What is offshore?

Offshore outsourcing is the practice of hiring an external organization to perform some business functions in a country other than the one where the products or services are actually developed or manufactured. It can be contrasted with offshoring, in which the functions are performed in a foreign country by a foreign subsidiary. Opponents point out that the practice of sending work overseas by countries with higher wages reduces their own domestic employment and domestic investment. Many customer service jobs as well as jobs in the information technology sectors (data processing, computer programming, and technical support) in countries such as the United States and the United Kingdom - have been or are potentially affected.

There are four basic types of offshore outsourcing:

ITO — Information Technology Outsourcing

BPO — Business Process Outsourcing covers things like running call centers, processing insurance claims.

Software R&D — offshore software development

KPO - Knowledge Process Outsourcing covers things that require a higher skill set such as reading X-Rays, performing investment research on stocks and bonds, handling the accounting functions for a business or executing engineering design projects.

The general criteria for a job to be offshore-able are:

There is a significant wage difference between the original and offshore countries;

The job can be telework;

The work has a high information content;

The work can be transmitted over the Internet;

The work is easy to set up;

The work is repeatable.

The driving factor behind the development of offshore outsourcing has been the need to cut costs while the enabling factor has been the global electronic internet network that allows digital data to be accessed and delivered instantly, from and to almost anywhere in the world.

One of the main factors influencing the beginnings of the offshore outsourcing movement were a combination of pressures to reduce labor costs, save on operational cost such as payroll, administrative cost, utilities and to improve productivity, and an expanding, economical labor in other countries. When companies outsource the idea is to save money if they can keep the prices of their product lower than competitors.

Some of the major countries/districts that provide such services are India ( Full Spectrum Services ), Ukraine (Programming and R&D), Brazil (Web & Software Programming,Game Development,IT Support,Network Solutions,Offshore Outsourcing Service), Argentina (Web & Software Programming,Game Development,IT Support,Network Solutions,Offshore Outsourcing Service),Indonesia (Programming, Data Entry, Customer Support), China (Programming, Data Entry, Customer Support, F&A), Philippines (Customer Support, IT Support, Programming, Animation, Transcription), Russia (Programming and R&D), Pakistan (Programming, Customer Support), Panama (Programming, Customer Support), Nepal (Programming, Customer Support), Bangladesh (Web & Software Programming,Game Development,IT Support,Network Solutions,Offshore Outsourcing Service), Bulgaria (Programming and R&D), Belarus (Programming, R&D), Romania (Programming and IT), the Philippines (Programming, R&D, Data Entry and Customer Support), Egypt (Customer Support and Programming), Malaysia (Customer Support and R&D), Mauritius (ITO and BPO) and many others.

Impact of the Internet

The widespread use and availability of the Internet has enabled individuals and small businesses to contract freelancers from all over the world to get projects done at a lower cost due to lower wages and property prices. Crowdsourcing systems such as Mechanical Turk have added the element of scalability, allowing businesses to outsource information tasks across the Internet to thousands of workers.

This trend runs in parallel with the tendency towards outsourcing in larger corporations, and may serve to strengthen small business' capacity to compete with their larger competitors capable of setting up offshore locations, or of arriving at major contracts with offshore companies. See Freelancing on the Internet.

[edit]Source of conflict

There are different views on the impact on the various societies affected, which reflects the attitude of Protectionism versus Free Trade. Some see it as a potential threat to the domestic job market in the developed world and ask for government protective measures (or at least closer scrutiny of existing trade practices), while others, including the countries who receive the work, see it as an opportunity. Free-trade advocates suggest economies as a whole will obtain a net benefit from labor offshoring, but it is unclear if the displaced receive a net benefit.

One issue offshoring of technical services has brought more attention to is the value of education as an alleged solution to trade-related displacements. Education may no longer be a comparative advantage of high-wage nations because the cost of education may be lower in the nations involved in the controversy. [1] While it is true that education is usually considered helpful to competitiveness in general, an "education arms race" with low-wage nations may not pay off.