepchangesinthesocialstructure
allegedlyimposedontheglobalsystemthroughglobalizationandoutsourcing.Theactivistsseeareadjustmentof
classsystemsandhighlightanincreasedfractureinsocietiesbetweenthehavesandthehavenotsasdifferent
groupsadjusttoincreasinglyordecreasinglyadvantageouspositionsinthesystemofoutsourcing.Opponentsof
outsourcinghavealsodenounceditasathreattolocalculturalintegrity.

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Theargumentonculturaldisintegrationpointstothestandardizationofpracticesandnormsasmultinational
corporationsbecomeinvolvedwithindustriesinregionsculturallydifferentfromthoseinthecountryoforigin.
Theallegeddiffusionofculturehasraisedconcernovertheenduranceofculturalnormsandvalues,sociopolitical
institutionsandframeworks,orevenculturalpreferencesandtraditionsinacontextofincreasingforeign
presence.[40]

Increaseduncertaintyregardingfuturesocioeconomicsecurityoughttobemetwithpoliciespromotingequality
andafairredistributionofeconomicgainsforagovernmenttomaintainitsvotersfavour.Becauseofoverall
unpredictability,governmentswilllikelyneedtoreassureciviliansthattheburdenofemploymentjobsresulting
fromoutsourcingwillbesharedamongtaxpayers.[34]

Thefluctuationsinemploymentlevelsaredeterminedbythetypesofjobswhichcanbeprofitablyoutsourcedor
offshored.Domesticjobsbecomeoffshoredoroutsourcedwhenlowerproductivityinotherregionsis
compensatedbylowerwages,makingoutsourcingprofitableevendespitetheaddedcostsoftransportation.The
overallcosteffectivenessofthespatialunbundlingoftheindustrialprocessthusdependsonthecostof
transportingspecificservicesorideasgiventheavailabletechnology.Becauseofthistechnologicaladvancements
suchasthetelecommunicationsrevolution,airshippingortheInternethavedeeplyacceleratedoutsourcingand
maycontinuetoboostthisprocess.

Thefutureresultsoftechnologicalingenuityandinnovationareunknown,asareitspotentialimpactsemployment
levelsonanygiventaskorjobacrossregions.[34]IntheGlobalSouth,policiesattractingmultinational
corporationscanhelpincreaseemploymentlevelsandpromotegrowth.Governmentsthatpursuethesepolicies
facilitatewelfareprotectiongiventhecontextofincreasedunemploymentinindustrieswhichcannotcompetewith
theinternationalmarketduetotradeliberalizationpolicies.[35]

Industrialpolicy

Outsourcingresultsfromaninternationalizationoflabormarketsasmoretasksbecometradable.Accordingto
leadingeconomistGregMankiw,thelabourmarketfunctionsunderthesameforcesasthemarketofgoods,with
theunderlyingimplicationthatthegreaterthenumberoftasksavailabletobeingmoved,thebetterforefficiency
underthegainsfromtrade.Withtechnologicalprogress,moretaskscanbeoffshoredatdifferentstagesofthe
overallcorporateprocess.[41]

Environmentalpolicy

Therearewidespreadclaimsthatoutsourcinghaspushedenvironmentalstandardsdownindevelopingregionsas
countriescompetetoattractforeignprojectsandinvestment.Similartolowerwages,lowerhealthand
environmentalregulationscontributetogivingacountryacomparativeadvantageoveranotherduetolower
productioncosts.Thecontroversythisraises,however,isthatunlikewages,lowerhealthorenvironmental
standardsdoesbenefitthenewemployeesjoiningtheworkforce.Importcompetitionhascausedadefactorace
tothebottomwherecountrieslowerenvironmentalregulationstosecureacompetitiveedgefortheirindustries
relativetoothercountries.AsMexicocompeteswithChinaoverCanadianandAmericanmarkets,itsnational
CommissionforEnvironmentalCooperationhasnotbeenactiveinenactingorenforcingregulationstoprevent
environmentaldamagefromincreasinglyindustrializedExportProcessingZones.Similarly,sincethesigningof
NAFTAheavyindustrieshaveincreasinglymovedtotheUSwhichhasacomparativeadvantageduetoits
abundantpresenceofcapitalandwelldevelopedtechnology.Afurtherexampleofenvironmentalderegulation
withtheobjectiveofprotectingtradeincentiveshavebeenthenumerousexemptionstocarbontaxesinEuropean
countriesduringthe1990s.Theevidencesuggeststhatevenifoutsourcinghaspromotedlowerenvironmental

