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What is Offshore Outsourcing?

Nicole Madison
By
Updated May 16, 2024
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Offshore outsourcing is the practice of hiring organizations or employees to perform company tasks overseas. For example, a company may manufacture and sell computer parts in the United States yet use offshore outsourcing to handle its customer service and technical support phone lines. Data entry is another job that is frequently outsourced overseas. The Internet has played a major role in outsourcing to other countries, not only allowing companies to outsource work to other organizations and hire employees that are some distance away, but also making is easier to hire freelance workers from around the world, getting projects completed for significantly lower fees.

Offshore outsourcing is often broken up into four main categories. The ITO category involves the overseas outsourcing of a company's information technology. The BPO category involves business process outsourcing, which can include call center management and claims processing. Software development falls under the Software R&D (research and development) category while KPO covers knowledge process outsourcing, which typically involves processes that require a higher level of skill, experience and/or knowledge. These things may include interpreting x-rays and researching investments; they may also include accounting-related tasks or even more technical jobs like engineering.

Often, offshore outsourcing get bad press when companies send work to other countries where they can pay lower wages than are typical in the country in which they are based. Opponents assert that outsourcing overseas takes jobs away from domestic employees and may even hurt the economy. However, this setup isn't criticized only for wages. Some consumers oppose this type of outsourcing as well, asserting that it leads to a decrease in quality, especially when it comes to customer service and technical support. For example, there may be a language barrier that leaves customers feeling less satisfied when dealing with an overseas call center.

Proponents of offshore outsourcing assert that such criticism may be displaced. For example, while some critics claim that overseas outsourcing is responsible for significant levels of job loss, some proponents point to recessions, dot-com fallout, and productivity growth as the real culprits. In fact, some critics claim that offshore outsourcing actually helps the economy in two ways. First, they assert that it lowers costs for everyone across the board. Second, they claim that it creates jobs by making the economy more efficient.

At this time, it looks as if overseas outsourcing will only grow with time. Some experts predict that about one-quarter of IT jobs will be overseas in a few years. However, many experts also suggest that companies proceed slowly and with caution to avoid the loss of talent and preserve performance. Additionally, some small businesses may find ways to use offshore outsourcing to make their businesses more competitive, especially in markets that are currently dominated by large corporations.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Nicole Madison
By Nicole Madison
Nicole Madison's love for learning inspires her work as a SmartCapitalMind writer, where she focuses on topics like homeschooling, parenting, health, science, and business. Her passion for knowledge is evident in the well-researched and informative articles she authors. As a mother of four, Nicole balances work with quality family time activities such as reading, camping, and beach trips.
Discussion Comments
By anon317164 — On Feb 01, 2013

Offshore outsourcing services may be expensive or risky to some businessman. You can't change the fact that this thing is very effective for mostly online marketers and enthusiasts.

By anon154650 — On Feb 21, 2011

Thanks N. Madison. I would agree with previous comments regarding the pros and cons of outsourcing. It is definitely a touchy subject. I remember when I first started outsourcing I was afraid to tell people about it for fear of their reaction.

After having worked with offshore companies for some time now, I am usually a proponent of it (but not always!), which is why I even started blogging about my experiences in offshore outsourcing.

By Patience — On Nov 03, 2010

Outsourcing Jobs

In the current recession growing concerns of the justifiability of outsourcing jobs becomes ever more prevalent. President Obama’s current policy of slashing tax breaks to American companies that move jobs abroad has been received with a back lashing from the American public. However, with the economic growth of the American market more stable than its European counterparts - who have taken the more aggressive route of halving national expenditure to beat the recession – one begs the question if these fears are well founded?

The option to outsource jobs has taken a dramatic increase in the last decade or so. More and more companies have found that outsourcing jobs have increased their profit margins due to its potency to increasing focus on the core competencies of the company. And for 99% of companies that is you, the customer. With jobs being outsourced and more care and capital being used on research and development to bring the best service to the customer, it makes no sense for the paying consumer to complain on the growing rate of outsourced jobs.

It seems outsourcing still has not shaken of the connotations of threat and loss attached to it. It seems little over 20 years ago that the U.S. automotive industry heaped the same outcry of the death and doom on American manufacturing jobs, which consequently sparked fears of the hollowing-out of the U.S. economy. As it turns out, the companies who opted for outsourcing their manufacturing jobs managed not only to compete with international competition, but went on to generate innovative ideas that saw the creation of better jobs to replace the old.

As painful as the loss seemed to the automotive industry on first appearance the outsourcing of the jobs there went on to boost the American economy and generate new business ventures within companies which also meant the creation of new academic fields that became available to the academic electorate.

To comprehend the importance and necessity that the outsourcing industry has on business and the world one must stop viewing outsourced jobs as a loss on their home economy but as a gain both to home and away markets. Outsourcing is not simply a way for multinational companies to evade immigration laws of their home countries, it generates a viable source of income for workers from emerging economies that are often overlooked in favor of their counterparts from developed markets. While a company’s budget sheets remains effective for the bosses of such companies to the worker from the emerging markets it is reasonable pay for a profession they became qualified for.

The outsourcing of jobs has become an industry within itself. For some emerging markets the acquisition of outsourcing contracts has become the key element in which those economies have positioned themselves amidst the global stage. Economies of China and India for example now dominate the outsourcing industry with figure to the effect of $65 billion, $15 billion and $50 billion respectively. Nigeria’s own Vision 20-20-20 is an initiative of the government to try and position Nigeria amongst the world’s 20 largest economies and they recognize that setting a foot in the $1 trillion industry of outsourcing is a pivotal way in which to achieve this goal.

By anon78152 — On Apr 17, 2010

Yeah, I think you are right. There are many risks in offshore outsourcing.

But I think the more risks, the more benefit. People will get a lot of benefit in offshore outsourcing as well. -- Mark

By Offshore — On Feb 04, 2010

Although you need to pay for outsourcing, it is worthy and cost effective for the company to grow further. Of course businessman are always after the growth of their business. That is the reason why most business relies on outsourcing companies.

Nicole Madison
Nicole Madison
Nicole Madison's love for learning inspires her work as a SmartCapitalMind writer, where she focuses on topics like...
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