1.

Introduction:

In the second half of the twentieth century trade has

played a major role in integrating national economies.
This lead to evolution of the Multinational Enterprises
(MNE) these are the firms operating in two or more
countries. There are many factors which encouraged the
evolution of the MNE’s such as competitive advantage,
country specific advantages, international marketing and
the most important factor is that globalization many
scholars and researchers strongly believe that MNE’s
herald the concept of the globalization. Most of the MNE’s
in the initial period originated from the developed
countries which explored and expanded into the
developing countries. After the Second World War many
of the developing countries became financially very weak
which encouraged them to invite foreign investments
which lead the countries like northern America and
European countries to expand their business. As time
progressed the dependence of MNE,s on the foreign
operations became quite heavy as the host countries
became main centre for the business. Thus the impact of
MNE, s dependence foreign operations and competitive
advantage has become an important factor.

Many researchers and scholars have carried out many

investigations in this area concentrating on MNE’s located
in a single country or a comparison of firms located in two
different countries and delivered great scholarly articles.
This article examines the relationship between foreign
dependence and performance of multinational enterprises
in general particularly concentrating on the MNE's
originating from the Triad regions of the Pacific Rim,
Western Europe and North America and displays the
impact of the relationship weather it is positive or
negative. There are many huge MNE’s which originated in
the triad regions of Pacific Rim, Western Europe and
northern America which expanded their businesses to
Asian, African and Latin American regions. We are going
to see how these MNE’s performance depends on the
operations in the host countries and see the impact of this
dependence.

This paper first discusses about the impact of the

dependence of multinational enterprises (MNE’s) on
foreign operations and corporate performance and the
case of MNE’s located in single country or a comparison of
firms in two different countries and the companies’
dependence on outsourcing and advantages and
disadvantages of it. Finally the paper concludes displaying
weather the impact is positive or negative and the status
of the dependence of the MNE’s on the foreign
dependence.
The foreign operations carried out by the international
companies are known as outsourcing.

2. Outsourcing:

 What do you do when you are too busy to handle all

the operations of your core business and not able to
focus on it?

 What do you do when you are facing time and

human crunch?

 What do you do when you have a project that is so

critical and you are well equipped to do?

 What do you do when you when you have a project

in hand but not enough time to finish it?

 What do you do when you want to be the best and

first in the market?

The answer to most of these questions is outsourcing.

Outsourcing is a phenomenon which has many names. In
business terms some call it 'off shoring'; some call it 'BPO'
and some call it 'global sourcing' which means
delocalization in laymen’s language. Regardless of how
you call it, it is common to all the MNE's as it is major
mart of their business to get the work done cheaply and
quickly and spread their business across the world.

Outsourcing is defined as the management and/or day-to-

day execution of an entire business function by a third
party service provider. Outsourcing involves transferring
or giving a significant amount of management control to
the supplier. Buying products from supplier is not
outsourcing, buying services from provider is not
necessarily outsourcing. Outsourcing involves
considerable degree of two way information exchanges
coordination and trust. For instance if you buy a product
from a vendor it is not outsourcing updating your
requirements to him and having direct contact with the
worker who is manufacturing the product and getting you
product is known as outsourcing.

The idea of outsourcing has its roots in the 'competitive

advantage' theory propagated by Adam Smith in his book
'The Wealth of Nations' which was published in 1776.over
the years the meaning of outsourcing has undergone
significant changes. These changes started the movement
of manufacturing units to the countries which provide
cheap labour during the period of industrial revolution
which is the context of the present scenario. Over the
past few years IT has the backbone for the world
economy this boosted the companies to outsource more
rapidly. Outsourcing is the processes of a company hand
over a part of its work to other company where it can be
done cheaply and quickly. The work transfer to other
company is constantly monitored and processed according
to the requirements and specifications of the outsourcing
company. This process id beneficial to both the
outsourcing company and the service provider, as it
enables the outsourcer to reduce costs and increase
quality and provide service to a lot of customers at a
time. The service provider also benefits by providing
employment to the staff and expand its business.

In a nutshell, outsourcing is an accepted management

tool for restructuring and refocusing the way an
organization does business.

Here is the general process in which outsourcing is done

1. Deciding to outsource
2. Supplier proposals
3. Supplier competition
4. Negotiations
5. Contract finalization
6. Transition
7. Transformation
8. Ongoing service delivery
9. Termination or renewal
Going in detail this is how a project is outsourced in steps

2.1DECISION-MAKING PROCESS

Each outsourcing decision involves several steps and it is

important to go through them:

Step 1: Inventory of in-house resources.

Step 2: Assessment of in-house resources compared to

services available in the market place.

Step 3: Identification and evaluation of prospective

bidders. This requires collection of market intelligence,
finding out other companies experiences with outsourcing
etc.

Step 4: Competitive bidding procedure, including request

for proposals, evaluation of bids according to selected
criteria and clarification and comparisons of bids.

Step 5: Negotiations, including a letter of intent and

usually a term sheet. The negotiations have to be
exhaustive.