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protection,therearenointrinsicgeographicimplicationsthattheGlobalSouthhasbeenmorenegativelyaffected
thantheNorth.oAlthoughoutsourcingcaninfluenceenvironmentalderegulatorytrends,theaddedcostof
preventingpollutiondoesnotmajorlydeterminetradeflowsorindustrialization.[42]

Globalizationandsocioeconomicimplications

Globalinequalityanddevelopment

Industrialization

Outsourcinghascontributedtofurtherlevellingofglobalinequalitiesasithasledtogeneraltrendsof
industrializationintheGlobalSouthanddeindustrializationintheGlobalNorth.

EventhoughoutsourcinghaspromotedamovementofindustrialsitesfromtheGlobalNorthtoGlobalSouth
regions,ithasnotbeentheonlyreasonfortheconcurrentdeindustrializationandindustrializationoftheNorthand
Southrespectively.Deindustrializationinmoreeconomicallyandtechnologicallydevelopedregionshasalsobeen
affectedbyincreasedindustrialproductivity.[43]

Theriseinindustrialefficiencywhichcharacterizeddevelopmentindevelopedcountrieshasoccurredasaresultof
laborsavingtechnologicalimprovements.Althoughtheseimprovementsdonotdirectlyreduceemploymentlevels
butratherincreaseoutputperunitofwork,theycanindirectlydiminishtheamountoflaborrequiredforfixed
levelsofoutput.[44]Likewise,atrendingshiftindemandtowardsnontradableservicessuchasthoseinthehealth
careorgovernmentsectorshasfurtheraccelerateddeindustrializationintheGlobalNorth.Sincethesetaskscannot
beoutsourced,thedemandforthemneedstobemetdomesticallyabidingbythelocalmarketprice.Consequently,
ashiftinthelaborforcetowardsfulfillingtheseprofitableserviceshasmostlytakenplaceattheexpenseof
industrysincetheagriculturalsectorintheearlyindustrializingGlobalNorthhadalreadybeenmaximizingits
labourcapacity.[43]

DespitethevarietyofdomesticandinternationalfactorsaffectingdeindustrializationintheGlobalNorth,those
concerningtheexternalinfluenceoftheglobalmarkethavebeenthemostinfluentialonessince1994.[45]

TherecentindustrializationprocessoutsourcinghasencouragedintheGlobalSouthhastakenplaceatamuch
fasterpacethanitdidduringitsbeginningsintheNorth,giventhatthewelldevelopedtechnologywasalready
developed,andmerelyspreadtofurtherregions.[43]

Growthandincome

ThealmostsimultaneousindustrializationofthedevelopingGlobalSouthanddeindustrializationofthemore
developedGlobalNorthresultedinaninternationalconvergenceofincomes.

OutsourcinghasbeencharacterizedbyrapidratesofgrowthandindustrializationintheGlobalSouth.Conversely,
theGlobalNorthhasexperiencedamoderateslowdowningrowth.Patternsofglobalindustrializationand
deindustrializationareexplainedbyacombinationofmodelsineconomicgeographyandeconomicgrowth.
Modelsineconomicgeographyillustratethatdecreasingcommunicationcostsreducethespatialclusteringof
industrialdevelopment.Thelowercosttothespreadofideasimprovedcoordinationandcommunicationwithin
corporationsacrossgreatergeographicdistances.Thisprocessoriginatedroughlyaftertheinternationalchaosof
theWorldWars,asaconsequenceofadvancementsininformationtechnologyduringthe1960s.Further
adaptationstotechnologicalprogress,particularlythespreadoftheinternetandliberalizationofthe
telecommunicationsindustry,permittedanaccelerationofthemovementofideasandconsequentlyofoutsourcing
sinceaboutthe1980s.[43]
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Urbanization

ThepaceofurbanizationintheGlobalNorthdecreasedconsiderablyrelativetoitshighlevelsfollowingthe
IndustrialRevolution.RatesofurbangrowthhavebeenhigherintheGlobalSouth.[46]

