What is Outsourcing?
Outsourcing is a business practice in which services or job functions are farmed out to a third party. In information technology, an outsourcing initiative with a technology provider can involve a range of operations, from the entirety of the IT function to discrete, easily defined components, such as disaster recovery, network services, software development or QA testing.
Companies may choose to outsource IT services onshore (within their own country), nearshore (to a neighboring country or one in the same time zone), or offshore (to a more distant country). Nearshore and offshore outsourcing have traditionally been pursued to save costs.
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Outsourcing benefits and costs
THE BUSINESS CASE FOR OUTSOURCING VARIES BY SITUATION, BUT THE BENEFITS OF OUTSOURCING OFTEN INCLUDE ONE OR MORE OF THE FOLLOWING:
Some of the risks of outsourcing include:
Outsourcing IT functions
Application outsourcing may include new application development, legacy system maintenance, testing and QA services, and packaged software implementation and management. In today’s cloud-enabled world, however, IT outsourcing can also include relationships with providers of software-, infrastructure-, and platforms-as-a-service.
In fact, cloud services account for as much as one third of the outsourcing market, a share that is destined to grow. These services are increasingly offered not only by traditional outsourcing providers but by global and niche software vendors or even industrial companies offering technology-enabled services.
Outsourcing and jobs
Estimates of jobs displaced or jobs created due to offshoring tend to vary widely due to lack of reliable data, which makes it challenging to assess the net effect on IT jobs. In some cases, global companies set up their own captive offshore IT service centers to to reduce costs or access skills that may not result in net job loss but will shift jobs to overseas locations.
Some roles typically offshored include software development, application support and management, maintenance, testing, help desk/technical support, database development or management, and infrastructure support.
In recent years, IT service providers have begun increasing investments in IT delivery centers in the U.S. with North American locations accounting for more the a third of new delivery sites (29 out of a total of 76) established by service providers in 2016, according to a report from Everest Group, an IT and business sourcing consultancy and research firm.
Demand for digital transformation–related technologies specifically is driving interest in certain metropolitan areas. Offshore outsourcing providers have also increased their hiring of U.S. IT professionals to gird against potential increased restrictions on the H-1B visas they use to bring offshore workers to the U.S. to work on client sites.Some industry experts point out that increased automation and robotic capabilities may actually eliminate more IT jobs than offshore outsourcing.