Stated succinctly, companies outsource functions for reasons that are organisationally driven, improvement driven, financially driven, revenue driven, or cost driven. Moreover, outsourcing can be viewed as a component of corporate and industry international expansion and restructuring. It is essentially based on a simple idea: The idea is that by allotting certain tasks to firms outside the company, the firm can focus its personnel resources on a narrower range of tasks, and specialized skills and economies of scale will be developed in place of sprawling efforts to cover all bases.
(Horstein) There has been an impressive economic growth in the outsourcing industry in the recent years. Some outsourcing industry sectors, such as business process outsourcing (BPO) in India, are growing at almost 60% to 70% per annum. China, Russia, and almost every nation are now actively developing their own respective outsourcing industries. While more providers in the industry might be helpful in increasing competition, they might also cause economic disruptions, leading to some providers going out of the business (Vashishta, Vashishta 2006).
Information Technology (IT) and research and development (R&D) are among organisational functions that are commonly outsourced. In IT, offshore outsourcing is the world’s fastest growing segment of the industry. A group of global players, notably companies in India, has emerged emerging to satisfy the growing demand for IT services to be performed by outside vendors. In R;D too, General Motors, IBM, General Motors, Motorola, Monsanto, Siemens, Microsoft, and Nokia are just a few of the companies that have established centres in India.
These corporate giants are not alone in their decision to outsource some of their R;D activities to other nations. The US has 53 companies and a workforce of 15,000 top-notch scientists in India alone. As of 2006, foreign research and development (R;D) centres in India employ nearly 23,000 Indian scientists and represent $2. 3 billion worth of research services (Mudur 2006). The fact that most of the nations that are emerging as outsourcing giants are gearing parts of their economy towards developing competitive advantages in certain areas stimulates the use of outsourcing.
In response to aggressive advertising of such advantages and in order to more efficiently complete certain tasks, a growing number of companies in the U. S and Europe are more actively considering either using companies in places such as India and the Philippines or establishing units there using local labour (Kobayashi-Hillary 2004). A particularly fast-growing area of outsourcing is business process outsourcing (BPO). Whole new industries are growing up to do BPO. These businesses handle entire functions — such as human resource management, accounting, or customer service — on behalf of the client companies.
In our day, companies are increasingly turning to IT outsourcing; business process outsourcing takes the outsourcing concept a step further and offers greater implications. Here, the outsourcing provider not only handles the IT operations but also the complete business process, including many administration tasks. The term “outsourcing” by itself is typically being associated with services outsourcing, as against manufacturing outsourcing, and further these services are normally associated with business processes.
Nonetheless, business process outsourcing also may include manufacturing (Kobayashi-Hillary 2004). Business process outsourcing simply means the movement of business processes from inside the organisation to an external service provider, whether they are related to the services sector or the manufacturing sector, whether they are within one’s own country or outside. Business process is defined as a series of activities that create value by transforming an input into a more valuable output.
Therefore, used in a broad sense, the scope of meaning of the term “business process outsourcing” coincides with that of “outsourcing” to a considerable extent. However, in common parlance, business process outsourcing is used in contrast with technology/software development outsourcing, or knowledge process outsourcing (KPO), and more recently also against LPO (Legal process outsourcing). As offshoring goes mainstream at large multinational corporations, BPO involving India and other global locales is gaining increasing momentum (Kobayashi-Hillary 2004).