Outsourcing is the delegation of tasks or jobs from internal production to an external entity (such as a subcontractor). Most recently, it has come to mean the elimination of native staff to staff overseas, where salaries are markedly lower The concept started with Ross Perot when he founded Electronic Data Systems in 1962
Offshore outsourcing more and more takes the shape of Business Process Outsourcing, where whole business processes (such as support and development) are outsourced. The client is usually free to choose who provides the outsourced business processes, while stock markets press the company to do more for less. This requires that managers search out the cheapest sources they can find. In countries like India and China (primarily Bangalore in India), companies like IBM, Microsoft, Hewlett Packard, and Novell choose to get BPO business services from sub-contractors in these countries or move many development and support jobs there. Smaller businesses can also take advantage of freelancing on the Internet to get smaller projects done by offshore developers at minimum cost.
In the corporate environment, the term “outsourcing” often refers to a particular type of outsourcing, business process outsourcing (BPO). BPO occurs when an organization turns over the management of a particular business process (such as accounting or payroll) to a third party that specializes in that process. The underlying theory is that the BPO firm can complete the process more efficiently, leaving the original firm free to concentrate on its core competency.
Through the right mix of business process improvement, labor arbitrage and technology enhancements, BPO is aimed at reducing cost, increasing service levels and thus improving the enterprise value of the business processes. Blending qualified workforce with and faster adoption of well-defined business processes leads to higher productivity gains without compromising on quality.
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