Offshore outsourcing refers to the practice of hiring another company from another country to perform business processes. These may include customer service, data entry and processing, technical support, computer programming, transcription, bookkeeping, animation, graphic design and many more. Basically, any business process that can be done through telework can be outsourced to outside organizations.
Offshore outsourcing can be classified into four different types: information technology outsourcing (ITO), business processes outsourcing (BPO), offshore software development, and knowledge process outsourcing (KPO). BPO, perhaps, is the most popularly known type of outsourcing because of call centers. Indeed, thousands of call centers have mushroomed in developing countries such as India and the Philippines to give support to companies based in developed countries like the U.S. and United Kingdom. Although most call centers are known to render customer support through help desk, email, phone, and chat, they also render data entry services, insurance claims processing, and telemarketing functions among others.
From a businessman's point of view, outsourcing brings with it many benefits, including lower operational costs and the opportunity to increase profits. Offshore outsourcing also allows companies to focus on their core competencies and on innovating products and services. Additionally, outsourcing human resources gives companies access to knowledge, talent, and expertise that is not available locally.
In an article published in a July 2009 issue of Businessweek, India remains as the top outsourcing destination in the world. The Philippines, with its thriving call center industry, came in second. These two outsourcing destinations account for 50% percent of the total BPO market worldwide. Other popular outsourcing destinations mentioned in the report are Thailand, Malaysia, Egypt, Jordan, and Vietnam. The countries of UAE, Tunisia and Morocco are also fast becoming havens of BPO companies because of cheap labor and lax business laws.
Because of the popularity of offshore outsourcing, it has become one of the most controversial topics in the U.S. economic community. On one hand, outsourcing back office business processes and information technology (IT) functions results in large savings for a company, regardless of its size. A company on the brink of bankruptcy can actually be revived by outsourcing some of its processes to countries like India, Philippines, and China, where the labor is cheap. From an economic point of view, this is good for the economy since a struggling business is still better than a dead one. A struggling business puts food on the table of its employees and keeps them from joining the ranks of the unemployed.
On the other hand, offshore outsourcing often leads to massive lay-offs and job loss, which, as any economist will tell you, is bad for the economy. Aside from the hike in the unemployment rate, the government's coffers will be seriously affected, as it will be required to pay unemployment benefits to the jobless at the same time as its tax collections are getting smaller. This has prompted several political groups in the U.S. to lobby for laws that seek to curb the outsourcing to foreign countries. One such law, introduced and passed in 2004, prohibits contractors of the U.S. federal government to sub-contract work to third-party providers overseas.