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Analyse the Importance of Information and Communication Technologies in the Process of International Outsourcing

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Information and communication technologies are of paramount importance in the process of international outsourcing primarily through the technological advancement surge and demand in recent years. Through the rise of Information technology in recent years, the importance of international outsourcing rose significantly. Outsourcing is the contracting of the management and/or execution of a business function to an outside third-party contractor or subcontractor. Outsourcing typically refers to the contracting of services to an offshore, rather than domestic, company.

While outsourcing has been an accepted business practice for hundreds of years, it has recently become a key component in the success of many domestic and international firms especially in Information and communication sectors.

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In the modern world, businesses will define what they do best, organize the whole and outsource the rest. India is the leading country for offshore outsourcing. The offshore outsourcing industry started in India and it has been able to grow the IT and BPO export sector to $47 billion and capture more than half the offshore outsourcing industry.

That is not to say that India does not have challenges or is the best location for every offshore outsourcing effort, but it has an unparalleled history and size. The Americas and Europe are the largest customers for the Indian outsourcing industry and account for 60% and 31% respectively of IT and BPO exports. The largest vertical sectors are financial services (41%), high-tech/ telecom (20%), manufacturing (17%) and retail (8%). In 2009 the IT and BPO export industries employed about 2. 2 million people.

IT and BPO services outsourcing first started in India in the mid 1980s. The large, English speaking, low-cost workforce was the main attraction. The industry grew rapidly through the 1990s aided by the Internet boom and IT upgrades to prepare for potential Y2K bugs. The 2000s saw similar growth with work moving to India in down cycles to help companies cut costs and in boom times to capitalize on the readily available talent. The 2008-2009 global recession has had a negative impact on outsourcing growth in India, but the sector is experiencing a turn-around in 2010.

Many US and European companies are still cautious about the speed or staying power of the 2010 economic recovery and thus are looking to maintain a low cost base in locations such as India. It is expected that IT and BPO outsourcing in India will bounce back to double-digit growth rates in 2010. With the integration and development of IT systems and communications, the demand for international outsourcing increases significantly. Outsourcing to India can provide significant direct cost savings. Wages, the largest component of costs, can be one tenth to one half those in the US.

However, the rapid growth of outsourcing to India has lead to significant wage inflation especially for higher skilled employees. Other locations such as the Philippines, Pakistan, Indonesia and Egypt can have some less expensive resources, but the differences are not always significant. Based on this workforce and its early entry into the global sourcing market, India has built the largest export sector for IT services. India exports about $50 billion in computer and IT related service. This is about four times that of the United States and almost an order of magnitude greater than any other location.

In the BPO sector, India has a leading position, but not as dominant as in IT. With the rise of information technology and communications in international outsourcing, means more people would be employed in the foreign country. This would ultimately decrease unemployment and raise living standards especially in countries such as India and China who’s GDP is still low. Through the process of international outsourcing in India, the process had significantly influenced other companies to outsource into other countries such as China.

According to a January 2005 report from Yu Guangzhou, Vice Minister of the Ministry of Commerce in China, the Chinese software industry has developed rapidly, with an average annual growth rate of 30% for the past five years. Software exports have grown a sevenfold during the past five years. In addition, sales revenue of China’s software industry increased from USD 7. 16B in the year 2000 to USD 19. 3B in 2003, while software exports increased from USD 0. 25B to USD 2B in the same period. In 2008, the domestic market of China’s software and information outsourcing industry reached US$633. billion. By 2010, total outsourcing industry revenues in China had reached an estimated US$20 billion. The potential growth of the Chinese information technology (IT) services market is compelling — it is expected to grow at an attractive range of better than 20% a year during the next few years. China-heritage providers are indigenous Chinese companies that are tapping the outsourcing potential around the globe and in their own country. There are currently some 13,000 Chinese IT services firms. Most are small, with fewer than 1,000 employees.

Fewer are mid-tier, with 1,000 – 10,000 employees. A very few are achieving scale, with more than 10,000 employees. In all, about 2. 3 million people work for these companies and together earned about US$20 billion in 2010. The average firm employs about 200 people and earns an average of US$9,000 per employee. The major China heritage firms are present in about 90 locations. Of the 90 centres, 72 % focus on IT outsourcing (ITO), 9% focus on business process outsourcing (BPO), and 19% offer both BPO and ITO. Most tend to focus on clients in Mainland China and Asia Pacific.

Some are more global in their client base. The rise of IT firms in China primarily due to international outsourcing has increased the workforce in the tertiary sector, thus increasing the GDP and raising living standards in China. With the technological advancement of information and communication, the demand for international outsourcing has become a vital process within the business sector, therefore international outsourcing is of paramount significance. With the rapid rise of the IT sector, international outsourcing will become even more significant in the future.

Cite this Analyse the Importance of Information and Communication Technologies in the Process of International Outsourcing

Analyse the Importance of Information and Communication Technologies in the Process of International Outsourcing. (2017, Feb 02). Retrieved from https://graduateway.com/analyse-the-importance-of-information-and-communication-technologies-in-the-process-of-international-outsourcing/

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