Outsourcing will be an approximately $611.0
billion global industry in 2019, with significant emphasis on three broad
areas: 1) logistics, sourcing and
distribution services; 2) information technology services, including the
creation of software and the management of computer centers; and 3) business
process outsourcing (BPO) areas such as call centers, financial transaction
processing and human resources management.
Offshoring, as opposed to outsourcing, covers
such a wide variety of nations, products and practices that it is difficult to
put a number on the size of the market.
A significant share of offshoring revenue is created by contract
manufacturing of electronics, including laptop computers, tablet computers,
cellular telephones and items such as iPods.
Another major sector in offshoring is contract manufacturing of shoes,
apparel and accessories.
Contract
electronics manufacturing was estimated at $461 billion for 2018 by Plunkett
Research.
This market has changed
dramatically over the past few years, as the demand for personal desktop consumers
is weak as consumers more and more tend to use their smartphones as
multipurpose devices, such as cameras, game players and music players.
However, the growing popularity of
internet-connected personal assistants, such as Alexa and Google Home, will
help boost manufacturing activity.
Offshore cost savings have become less
advantageous in many cases, as wages and operating costs have been rising
rapidly in the business and manufacturing centers of China and India.
Leading offshore services providers, such as
IT consulting giant
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Outsourcing will be an approximately $611.0
billion global industry in 2019, with significant emphasis on three broad
areas: 1) logistics, sourcing and
distribution services; 2) information technology services, including the
creation of software and the management of computer centers; and 3) business
process outsourcing (BPO) areas such as call centers, financial transaction
processing and human resources management.
Offshoring, as opposed to outsourcing, covers
such a wide variety of nations, products and practices that it is difficult to
put a number on the size of the market.
A significant share of offshoring revenue is created by contract
manufacturing of electronics, including laptop computers, tablet computers,
cellular telephones and items such as iPods.
Another major sector in offshoring is contract manufacturing of shoes,
apparel and accessories. Contract
electronics manufacturing was estimated at $461 billion for 2018 by Plunkett
Research. This market has changed
dramatically over the past few years, as the demand for personal desktop consumers
is weak as consumers more and more tend to use their smartphones as
multipurpose devices, such as cameras, game players and music players. However, the growing popularity of
internet-connected personal assistants, such as Alexa and Google Home, will
help boost manufacturing activity.
Offshore cost savings have become less
advantageous in many cases, as wages and operating costs have been rising
rapidly in the business and manufacturing centers of China and India. Leading offshore services providers, such as
IT consulting giant Wipro, have been opening offices and making acquisitions in
America and Europe—the locales of some of their leading customers—as these
international firms become more global and mature in nature.
A large portion of the products manufactured
offshore for corporations that are headquartered in the U.S., Canada, Japan and
other developed nations are very often intended for sale in offshore markets,
rather than at home—a clear indication of globalization at work. For example, Apple’s extremely popular
smartphones are manufactured by offshore contract electronics firms in
Asia. A large portion of their sales are
in Asia itself, where the products are made.
There are often advantages to conducting manufacturing close to the
business and consumer markets of Asia.
In order to consider the “outsourcing” and
“offshoring” industry, it is best to define these terms up front, since the
words are often used in conjunction and are sometimes used incorrectly:
Outsourcing can be defined as the
hiring of an outside company to perform a task that would otherwise be
performed internally by a company, organization or government agency—generally
with the goal of lowering costs and/or streamlining workflow. Outsourcing contracts are often several years
in length. Companies that hire
outsourced service providers often do so because they prefer to focus on their
core strengths while sending more routine tasks outside for others to
perform. Other companies replace
existing employees with outsourced services in hopes of lowering total costs.
Typical outsourced services include the
operation of human resources departments, telephone call centers, distribution
centers, research needs, computer services, software design and the design
and/or engineering of components or end-products. For example, in addition to selling products
such as books via its massive online store, Amazon also offers outsourced
services. It provides warehousing and
shipping services to businesses, large and small, that want to rely on Amazon
for handling and shipping their merchandise to end users. Amazon also provides outsourced computer
cloud services to firms that do not want to own and operate their own computer
servers.
The use of robotic process automation or “RPA,”
is growing very quickly and is having a profound impact on the outsourcing of
business services and day-to-day tasks.
RPA utilizes artificial intelligence, voice recognition and advanced
computer programs to manage customer account details, and to answer questions
from online sites/chat boxes and customer telephone calls. The end result will be the elimination of a
very large number of human employees in such tasks, particularly those in major
call centers that are typically run on an outsourced basis.
Offshoring refers to the tendency
among many firms to send both knowledge-based and manufacturing work to
third-party firms in other nations.
Often, the intent is to take advantage of lower wages and operating
costs in such nations as India, Mexico, Hungary, the Philippines and
Romania. The choice of a nation for
offshore work also may be influenced by factors such as the language and
education of the local workforce or the quality of transportation systems and
other local infrastructure. For example,
China and India are graduating high numbers of technicians, engineers and
scientists from their universities—thus enabling these nations to attract
massive engineering, research and development contracts. In addition, some nations, such as the
Philippines and India, are noted for large numbers of workers skilled in the
English language.
In many cases, offshoring utilizes less-skilled
labor working for low wages in plants that manufacture such items as shoes, apparel
and generic computer components. In
other cases, offshore manufacturing contracts go to firms in nations that have
developed very advanced technology and industrial bases with highly-skilled and
educated workers. For example, final
manufacturing of laptop computers and other electronics is frequently offshored
to very high quality firms in Taiwan and South Korea. In China, Hon Hai Precision Industry Co. has
more than 1 million employees who do contract electronics manufacturing.
Captive
offshoring
is a term used to describe a company-owned offshore operation. For example, IBM and Microsoft each own and
operate significant captive research and development centers in China and India. The goals of captive offshoring include
greater company control through direct ownership, along with lower operating
costs and the ability to utilize highly educated local workforces. IBM first opened a research lab in India in
1998. By 2010, IBM’s headcount in India
had grown to more than 80,000, and by 2017, it reached 130,000. IBM also had major research centers distributed
around six continents worldwide.
Insourcing refers to situations
where an outsourced services provider moves into, and sets up shop in, a client
company’s facility. For example, it is
common for major companies to sign agreements with IBM Global Services and similar
IT outsourcing firms whereby these companies take over and operate a client’s
internal computer department. Here’s a
non-technology insourcing example:
ARAMARK Corporation builds and operates snack bars, employee cafeterias
and executive dining rooms within a client company’s facilities.