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A Few Reasons Why US Companies Prefer Outsourcing to Faraway Lands

• Written by Emenac Inc. • Posted Date 16-10-2012

Even though inland and nearshore outsour-cing is being largely pro-

pagated today, most compa-nies still prefer offshore outsourcing to areas that are half a world away. This is primarily due to the fact that the effects of the global economic crises of 2007 are still around and most nations still have not recovered from them. Therefore, money saving remains a great concern even today and with offs-hore outsourcing saves more money than inland or nearshore outsourcing, it is of course, the choice of most businesses. Especially inside the United States, the trend of stateside outsourcing is becoming po-pular but most businesses would tend to stick to far off areas. This has been found out by International Offshoring Research Network’s (ORN) Project at Fu-qua School of Business at Duke University together with International Business Education and Research (CIBER).

As per ORN’s researches held in 2011, the outsour-cing to Latin America is growing as part of the trend of nearshore outsourcing but still, for many areas, South Asian countries such as Pakistan, India, China and the Philippines remain the top choices. These areas include application development and mainte-nance (ADM) and infrastructure. ORN also found out thatwhileoutsourcingtoLatinAmericaforfinanceand accounting grew from 10% in 2009 to 16% in 2011, the outsourcing of ADM services to South Asia grew from 7% to 125 for the same period. It also found out that while in 2000, 70% of the IT infras-

tructure was outsourced to faraway lands, in 2011, this percentage had increased to 76%. According to the researchers at ORN, it is highly possible that the reason why South Asia is still the selected choice of American businesses is the maturity of region’s outsourcing and BPO industry but it may also be due to the familiarity and hence, trust.

South Asian BPO industry has been in touch with American businesses since more than a decade now and over the internet, websites of the region’s com-paniesareflooded.Therefore,thesecompaniesaremore known to American business owners as com-pared to what has recently started in Latin America. The research showed that 43% of outsourced Ame-rican IT infrastructure and innovation and ADM services lie in India, 12% in Eastern Europe and 10% in China. According to a professor at Fuqua, relocating the outsourced services back to America or nearby areas is also not easy enough. It takes in a heavy investment and a lot of time for planning and managing and might cause problems as well. Therefore, American businesses see little or no rea-son in relocating their outsourced services. ORN says that it is not just the cost that has caused an increase in offshore outsourcing but many other factors account for this. These include expansion into other markets along with many others. Out-sourcingdoneforlocation-specificadvantageshasincreased from 28% to 57% and that for accessing new markets has grown from 24% to 48%. Larger global strategies and corporate growth strategies have also become essential points of consideration for outsourcing to faraway lands.

Another strong strategy of outsourcing being done to faraway lands is that of either competing into those markets or capturing them. For this, the US compa-

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Love this PDF? Add it to your Reading List! 4 joliprint.com/mag

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A Few Reasons Why US Companies Prefer Outsourcing to Faraway Lands

nies have not only outsourced but in a much planned manner, sent the most valuable work abroad so as tomarkthefinestofimpression.Whatevermightbe the reasons to outsource several time zones away versus inland outsourcing, the conclusion is that most companies avoid opening up their own captive centers and handling tasks to third parties is the way to go about. This is simply because personal captive centers demand a lot of time and money and to keep over-investments into these, outsourcing remains the best choice that US companies have today.

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