1hls arLlcle has mulLlple lssues lease help lmprove lL or dlscuss Lhese lssues on Lhe Lalk page

lL needs addlLlonal clLaLlons for verlflcaLlon 1agged slnce CcLober 2009

lL may noL represenL a worldwlde vlew of Lhe sub[ecL 1agged slnce november 2008
lLs neuLrallLy ls dlspuLed 1agged slnce May 2010
CuLsourclng ls Lhe process of conLracLlng a buslness funcLlon Lo someone else1
ConLenLs hlde
1 Cvervlew
2 8easons
3 lmpllcaLlons
31 ManagemenL Lhe corporaLlon and consumers
311 ManagemenL processes
312 CuallLy of servlce
313 Language skllls
314 SecurlLy
313 CuallflcaLlons of ouLsourcers
32 SLandpolnL of labor
33 SLandpolnL of governmenL
4 8y counLry
41 unlLed SLaLes
42 Luropean unlon
3 lndusLry ubllcaLlons
6 See also
7 8eferences
8 LxLernal llnks
edlLCvervlew

1he Lerm ouLsourclng ls used lnconslsLenLly buL usually lnvolves Lhe conLracLlng ouL of a buslness
funcLlon commonly one prevlously performed lnhouse Lo an exLernal provlder2 ln Lhls sense Lwo
organlzaLlons may enLer lnLo a conLracLual agreemenL lnvolvlng an exchange of servlces and paymenLs
Cf recenL concern ls Lhe ablllLy of buslnesses Lo ouLsource Lo suppllers ouLslde Lhe naLlon someLlmes
referred Lo as offshorlng or offshore ouLsourclng ln addlLlon several relaLed Lerms have emerged Lo
grasp varlous aspecLs of Lhe complex relaLlonshlp beLween economlc organlzaLlons or neLworks such as
nearshorlng mulLlsourclng34 and sLraLeglc ouLsourclng3
Cne of Lhe blggesL changes of recenL years has come from Lhe growLh of groups of people uslng onllne
Lechnologles Lo use ouLsourclng as a way Lo bulld a vlable servlce dellvery buslness LhaL can be run from
vlrLually anywhere ln Lhe world 1he preferenLlal conLracL raLes LhaL can be obLalned by Lemporarlly
employlng experLs ln speclflc areas Lo dellver elemenLs of a pro[ecL purely onllne means LhaL Lhere ls a
growlng number of small buslnesses LhaL operaLe enLlrely onllne uslng offshore ouLsourced conLracLors
Lo dellver Lhe work before repackaglng lL Lo dellver Lo Lhe cllenL Cne common area where Lhls buslness
model Lhrlves ls ln provlded webslLe creaLlng analysls and markeLlng servlces All elemenLs can be done
remoLely and dellvered dlglLally and servlce provlders can leverage Lhe scale and economy of
ouLsourclng Lo dellver hlgh value servlces aL vasLly reduced end cusLomer prlces
edlL8easons


1hls secLlon ls ln a llsL formaL LhaL may be beLLer presenLed uslng prose ?ou can help by converLlng Lhls
secLlon Lo prose lf approprlaLe LdlLlng help ls avallable (CcLober 2010)
CrganlzaLlons LhaL ouLsource are seeklng Lo reallze beneflLs or address Lhe followlng lssues6789
CosL savlngs 1he lowerlng of Lhe overall cosL of Lhe servlce Lo Lhe buslness 1hls wlll lnvolve reduclng
Lhe scope deflnlng quallLy levels reprlclng renegoLlaLlon and cosL resLrucLurlng Access Lo lower cosL
economles Lhrough offshorlng called labor arblLrage generaLed by Lhe wage gap beLween
lndusLrlallzed and developlng naLlons10
locus on Core 8uslness 8esources (for example lnvesLmenL people lnfrasLrucLure) are focused on
developlng Lhe core buslness lor example ofLen organlzaLlons ouLsource Lhelr l1 supporL Lo speclallsed
l1 servlces companles
CosL resLrucLurlng CperaLlng leverage ls a measure LhaL compares flxed cosLs Lo varlable cosLs
CuLsourclng changes Lhe balance of Lhls raLlo by offerlng a move from flxed Lo varlable cosL and also by
maklng varlable cosLs more predlcLable
