At present, outsourcing has become a very popular source of competitive advantage. By paying other companies to run IT and other support divisions, many U.S. companies are cutting staffs, costs, and increasing efficiency. The immediate benefits can be great, allowing smaller companies to gain cheaper access to expensive technologies and allowing large firms to expand there IT usage without risk of obsolescence. As with any potentially rewarding activity, there are risks involved. Companies need to weigh the risks, rewards, and costs involved before making a decision to outsource. The more vital the task, the more care should be taken with this decision (Kakumanu and Portanova, September 2006). But, first what is outsourcing
According to Webster's New World Finance and Investment Dictionary (2003), outsourcing is an increasingly popular process where a company contracts with another company to manage services that it needs but that it doesn't want to provide itself. Typically, outsourced services are non-core activities such as janitorial services, information technology, and food catering for the employee cafeteria. Sometimes companies outsource manufacturing and focus on sales and marketing. As such, outsourcing became popular because it allowed companies to reduce short-term costs. On the other hand, Laabs (1993) and Spee (1994), defined outsourcing as something that involves a long-term contractual relationship for business services from an external provider. These relationships are increasingly popular in a wide variety of business activities. Firms widely outsource in areas once strictly considered internal domains, such as human resources.
Although most people think that outsourcing is a new innovation, outsourcing is already an older practice than some people realize. In colonial days, American businesses outsourced the production of covered-wagon covers and clipper ships' sails to workers in Scotland. The raw material for these products was imported from India. A couple of hundred years later, in the 1970s, computer companies began to outsource their payroll applications to outside service providers. However, most of these jobs were outsourced to companies in other states rather than overseas. It was in the late 1980s that the practice of outsourcing began to boom. During this time the field of information technology (IT) was growing rapidly, and the demand for IT workers who could develop hardware and software exploded. As the Internet and telecommunications fields developed, companies created thousands of high-paying jobs to attract talented IT employees to work for them. As the U.S. economy faltered, however, companies had to cut their IT budgets and began to seek a less expensive labor force outside of the United States (Dunbar, 2006).
Moreover, according to Dunbar (2006), India, with its large population of English speakers and trained workers, transformed to become one of the first countries to benefit from the outsourcing trend. Americans companies began outsourcing some of their low-end IT jobs to India in the early 1990s and have gradually outsourced a wide variety of work, including call center servicing, medical transcription, tax return preparation, research and development, and medical data analysis. Cities like Bangalore have become well known for their skylines dotted with call center buildings that seem to have cropped up overnight. Providing customer