Information technology outsourcing
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Information technology outsourcing or ITO is a company's outsourcing of computer or Internet related work, such as programming, to other companies. It is used in reference to business process outsourcing or BPO, which is the outsourcing of the work that does not require much of technical skills.
IT outsourcing drivers
IT outsourcing refers to outsourcing all or parts of IT functions to an external party. Information technology outsourcing is a subset of business process outsourcing (BPO). The reasons for IT outsourcing include lack of resources and cost reduction. IT outsourcing is sometimes called IT enabled services (ITES) outsourcing.
The typical destinations of overseas IT outsourcing are India and Philippines for the American and European companies and China and Vietnam for the Japanese companies.
A combination of high overhead in the United States and strong cultural ties between the domestic and Asian information technology industries have led many companies to outsource labor-intensive software programming to Asia and Eastern Europe.
Although Eastern Europe has created a lot of competition for India in recent years, India has always been a major player in information technology (IT); they even make their own supercomputers for predicting monsoons. It wasn't until the Y2K bug emerged that the need for legions of cheap programmers really arose, however, and American companies began to see the potential for outsourcing overseas. After Y2K the IT service industry exploded, with American companies outsourcing everything from data entry to customer service to India and other Asian countries.
Despite its distinct advantages for companies looking to outsource their IT services, India's volatile political climate and rampant corruption present problems. Some of the 185 Fortune 500 companies that outsource software to Asia are choosing places like Vietnam or China with more predictable politics and less corruption. The Vietnamese government has succeeded in retaining a low cost, lower risk market, while significantly improving income, per capita. A series of educational measures and incentives have also been applied to promote the technology sector. In addition, Vietnam is exceptionally attractive due to competitively low salary of the technically skilled workforce.”While not the cheapest outsourcing destination, Vietnam is still very competitive when compared to other global locations, especially, as wage rises in India and China. This is what contributed to it surging up the rankings, to take first place in 2015,” commented Richard Middleton, Cushman & Wakefield’s head of occupier services for Asia Pacific, Middle East and Africa,.
Other (mainly American) companies that outsource their customer service are finding that their customers prefer the Americanized English of the Philippines to the British English that predominates in India, though all of these countries have their drawbacks, from censored Internet lines in China and Vietnam to Muslim militancy in the Philippines.
Despite the hiccups the IT service industry continues to grow as the software industry becomes more competitive and U.S. companies try to reduce overhead. The Asian IT service market is still in its infancy, but by 2008 industry think tank Nasscom-McKinsey predicts a $17 billion IT service industry in India alone.
Countries like United States and Canada usually seek nearshore outsourcing in Latin American countries like Mexico, Guatemala, Costa Rica, Panama, and others because of a closer cultural match and timezone.
In recent years Eastern Europe has also become a common ITO destination. ITO to Eastern Europe allows Western European and North American companies to nearshore, remote insource, and in general benefit from timezone and cultural proximity. Countries like Belarus, Russia and Ukraine are common destinations for ITO within Eastern Europe.
Outsourcing IT to Eastern Europe has been on the rise because of the low-cost but highly skilled labor available in this region, as well as its geographical and cultural proximity. At first, many companies chose to outsource to more traditional Asian destinations. However, as software development and security needs grew, along with a preference for geographically closer partners, Eastern Europe became a more common destination for ITO. In 2009, the number of IT professionals working for an ITO company in the Central-East European Region (not including Russia), reached 95,000; this number represents a 9% growth for countries like Ukraine. A representative snapshot of Ukraine's IT outsourcing market can be found in the uSupport Project catalog, founded in 2014 and containing the most recent info about the outsourcing companies and their services.
United States of America
Although many associate outsourcing of the IT industry to be leaving America, the United States does receive a wide variety of outsourcing work from other countries. A 2009 study on oDesk employment had the United States ranked #3 in countries that received outsourced work. This is credited to the enhancements in cloud computing, and the high evaluation marks that United States located workers have and continue to receive. The adverse effect that the American economy has brought to the American worker, has also increased the demand for seeking employment in other countries. Prior to 2008, the need was not that high, as the average American worker was able to find work within the 50 domestic states.
Illegal outsourcing by Japanese IT companies
Japanese companies often exploits the foreign labors, particularly Chinese and Vietnamese, by violating the Employment Security Act, and Labor Standard Act set by ministry of health and labors in Japan using the name of offshoring.
Article 44 of Employment Security Act in Japan implicitly bans the domestic/foreign workers supplied by unauthorized companies regardless of their operating locations. Law will apply if at least one party of suppliers, clients, labors reside in Japan, and if the labors are the integral part of the chain of command by the client company, or the supplier.
No person shall carry out a labor supply business or have workers supplied by a person who carries out a labor supply business work under his/her own directions or orders, except in cases provided for in the following Article.
— Employment Security Act
Those deemed to violate will be punished with
A person who falls under any of the following items shall be punished by imprisonment with work for not more than one year or a fine of not more than one million yen
— Employment Security Act states, Article 64
as well as the punishment defined by the article 6 of Labor Standards Act in Japan,
Unless permitted by act, no person shall obtain profit by intervening, as a business, in the employment of other
— Labor Standards Act
Victims can lodge a criminal complaint against the CEO of the suppliers and clients in the Labor Standards Inspection Office (only applicable to Labor Standards Act) or Public Prosecutor's Office of the respective company location. Due to the risk of the CEO's arrest, Japanese company accustoms to the private settlement with financial package in the range between 20 and 100 million JPY (200,000 - million USD).
- Offshore programming
- Software testing outsourcing
- Website Management Outsourcing
- Offshoring Research Network
- The next step for the CEO: Moving IT-enabled services outsourcing to the strategic agenda, http://www.sciencedirect.com/science/article/pii/S1467089504000466
- ITES: Business Models, http://www.slideshare.net/amitanshu/ites-business-models
- VIETNAM TOPS C&W GLOBAL OUTSOURCING LOCATION INDEX FOR FIRST TIME, http://www.cushmanwakefield.de/en-gb/news/2015/03/business-process-outsourcing/
- Tagliabue, John. "Eastern Europe Becomes a Center for Outsourcing" New York Times , April 19, 2007. http://www.nytimes.com/2007/04/19/business/worldbusiness/19prague.html?pagewanted=all&_r=0
- Ukrainian Hi-Tech Initiative. Dec. 3rd, 2010. http://hi-tech.org.ua/intetics-sponsors-research-2010/
- Hoch, Detlev et al. McKinsey Quarterly, Dec 2006. "The overlooked potential for outsourcing in Eastern Europe" http://www.mckinseyquarterly.com/The_overlooked_potential_for_outsourcing_in_Eastern_Europe_1884
- Hall, Kathleen. "Why more businesses are nearshoring in Eastern Europe" Computer Weekly, July 2011. http://www.computerweekly.com/feature/Why-more-businesses-are-nearshoring-in-Eastern-Europe
- A catalog of IT companies of Ukraine created to facilitate the match-making process between the companies and the customers. http://usupport.in.ua
- By Wadhwa, Vivek. "Outsourcing Benefits U.S. Workers, Too" Bloomberg Business Week , August 2, 2009. http://www.businessweek.com/technology/content/jul2009/tc20090731_382752.htm
- Labor Standards Act