lmprove quallLy Achleve a sLeep change ln quallLy Lhrough conLracLlng ouL Lhe servlce wlLh a new
servlce level agreemenL
knowledge Access Lo lnLellecLual properLy and wlder experlence and knowledge11
ConLracL Servlces wlll be provlded Lo a legally blndlng conLracL wlLh flnanclal penalLles and legal
redress 1hls ls noL Lhe case wlLh lnLernal servlces12
CperaLlonal experLlse Access Lo operaLlonal besL pracLlce LhaL would be Loo dlfflculL or Llme
consumlng Lo develop lnhouse
Access Lo LalenL Access Lo a larger LalenL pool and a susLalnable source of skllls ln parLlcular ln
sclence and englneerlng1314
CapaclLy managemenL An lmproved meLhod of capaclLy managemenL of servlces and Lechnology
where Lhe rlsk ln provldlng Lhe excess capaclLy ls borne by Lhe suppller
CaLalysL for change An organlzaLlon can use an ouLsourclng agreemenL as a caLalysL for ma[or sLep
change LhaL can noL be achleved alone 1he ouLsourcer becomes a Change agenL ln Lhe process
Lnhance capaclLy for lnnovaLlon Companles lncreaslngly use exLernal knowledge servlce provlders Lo
supplemenL llmlLed lnhouse capaclLy for producL lnnovaLlon1413
8educe Llme Lo markeL 1he acceleraLlon of Lhe developmenL or producLlon of a producL Lhrough Lhe
addlLlonal capablllLy broughL by Lhe suppller16
CommodlflcaLlon 1he Lrend of sLandardlzlng buslness processes l1 Servlces and appllcaLlon servlces
whlch enable Lo buy aL Lhe rlghL prlce allows buslnesses access Lo servlces whlch were only avallable Lo
large corporaLlons
8lsk managemenL An approach Lo rlsk managemenL for some Lypes of rlsks ls Lo parLner wlLh an
ouLsourcer who ls beLLer able Lo provlde Lhe mlLlgaLlon17
venLure CaplLal Some counLrles maLch governmenL funds venLure caplLal wlLh prlvaLe venLure caplLal
for sLarLups LhaL sLarL buslnesses ln Lhelr counLry18
1ax 8eneflL CounLrles offer Lax lncenLlves Lo move manufacLurlng operaLlons Lo counLer hlgh
corporaLe Laxes wlLhln anoLher counLry
ScalablllLy 1he ouLsourced company wlll usually be prepared Lo manage a Lemporary or permanenL
lncrease or decrease ln producLlon
CreaLlng lelsure Llme lndlvlduals may wlsh Lo ouLsource Lhelr work ln order Lo opLlmlse Lhelr work
lelsure balance19
LlablllLy CrganlzaLlons choose Lo Lransfer llablllLles lnherenL Lo speclflc buslness processes or servlces
LhaL are ouLslde of Lhelr core compeLencles
edlLlmpllcaLlons

edlLManagemenL Lhe corporaLlon and consumers
edlLManagemenL processes
CreaLer physlcal dlsLance beLween hlgher managemenL and Lhe producLlon floor employees ofLen
requlres a change ln managemenL meLhodologles as lnspecLlon and feedback may noL be as dlrecL and
frequenL as ln lnLernal processes 1hls ofLen requlres Lhe asslmllaLlon of new communlcaLlon meLhods
such as volce over lp lnsLanL messaglng and lssue 1racklng SysLems new 1lme managemenL meLhods
such as 1lme 1racklng SofLware and new cosL and schedule assessmenL Lools such as CosL LsLlmaLlon
SofLware
edlLCuallLy of servlce
CuallLy of servlce ls besL measured Lhrough cusLomer saLlsfacLlon quesLlonnalres whlch are deslgned Lo
capLure an unblased vlew 20
edlLLanguage skllls
ln Lhe area of call cenLers enduserexperlence ls deemed Lo be of lower quallLy when a servlce ls
ouLsourced 1hls ls exacerbaLed when ouLsourclng ls comblned wlLh offshorlng Lo reglons where Lhe flrsL
language and culLure are dlfferenL21 1he quesLlonable quallLy ls parLlcularly evldenL when call cenLers
LhaL servlce Lhe publlc are ouLsourced and offshoredclLaLlon needed
