Project Outsourcing

Outsourcing is being carried out to quite a noticeable extent in order to alleviate costs. It is actually a subcontracting of tasks. Outsourcing of employees to low-cost countries is to take advantage of cheap labor and to get the work in an inexpensive way. Some of the most common services provided by outsourcing companies include finance, accounting, payroll management, benefit administration, researches, data processing, information technology, and many other activities. It actually originated in a recessionary environment when tasks that were not that important strategically were contracted out to companies in other countries (Makhnach, 2007).

Outsourcing IT employees is being broadly considered as the accepted strategy to curtailing costs, especially in America and other Western countries. It is believed that outsourcing information technology functions will improve job prospects in the home country and create better market opportunities. The core concept behind outsourcing lies in the fact that the workings of the main sectors of companies is dumped onto the companies that specialize in the tasks and thus, are able to reduce costs and improve productivity (Weidenbaum, 2004; Makhnach, 2007).

A research report carried out by Davison states that in reality, most IT organizations save 15%-25% during the first year; by the third year, cost savings often reach 35%-40% as companies “go up the learning curve” for offshore outsourcing and modify operations to align to an offshore model.

This is not a recent phenomenon, however. Outsourcing of IT employees had started years before, when IT companies in the US wanted to capture some share of the foreign markets. Apparently, 60 percent of the revenue of American information technology companies is originated overseas. This is due to the fact that domestic market has been saturated and companies face a decline in sales revenue as a direct result of this (Weidenbaum, 2004).

Outsourcing IT employees can help a company survive in a market where cut-throat competition prevails. Besides, an IT firm is forced to turn towards outsource as a last resort when its rival firms start benefiting from it and strengthen their market power. Global outsourcing can enable the companies to customize their products to meet the needs of local demands, besides allowing them to give 24 hours coverage, 7 days a week (Weidenbaum, 2004)

The results of a research report carried out by Weidenbaum in 2004 show that about 400,000 U.S. positions in information technology have gone offshore. Meanwhile, total U.S. employment rose from 129,000,000 in 1993 to 138,000,000 in 2003–mainly in services. Only about 1.4% of the $120,000,000,000 spent on information technology (IT) services in the U.S. in 2003 moved offshore. (p. 1)

The positive impacts of outsourcing include lower inflation, increased productivity and lower interest rates. (Global Insight,2004) This gives a boost to business and consumer spending and improves the overall state of economic activity. In the US, global outsourcing of IT employees has improved the Gross Domestic Product quite to a substantial extent.

The research paper, Global Insight states that by 2008, real GDP is expected to be $124.2 billion higher than it would be in an environment in which offshore IT software and services outsourcing does not occur.