The world has been overwhelmed by new concepts and notions, the IT world being one of the major accumulators thereof.
One of the growing tendencies of the modern world is delegating various tasks and services to other companies which are often located nearshore or offshore.
According to businessdictionary.com, outsourcing is”contracting, sub-contracting, or ‘externalizing’ non-core activities to free up cash, personnel, time, and facilities for activities where the firm holds competitive advantage. Firms having strengths in other areas may contract-out data processing, legal, manufacturing, marketing, payroll accounting, or other aspects of their businesses to concentrate on what they do best and thus reduce average unit cost. Outsourcing is often an integral part of downsizing or re-engineering. Also called contracting out.”
Usually, the companies that provide outsourcing services are called third-party providers, or more frequently named, service providers.
One of the frequent examples of outsourcing is when for example a production company contracts its secretarial or legal functions to another company specializing in these spheres. This helps reduce recruitment and hiring costs as well as salary and related expenditure, as both types of services can be used only when they are necessary – normally not every day.
Other functions that can be and are easily outsourced are writing, translation, recruitment, SEO, marketing research, advertising and a great number of other activities which are not core competencies for a company. IT services are not an exception; moreover, more and more firms and enterprises tend to outsource them to professionals, especially for the reason of their reduced cost.
Today a significant number of companies operate only as outsourcing services providers – a great deal of them in the IT outsourcing sphere.This tendency has spread world-wide, transforming even third-world countries into competitive services providers, with lower rates and high proficiency level which is challenged by tough competition and therefore constantly growing.
There is another notion closely connected with the concept of outsourcing – offshoring.
According to http://www.wikipedia.org, “Offshoring describes the relocation by a company of a business process from one country to another – typically an operational process, such as manufacturing, or supporting processes, such as accounting.”
Offshoring presupposes investment but its aim is still cost reduction. However, both sides win: the companies that use offshoring opportunities benefit by means of their expenditure decrease while the countries that provide a platform for such offshore activities increase employment and taxation opportunities.
Thus, if we compare these two concepts, we’ll see that outsourcing covers a much broader meaning than offshoring, though their functions are mostly the same.
Both concepts deal with delegating some volume of routine work to other companies. Outsourcing can be done within the boundaries of one and the same country, while offshoring is always about performing some activities outside the country.
Outsourcing is more focused on getting rid of the company’s mundane tasks and concentrating on the company’s core activities – the priority for offshoring is mostly reducing overheads. Both outsourcing and offshoring practices have grown in popularity among big companies.
However, like any other business strategy, outsourcing has its pros and cons.
Large and medium-sized European and American companies tend to delegate their peripheral functions to firms outside their domicile countries. In Eastern and Central Europe IT outsourcing services providers are concentrated in the Ukraine, Russia, Belarus, the Czech Republic, Latvia, Romania and some other Eastern and Central European countries.