Step 6: Signing the contract.

Step 7: Transition phase where the function from the

clients’ facilities are transferred to those of the vendor.
This can be-and should be-a slow process and needs to be
handled with great precision.
Step 8: ‘Steady state’ period which marks the end of the
transitioning phase and the beginning of the cost-cutting
phase for the company.

Step 9: Renegotiation or termination. Renegotiations

happen after the contract period is over and the company
wants to continue with the same vendor. Termination
occurs in case the relationship turns sour with the vendor
over quality or service issues and/or the company has
found another, better vendor to do the same task.

Here are the main reasons why a company will look to

outsource:

1. Cost savings
2. Cost restructuring
3. Improve quality
4. Knowledge
5. Contract
6. Operational expertise
7. Staffing issues
8. Capacity management
9. Catalyst for change
10.Reduce time to market
11.Commoditisation
12.Risk management
 13.Time Zone
14.Customer Pressure

2.2 Types of outsourcing:

Outsourcing can be classified into three types basing on

the services provided they are;

 Human resource outsourcing

 Business process outsourcing
 Knowledge process outsourcing

The types of outsourcing are classified depending on the

processes they outsource regarding a company

Typically, all activities performed by companies can be

classified into the following broad categories: core and
non-core and critical and non-critical activities. Core
activities are the basic reasons for a company existence,
such as product design, manufacturing, branding,
marketing, sales management etc.
Critical activities are ones that are time-sensitive; if they
are not done within the specified time, there can be
serious repercussions for the organisations

Below is a illustrative table which explains the critical and

non critical process of an organisation.
 3. Non-Core – Critical 4. Core – Critical

• Customer Care
• Product design

• HR related
administrative • Final Manufacturing or
main function
• Medical Transcription
assembly
for a Health-care
service provider.
• Branding

1. Non-Core –Non- 2. Core – Non –Critical

Critical
• Marketing of Credit
• Security Cards for a Financial
Service Company
• Cafeteria
• Transaction
• Housekeeping
processing
• Helper/peon
• Accounts, receivable
service
management

2.3Human resource outsourcing

HRO is the application of different business models and

techniques to new forms of activities that are radically
redesigned to generate desired outputs as required by the
end users such as customers or employees. HRO is based
on principles of re-engineering. It combines these
principles with ownership and management of processes
on behalf of management by outside vendor.

HRO has been applied to many transactional processes in

a company. The transactions transfer a part of ownership
to the outside vendor. Out of the companies that
outsource 90% of them are IT industries. the main
agenda behind the company's to outsource is to
concentrate on their core business and outsource most of
their non core businesses to concentrate more on their
core business, in some cases even core business is
outsourced when required as core competencies that drive
competitive advantage.

The outsourcing of hr processes emerged in late 1990s,

pioneered by firms specialising primarily in IT outsourcing.
US is the first country to outsource some MNE's in us had
outsourced in Asian countries to reduce the labour costs.
The transactional HR processes that are outsourced are
associated with electronic delivery, the day to day HR
processes can be transferred to third party providers as
payrolls and benefits are not the core points of the
business to concentrate on they can be outsourced to the
third party. The competition among the HRO outsourcing
companies has dramatically reduced prices this lead many
companies to outsource.

In the past HR outsourcing was thought of as hiring a

vendor to provide a service. With change in vision of
outsourcing the opportunity of sharing the business with
vendor to provide services on long term basis rather that
single time transaction has been boosted.
HR outsourcing includes;

2.3.1 Discrete services:

In these types of services a part of business process or a
set of services are outsourced to the third party
administrator. Examples of these type of services include
annual open enrolment process, payrolls etc

2.3.2 Multi-process services:

The total outsourcing of one or more functional human
resource processes can be said as an example of multi-
processes outsourcing. The complete outsourcing of
benefits like health and welfare, retirement plans are the
examples of multi-process outsourcing.
2.3.3 Total HR outsourcing:

Total HR outsourcing represents the transfer of majority

or complete HR services to a third party. The services
include recruitment, payroll, HRIS, benefits, compensation
and communications. The HR executive management will
be with the organisation as it is a core point of business,
though the services are outsourced the strategic planning,
people management and other key HR functions are done
by the core HR executives.

2.4 BPO outsourcing:

Business process outsourcing is the process of hiring

another company to handle business for you. Business
Process Outsourcing (BPO) is outsourcing of business
functions generally performed by white collar and clerical
employees to achieve various benefits such as cost
savings, better quality and ability to focus on core
competence.

BPO refers to processes in organizations delivering

services to customers as opposed to organizations that
manufacture products. so BPO is mainly discussed on the
context of service organizations rather than
manufacturing industries these generally include banking,
financial services, insurance, warranty and technical
support etc. in today’s complex business world it is hard
to find a organization without relevant BPO.

