Global Sourcing of Services: Why, What, Where, and How?

Information Technology Outsourcing (ITO), Business Process Outsourcing (BPO), and Knowledge Process Outsourcing (KPO) have become accepted practices and strategic choices for many firms among developed and newly industrialized nations. Why? Comparative advantage of countries and companies is the basic driving force for global sourcing. Labor arbitrage is only one of the several benefits offered by global sourcing. Global sourcing does have inherent risks — loss of control being one of the primary risks. What? The global market for ITO took off in the late 1980s. Since the beginning of the new millennium, global market for BPO has also been growing steadily. Even KPO market has taken off in the last five years. Over the years, the functions being outsourced have increased in scope and scale and have climbed the value chain ladder. ITO functions include information system (IS) analysis, IS design, IS development, IS implementation, IS maintenance, and sometimes the management of entire data centers. BPO functions include call centers, accounting, payroll, employee benefits, tax preparation, radiology analysis, films and cartoons production, healthcare including medical tourism and surrogate motherhood. KPO functions include research about company’s industry, business, and market. KPO requires significant amount of domain knowledge about a client company and analytical skills. Where? Outsourcing locations can be onshore, nearshore, offshore, farshore, multi-shore. Each one offers certain advantages and disadvantages. Choosing right shore or right shores requires thorough analysis of all factors in each context. Crowd sourcing is increasingly becoming popular. Cloud sourcing is steadily replacing traditional sourcing. How? Several arrangements are possible for global sourcing. These include insourcing through subsidiaries in host countries, joint ventures, or outsourcing to third parties.