Call cenLer agenLs may speak a varleLy of Lhe language wlLh dlfferenL llngulsLlc feaLures such as accenLs
word use and phraseology whlch may make Lhem more dlfflculL Lo undersLand for Lhe cllenLs 1he vlsual
clues LhaL are presenL ln faceLoface encounLers are mlsslng from Lhe call cenLer lnLeracLlons and Lhls
also may lead Lo mlsundersLandlngs and dlfflculLles22
edlLSecurlLy
8efore ouLsourclng an organlzaLlon ls responslble for Lhe acLlons of all Lhelr sLaff and llable for Lhelr
acLlons When Lhese same people are Lransferred Lo an ouLsourcer Lhey may noL change desk buL Lhelr
legal sLaLus has changed 1hey are no longer dlrecLly employed or responslble Lo Lhe organlzaLlon 1hls
causes legal securlLy and compllance lssues LhaL need Lo be addressed Lhrough Lhe conLracL beLween
Lhe cllenL and Lhe suppllers 1hls ls one of Lhe mosL complex areas of ouLsourclng and requlres a
speclallsL Lhlrd parLy advlserclLaLlon needed
lraud ls a speclflc securlLy lssue LhaL ls crlmlnal acLlvlLy wheLher lL ls by employees or Lhe suppller sLaff
Powever lL can be dlspuLed LhaL Lhe fraud ls more llkely when ouLsourcers are lnvolved for example
credlL card LhefL when Lhere ls scope for fraud by credlL card clonlng ln Aprll 2003 a hlghproflle case
lnvolvlng Lhe LhefL of $330000 from four ClLlbank cusLomers occurred when call cenLer workers
acqulred Lhe passwords Lo cusLomer accounLs and Lransferred Lhe money Lo Lhelr own accounLs opened
under flcLlLlous names ClLlbank dld noL flnd ouL abouL Lhe problem unLll Lhe Amerlcan cusLomers
noLlced dlscrepancles wlLh Lhelr accounLs and noLlfled Lhe bank23
edlLCuallflcaLlons of ouLsourcers
1he ouLsourcer may replace sLaff wlLh less quallfled people or wlLh people wlLh dlfferenL nonequlvalenL
quallflcaLlons24
ln Lhe englneerlng dlsclpllne Lhere has been a debaLe abouL Lhe number of englneers belng produced by
Lhe ma[or economles of Lhe unlLed SLaLes lndla and Chlna 1he argumenL cenLers around Lhe deflnlLlon
of an englneerlng graduaLe and also dlspuLed numbers 1he closesL comparable numbers of annual
graduaLes of fouryear degrees are unlLed SLaLes (137437) lndla (112000) and Chlna (331337)2326
edlLSLandpolnL of labor
lrom Lhe sLandpolnL of labor ouLsourclng may represenL a new LhreaL conLrlbuLlng Lo worker
lnsecurlLy and reflecLlve of Lhe general process of globallzaLlon27
Cn !une 26 2009 !eff lmmelL Lhe CLC of Ceneral LlecLrlc called for Lhe unlLed SLaLes Lo lncrease lLs
manufacLurlng base employmenL Lo 20 of Lhe workforce commenLlng LhaL Lhe uS has ouLsourced Loo
much and can no longer rely on consumer spendlng Lo drlve demand28
edlLSLandpolnL of governmenL
WesLern governmenLs may aLLempL Lo compensaLe workers affecLed by ouLsourclng Lhrough varlous
forms of leglslaLlon ln Lurope Lhe Acqulred 8lghLs ulrecLlve aLLempLs Lo address Lhe lssue 1he
ulrecLlve ls lmplemenLed dlfferenLly ln dlfferenL naLlons ln Lhe unlLed SLaLes Lhe 1rade Ad[usLmenL
AsslsLance AcL ls meanL Lo provlde compensaLlon for workers dlrecLly affecLed by lnLernaLlonal Lrade
agreemenLs WheLher or noL Lhese pollcles provlde Lhe securlLy and falr compensaLlon Lhey promlse ls
debaLable
edlL8y counLry

edlLunlLed SLaLes
CuLsourclng became a popular pollLlcal lssue ln Lhe unlLed SLaLes durlng Lhe 2004 uS presldenLlal
elecLlon 1he pollLlcal debaLe cenLered on ouLsourclngs consequences for Lhe domesLlc uS workforce
uemocraLlc uS presldenLlal candldaLe !ohn kerry crlLlclzed uS flrms LhaL ouLsource [obs abroad or