Trade

Outsourcingemergedwithanewwaveofglobalizationmarkedbyhighvolumesoftradeandcapitalflows.The
increasedmovementofcapitalandgoodscontrastedstarklywiththebarriersandprotectionismprevalent
throughouttheWorldWarsandtheGreatDepressionduringtheInterwarYears.[43]

Migration

Thelevelofmigrationhasremainedrelativelylow,particularlycomparedtothemassmigratorytrendswhich
characterizedtheIndustrialRevolutionroughlybetween1850and1914.,[43]probablybecauselabormarketsare
notfreenow.Countriesnowhavediscriminationlaborlaws,onlyallowpeoplewithcitizenshipcardsliveand
workfreeintheirterritories,evengettingacitizenshipcardisdifficultforsomeonenotbornintheirterritory.Free
labormarkets,discriminationbasedwithapersonskillswouldhelpreduceoutsourcingproblems,lettingpeople
freelyfollowtheirjobsinothercountries.[47]

Domesticinequality

OutsourcingintheGlobalNorthledtoarisingdivergenceindomesticemploymentlevelsindifferenttaskswithin
agivenindustry,makingtacklingunemploymentmoredifficultforgovernmentsasjoblossesceasedtobe
primarilysectoral.[43]

Bycountry
UnitedStates

"Outsourcing"hasbecomeacontinuingpoliticalissueintheUnitedStates,havingbeenconflatedwithoffshoring,
duringthe2004U.S.presidentialelection.Thepoliticaldebatecenteredonoutsourcing'sconsequencesforthe
domesticU.S.workforce.DemocraticU.S.presidentialcandidateJohnKerrycriticizedU.S.firmsthatoutsource
jobsabroadorthatincorporateoverseasintaxhavenstoavoidpayingtheir"fairshare"ofU.S.taxesduringhis
2004campaign,callingsuchfirms"BenedictArnoldcorporations".[48]

Criticismofoutsourcing,fromtheperspectiveofU.S.citizens,generallyrevolvesaroundthecostsassociatedwith
transferringcontrolofthelaborprocesstoanexternalentityinanothercountry.AZogbyInternationalpoll
conductedinAugust2004foundthat71%ofAmericanvotersbelievedthat"outsourcingjobsoverseas"hurtthe
economywhileanother62%believedthattheU.S.governmentshouldimposesomelegislativeactionagainst
companiesthattransferdomesticjobsoverseas,possiblyintheformofincreasedtaxesoncompaniesthat
outsource.[49]Oneprediction(from2010)claimsthat,by2014,morethan1.3millionpositionswilldisappear
becauseof"theacceleratedmovementofworktoIndia..."andsomeothercountrieswillingtoacceptoutsourced
jobs.[50]PresidentObamapromotedanacttitled'BringJobsHomeAct(http://www.govtrack.us/congress/bills/112/
s3364)'thatwouldhelpreshorejobsbygivingincentivessuchasataxcutora20percenttaxcreditformoving
operationsbacktotheUSA.[51]Thesamebillwasreintroducedinthe113thUnitedStatesCongressastheBring
JobsHomeAct(S.2569113thCongress).[52][53]

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Unionbustingisonepossiblecauseofoutsourcing.Asunionsaredisadvantagedbyunionbustinglegislation,
workerslosebargainingpoweranditbecomeseasierforcorporationstofirethemandshiptheirjoboverseas.[54]

AnotherrationaleisthehighcorporateincometaxrateintheU.S.relativetootherOECDnations,[55][56][57]and
thepracticeoftaxingrevenuesearnedoutsideofU.S.jurisdiction,averyuncommonpractice.However,
outsourcingisnotsolelyaU.S.phenomenonascorporationsinvariousnationswithlowtaxratesoutsourceas
well,whichmeansthathightaxationcanonlypartially,ifatall,explainUSoutsourcing.Forexample,theamount
ofcorporateoutsourcingin1950wouldbeconsiderablylowerthantoday,yetthetaxratewasactuallyhigherin
1950.[58]

Itisalsosuggestedthatloweringthecorporateincometaxandendingthedoubletaxationofforeignderived
revenue(taxedonceinthenationwheretherevenuewasraised,andoncefromtheU.S.)willalleviatecorporate
outsourcingandmaketheU.S.moreattractivetoforeigncompanies.However,whiletheUShasahighofficialtax
rate,theactualtaxespaidbyUScorporationsmaybeconsiderablylowerduetotheuseoftaxloopholes,tax
havens,and"gamingthesystem".[59]Ratherthanavoidingtaxes,outsourcingmaybemostlydrivenbythedesire
tolowerlaborcosts(seestandpointoflaborabove).SarbanesOxleyhasalsobeencitedasafactorforcorporate
flightfromU.S.jurisdiction.

