Just as contract manufacturing compelled transformation in the high technology industry, software offshore outsourcing is transforming organizations across an expansive array of industry and services sectors worldwide.
The value in outsourcing is proven already.
The exciting growth that this business is experiencing today is too powerful to resist even for potential political problems with the outsourcing destinations. For large multinational companies driven by cost efficiency, need for excellent talent and turn around times, India has proven to be competent and reliable over a significant length of time. Their confidence is illustrated by an increase in straight through processing-related functions to India. Today Western and European enterprises are more flexible about the kinds of partnerships they choose. There is great openness and willingness now to accept other types of outsourcing options, such as joint ventures and nontraditional third-party providers.
The outsourcing model is already being leveraged by 40% of the Fortune 500 companies including Lucent, Oracle, Microsoft and Motorola. The offshore outsourcing model can bring in cost savings of 50% - 70% depending on the mix of onsite and offshore resources. The main drivers for this phenomenon is the pressure to reduce costs, improve efficiency and increase flexibility in the back office of almost every major industry in the West and Europe.
Many non-critical functions and, now increasingly even critical areas like product research and development in many technology sectors, are being outsourced to low cost, high knowledge destinations.
Several factors are pushing firms to more outsourcing. Foremost is more emphasis on controlling costs. Firms start thinking about replacing fixed costs with variable costs. With an outsourcing agreement based on the amount of use of the process, the costs go down as volumes decrease due to flexible contracts.
The second main driver is that regulatory requirements force firms to focus their technology resources away from supporting some basic operations. The outsource provider takes on the responsibility of ensuring that technology is maintained and updated, avoiding the need for institutions to spend money on updating, maintaining or rebuilding their processing systems.
Standardization also can promote outsourcing. Third-party or industry utility services now offer centralized standards-based connectivity, reducing integration costs and hassles both within and between brokerage firms. Another standardization process, the move to Web services, makes it easier to outsource by letting firms expose legacy systems and applications over networks-and to the outsourcer.