LhaL lncorporaLe overseas ln Lax havens Lo avold paylng Lhelr falr share of uS Laxes durlng hls 2004
campalgn calllng such flrms 8enedlcL Arnold corporaLlons29
CrlLlclsm of ouLsourclng from Lhe perspecLlve of uS clLlzens generally revolves around Lhe cosLs
assoclaLed wlLh Lransferrlng conLrol of Lhe labor process Lo an exLernal enLlLy ln anoLher counLry A
Zogby lnLernaLlonal poll conducLed ln AugusL 2004 found LhaL 71 of Amerlcan voLers belleved LhaL
#ouLsourclng [obs overseas" hurL Lhe economy whlle anoLher 62 belleved LhaL Lhe uS governmenL
should lmpose some leglslaLlve acLlon agalnsL companles LhaL Lransfer domesLlc [obs overseas posslbly
ln Lhe form of lncreased Laxes on companles LhaL ouLsource30
unlon busLlng ls one posslble cause of ouLsourclng As unlons are dlsadvanLaged by unlon busLlng
leglslaLlon workers lose bargalnlng power and lL becomes easler for corporaLlons Lo flre Lhem and shlp
Lhelr [ob overseas31
AnoLher glvenby whom? raLlonale ls Lhe hlgh corporaLe lncome Lax raLe ln Lhe uS relaLlve Lo oLher
CLCu naLlons323334 and Lhe pracLlce of Laxlng revenues earned ouLslde of uS [urlsdlcLlon a very
uncommon pracLlce Powever ouLsourclng ls noL solely a uS phenomenon as corporaLlons ln varlous
naLlons wlLh low Lax raLes ouLsource as well whlch means LhaL hlgh LaxaLlon can only parLlally lf aL all
explaln uS ouLsourclng lor example Lhe amounL of corporaLe ouLsourclng ln 1930 would be
conslderably lower Lhan Loday yeL Lhe Lax raLe was acLually hlgher ln 193033
lL ls arguedby whom? LhaL lowerlng Lhe corporaLe lncome Lax and endlng Lhe doubleLaxaLlon of
forelgnderlved revenue (Laxed once ln Lhe naLlon where Lhe revenue was ralsed and once from Lhe
uS) wlll allevlaLe corporaLe ouLsourclng and make Lhe uS more aLLracLlve Lo forelgn companles
Powever whlle Lhe uS has a hlgh offlclal Lax raLe Lhe acLual Laxes pald by uS corporaLlons may be
conslderably lower due Lo Lhe use of Lax loopholes Lax havens and aLLempLs Lo game Lhe sysLem36
8aLher Lhan avoldlng Laxes ouLsourclng may be mosLly drlven by Lhe deslre Lo lower labor cosLs (see
sLandpolnL of labor above) SarbanesCxley has also been clLed as a facLor for corporaLe fllghL from uS
[urlsdlcLlon
edlLLuropean unlon
Where ouLsourclng lnvolves Lhe Lransfer of an underLaklng lL ls sub[ecL Lo Councll ulrecLlve 77/187 of 14
lebruary 1977 on Lhe approxlmaLlon of Lhe laws of Lhe Member SLaLes relaLlng Lo Lhe safeguardlng of
employees' rlghLs ln Lhe evenL of Lransfers of underLaklngs buslnesses or parLs of buslnesses (as
amended by ulrecLlve 98/30/LC of 29 !une 1998 consolldaLed ln ulrecLlve 2001/23 of 12 March
2001)37 under LhaL dlrecLlve rlghLs acqulred by employees wlLh Lhe former employer are Lo be
safeguarded when Lhey LogeLher wlLh Lhe underLaklng ln whlch Lhey are employed are Lransferred Lo
anoLher employer le Lhe conLracLor An example of a case lnvolvlng such conLracLlngouL was Lhe
declslon of Lhe Luropean CourL of !usLlce ln ChrlsLel SchmldL v Spar und Lelhkasse der fruheren mLer
8ordesholm klel und Cronshagen Case C392/92 1994 AlLhough subsequenL declslons have dlspuLed
wheLher a parLlcular conLracLlngouL exerclse consLlLuLed a Lransfer of an underLaklng (see for example
Ayse Suzen v Zehnacker Cebauderelnlgung CmbP krankenhausservlce Case C13/93 1997) ln
prlnclple employees of an enLerprlse ouLsourclng parL of lLs acLlvlLles ln whlch Lhey are employed may
beneflL from Lhe proLecLlon offered by Lhe dlrecLlve