EuropeanUnion

Whereoutsourcinginvolvesthetransferofanundertaking,itissubjecttoCouncilDirective77/187of14February
1977,ontheapproximationofthelawsoftheMemberStatesrelatingtothesafeguardingofemployeesrightsin
theeventoftransfersofundertakings,businessesorpartsofbusinesses(asamendedbyDirective98/50/ECof29
June1998consolidatedinDirective2001/23of12March2001).[60]Underthatdirective,rightsacquiredby
employeeswiththeformeremployeraretobesafeguardedwhenthey,togetherwiththeundertakinginwhichthey
areemployed,aretransferredtoanotheremployer,i.e.,thecontractor.Anexampleofacaseinvolvingsuch
contractingoutwasthedecisionoftheEuropeanCourtofJusticeinChristelSchmidtv.SparundLeihkasseder
frherenmterBordesholm,KielundCronshagen,CaseC392/92[1994].Althoughsubsequentdecisionshave
disputedwhetheraparticularcontractingoutexerciseconstitutedatransferofanundertaking(see,forexample,
AyseSzenv.ZehnackerGebudereinigungGmbHKrankenhausservice,CaseC13/95[1997]),inprinciple,
employeesofanenterpriseoutsourcingpartofitsactivitiesinwhichtheyareemployedmaybenefitfromthe
protectionofferedbythedirective.

Seekingtoimplementthecostcuttingsolutions,manyWesternEuropeanfirmshavebeentransferringtech
projectseastward.Forexample,DeutscheBankhassomeofitssoftwaredevelopedinUkraine,Siemenspossess
R&DcenterinRomania.EuropeOutsourcinghasproducedoutstandingresultsandhenceforwardtheyare
increasingtheminnumbers.

Despiteunfavorableeconomicconditionsfrom2007to2009,theoutsourcingservicesmarketcontinuedtoflourish
inCentralandEasternEuropean.[61]In2008whentheinflowofinvestmentinWesternEuropewasdownby48%,
itfellbyonly9%inCentralandEasternEurope.InPolandalone,during2009,theyearfollowingtheglobal
economicdownturn,approximately10,000jobswerecreatedinbusinessprocessoutsourcing(BPO).

Cosourcing
Cosourcingisabusinesspracticewhereaserviceisperformedbystafffrominsideanorganizationandalsobyan
externalserviceprovider.[62][63]Itcanbeaserviceperformedinconcertwithaclient'sexistinginternalaudit
department.Thescopeofworkmayfocusononeormoreaspectsoftheinternalauditfunction.Cosourcingcan

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servetominimizesourcingrisks,increasetransparency,clarityandlendtowardbettercontrolovertheprocesses
outsourced.[64]

Examplesofcosourcingservicesaresupplementingtheinhouseinternalauditstaffwithspecializedskillssuchas
informationriskmanagementorintegrityservices,providingroutineassistancetoinhouseauditingforoperations
andcontrolevaluationsinpeakperiodactivityandconductingspecialprojectssuchasfraudinvestigationorplant
investmentappraisals.Anotherexampleofcosourcingisoutsourcingpartofsoftwaredevelopmentorsoftware
maintenanceactivitiestoanexternalorganization,whilekeepingpartofthedevelopmentinhouse.Otherinternal
businessactivitiessuchasHRandadministrativetaskscanalsobecosourcedbyemployeeleasingcompanies.

Identitymanagementcosourcing

Itisanapproachtoenterpriseidentitymanagementinwhichtheidentityserviceinteractsdirectlyorthroughsome
technicalfootprintwithanorganization'sInformationTechnology(IT)identitybackendinfrastructure(directories,
databases,andotheridentityrepositories).Theorganizationandtheexternalserviceprovidertypicallyhavea
sharedresponsibilityforbuilding,hostingandoperatingtheidentityservice.Thebalanceofthisresponsibilitycan
varydependingontheservicelevelsrequired,andspanfromanallonpremisesdeployment,wheretheidentity
serviceisbuilt,hostedandoperatedwithintheorganization'sITinfrastructureandmanagedonpremisesbythe
externalserviceprovider.Thiscontrastswithan"allinthecloud"servicescenario,wheretheidentityserviceis
built,hostedandoperatedbytheserviceproviderinanexternallyhosted,cloudcomputinginfrastructure.

