Outsourcing in the New Economy

Outsourcing is no longer just for back-office functions in your IT department. Today’s best and strongest companies outsource a variety of functions, up to an including their entire IT area, because they know that offshore providers can often provide the same – or better – services for a fraction of the cost.

Outsourcing is now a rapidly growing trillion-dollar industry, and much of it occurs offshore where lower labor costs and global telecommunications make it not only a feasible option, but a major competitive advantage. In the past, companies preferred to keep their core functions in-house and outsource only peripheral services, but that is no longer the case.

The outsourcing industry has matured and, given recent changes in the world economy, many global-minded companies view the practice not only as a way to save money, but also as a partnership that will help them become industry leaders. Those companies that choose to ignore outsourcing risk being pushed out of the marketplace.

Outsourcing is rapidly taking center stage, moving beyond basic IT functions into IT management, business planning, and more. The companies that provide offshore outsourcing services are now fully engaged in boardroom discussions and interact regularly with CIOs as they perform ever more sophisticated tasks, lead projects, guide corporate strategy, and provide various consulting services.

Low cost always has been and probably will continue to be one of the main attractions of outsourcing, but it is no longer the only advantage. Cost savings are important, but as the role of IT expands within companies and the marketplace, outsourcing has many other advantages to offer. IT outsourcing can be a great opportunity for companies to innovate and pursue new strategic directions. Companies who realize this will reap the benefits; others will be left behind.

Another reason for the growing success of outsourcing is that there is a shortage of IT talent in the labor pool in many developed countries. However, developing countries such as Vietnam has a diverse, talented labor pool of young, highly educated workers whose hourly rate is far less than that of their counterparts in Western Europe and North America. These foreign workers are able to provide increasingly sophisticated solutions and help their clients rapidly adapt to an ever more complex marketplace with rapidly changing technology.

Now that virtually all companies compete globally, there is a constant search for new areas with the cheapest costs, particularly for labor. Right now, Vietnam is an industry leader for outsourcing, not only because it has a low cost of labor, but also because the outsourcing firms in Vietnam has significant breadth and depth of experience, complemented by a highly education and highly experienced workforce. Eventually another country may replace Vietnam as the top destination for offshore outsourcing, but for now the country has a firm hold in the marketplace and is widely recognized as the most highly desired location by companies who want to outsource some or all of the IT functions overseas.

With fluctuating currency exchange rates and unprecedented economic change, outsourcing destinations cannot rely solely on being the low-cost provider, because that tagline may fall to another country tomorrow. Successfully outsourcing companies must have the flexibility and strategic vision needed to secure and hold onto a long-term in the marketplace.

Consider, for a moment, the way in which the role of CIOs has evolved in recent years. CIOs used to have a technical role, making sure that all computer systems were operational. More recently, they have become a strategic part of upper management, advising and guiding the CEOs and CFOs, who recognize that technology is king.

Outsourcing companies can view this shift as an analogy for their own changing role in the marketplace. Rather than providing ad-hoc technological solutions, they can be resources as companies strive to adapt to a changing marketplace. Outsourcing companies can and should be valued strategic partners who help companies identify opportunities for strategic innovation.

Offshore outsourcing companies are in a great position to help companies continuously innovate, because they have a global perspective and can see the company for what it really is, since they are observing it more or less from the outside. Furthermore, because outsourcing companies are familiar with a wide range of the latest and greatest technologies, they can suggest new growth opportunities that their clients would otherwise be unaware of.

Outsourcing companies have a vested interest in identifying new business solutions and helping their clients succeed, because, after all, their business model relies on maintaining strong client relationships and helping them maintain and upgrade their technology as much as possible. This has perhaps never been so important as it is right now, when companies are struggling to keep their heads above water in these turbulent tides of a struggling global economy.

When companies are facing tight budget constraints, they have three options for their IT departments:

Recent history has many valuable lessons showing that companies that opt for the third choice are the ones that come out the head. The bottom line is: companies must innovate for survival. Successful companies must take advantage of opportunities wherever they present themselves and resist the temptation to boil everything down to costs. Yes, cost is important, but outsourcing offers many other opportunities for innovation and improvement in the global marketplace.