Counterwaveoutsourcing
Somefirmshavereversedthedecisiontooutsourcebecausetheresultswerenotentirelyasexpected.The
circumstanceswhichallowfirmstounbundlethedifferenttasksorstagesofitsmanufacturingprocessinto
differentlocationshavenotbeenfullydetermined.Thoughthenatureofthetasksplaysaroledeterminingtheir
interconnectedness,otherfactorssuchasinnovationinthemanufacturingprocessoradvancesintransportand
communicationtechnologyalsoaffecttheneedfordirectcontactamongemployees.Astheprocesswhichties
taskstogetherwithinfirmsremainsunclear,thereisadegreeofuncertaintyaboutwhichtasksneedtoremain
geographicallyclusteredtogether.Inmanycasesfirmstookrisksexperimentingwithoutsourcingwhilelackinga
firmunderstandingoftherelationshipamonginternaltasksanditsspatialimplications.[43]

Despitesavingmoney,companieshaveoftenfacedunexpecteddrawbacksfromoutsourcing,suchas
miscommunicationorlowerqualityofintermediateproducts,whichendupdelayingtheoverallproduction
process.Anotherreasonforadecreaseinoutsourcingisthatmanyjobsthatweresubcontractedabroadhavebeen
replacedbytechnologicaladvances.[65]

AccordingtoaDeloitteConsultingsurveycarriedoutin2005,aquarterofthecompanieswhichhadoutsourced
tasksreversedtheirstrategy.ManybigcompanieslikeLenovoconsideredturningaroundoutsourcingstrategiesof
outsourcing.[65]

PublicopinionintheUSandotherWesternpowersopposingoutsourcingwasparticularlystrengthenedbythe
drasticincreaseinunemploymentasaresultofthe20072008financialcrisis.Inthefirstdecadefrom2000to
2010,theUSexperiencedanetlossof687,000jobsduetooutsourcing,primarilyinthecomputersandelectronics
sector.Publicdisenchantmentwithoutsourcinghasnotonlystirredpoliticalresponses,asseeninthe2012US
presidentialcampaigns,butithasalsomadecompaniesmorereluctanttooutsourceoroffshorejobs.[65]

A2016Deloittesurveysuggestedthatcompaniesarenolongerreluctanttooutsource.[66]Deloitte'ssurvey
identifiedthreetrends:

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Companiesarebroadeningtheirapproachtooutsourcingastheybegintoviewitasmorethanasimplecost
cuttingplay
Organizationsare"redefiningthewaystheyenterintooutsourcingrelationshipsandmanagetheensuing
risks."
Organizationsarechangingthewaytheyaremanagingtheirrelationshipswithoutsourcingprovidersto
"maximizethevalueofthoserelationships."

Seealso
ApplicationManagementServicesFramework
Businessprocessoutsourcing(BPO)
BusinessprocessoutsourcingtoIndia
BusinessprocessoutsourcinginthePhilippines
CallcenterindustryinthePhilippines
CallcenterindustryinBangladesh
Cosourcing
Comparativeadvantage
Contingentworkforce
Crowdsourcing
Engineeringprocessoutsourcing(EPO)
FacilitiesManagement
Farmshoring
Freelancemarketplace
Globality
Globalsourcing
Homeshoring
Informationtechnologyoutsourcing(ITO)
Impactsourcing
Knowledgeprocessoutsourcing(KPO)
Legalprocessoutsourcing(LPO)
Listofmanagementtopics
Offshoresoftwaredevelopment
Offshoring
OffshoringResearchNetwork
Outsourcemarketing
Printandmailoutsourcing
ProgrammersGuild
Recruitmentprocessoutsourcing(RPO)
Regionalinsourcing
Supplychain
Telecentre
Telecommuting
Thirdpartylogistics(3PL)
Transitionmethodology
Verifiablecomputing
Vestedoutsourcing
Virtualassistance

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Externallinks
ThedictionarydefinitionofoutsourcingatWiktionary
QuotationsrelatedtoOutsourcingatWikiquote

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