BPO is different from information technology

outsourcing. The IT outsourcing companies hire a third
party company or a service provider to provide them IT
related services such as application management,
application development and testing etc. BPO has huge
relation with IT outsourcing as most of the IT companies
have a BPO which provide them technical and voice
support. The BPO market size is globally is very huge as is
estimated to be USD 641.2 billion in 2009 and it is still
growing. In modern day business world more and more
companies are reaping the benefits of BPO to expand and
improve quality of their business.

The working process of BPO involves transfer of

complete or a part of business to a external service
provider who executes the transferred business. The
usage of BPO is mostly in the IT industry. the IT intensive
processes such as payroll processing, human resources,
logistics, financial accounting, administration call centers,
ATM’s etc. though BPO is very much interrelated to IT
industry it is different from IT outsourcing which doesn’t
involve any business process where as BPO would alloy
the third party organization to completely outsource full
business with its sub elements. BPO could be said as
complete transfer of process ownership to the BPO
vendor.

Here is a table showing the elements of outsourcing

Elements of Business Process Outsourcing

Customer Back-Office IT/Software Finance & HR Services Knowledge
Interaction Transaction Operations Accounting Services
Services Processing Services

Customer Check, Credit Requirements Billing Payroll Data

Service Debit card Engineering Services Services Analytic
Voice/Email Processing
Marketing Collections & Application Account Healthcare Data Mining
Services receivables development payables administratio
n
Telesales Direct & Application Account Hiring Knowledge
indirect testing receivables recruitment management
procurement
Order Transport Packaged General Workforce Voice of the
processing administratio application accounting training customer
n outsourcing feedback
Customer Logistics and Implementatio Auditing Retirement
support dispatch n services and benefits
compliance
Warranty Warehouse IT help desk
Administration management
2.4.1 BENEFITS OF BPO:

FOCUS:

BPO allows companies to concentrate or focus on

core processes by outsourcing non core activities. This
makes the company extremely lean and agile, thereby
allowing the CEO and the top management to spend more
time on the very purpose of their existence-the customer.
They can spend time understanding his customer and
react to them fast before he decides to change further.

BEST PRACTICES:

Since BPO vendors specialize in specific processes,

over time they acquire considerable expertise and domain
knowledge in these activities. They are able to bring best
practices to work and do a reengineering of business
processes such that there is improvement in parameters
like quality, man-power requirements etc.

COST REDUCTION:

This is one of the biggest attractions of outsourcing.

Some organisations have been able to achieve cost
reduction of as high as 50% through outsourcing. BPO
vendors are able to achieve this due to their economies of
scale for each process. Also, since BPO vendors use the
latest technology and best practices, they can streamline
processes better and achieve optimum results in cost,
quality, and speed.

REDUCTION OF CAPITAL REQUIREMENTS:

Organizations are able to free up both fixed and

working capital required to perform processes. They save
a substantial amount of money as they need not spend to
buy and maintain their systems; their BPO vendors do the
needful and bring in best practices from the world over.

Here is a pictorial description of why most of the

organizations choose BPO

Conserve Capital

Foster Innovation

Increase Speed
To Market
Series1

Improve Qualities

Focus on Core
Competencies

Cost Reduction

0 10 20 30 40
 Major reasons for outsourcing

(Source: The 2001 Outsourcing World Summit, Michael F.

Corbett & associates)

2.5 Knowledge process outsourcing:

Knowledge process outsourcing (KPO) is a form of

outsourcing, in which work which is related to knowledge
is carried out by a third party organization which may be
located in the same county or different country. KPO is
quite different from BPO as it doesn’t involve any of the
manufacturing processes or support it mainly involves
taking of low level business decisions the staff that involve
in KPO are highly skilled they are generally appointed to
decrease the work pressure for the higher level business
people by making floor level decisions and supporting
higher level decisions.

KPO is merely a continuation of BPO with more

business complexity. The major difference between BPO
and KPO is KPO generally focuses on knowledge intensive
business processes that require significant domain
expertise and application professionalism. For a BPO it is
easy to recruit staff as they need not be skilled where as
for a KPO the recruiting can not be done overnight as the
staff needs to be highly educated, trained and trusted to
take decisions on behalf of the client.

IT outsourcing is strongly focuses around technical

professionalism and migration to business process
outsourcing includes extra dimension of application
professionalism. KPO includes ever more complex
professionalism that the above two types of outsourcing.
to demonstrate this difference when we look at the people
hired by a KPO they are more diverse than just being
drawn from the technical IT services they are mostly post
graduates, engineers, medicos or people with special
business skills. KPO delivers higher value to organizations
by increasing their business quality and allow them to
concentrate on the higher level core business. So KPO
involves a shift from standardized processes to advanced
analytical thinking, technical skills and decisive judgment
based on experience.
 Here are the general business process that are
outsourced to a KPO

 Research & Development

 Business and Technical Analysis

 Learning Solutions

 Animation & Design

 Business & Market Research

 Pharmaceuticals and Biotechnology

 Medical Services

 Writing & Content Development

 Legal Services
  Intellectual Property (IP) Research

 Data Analytics

 Network Management

 Training & Consultancy

the future of KPO has a high potential and it is not limited

to IT organizations it also includes other sectors like legal
processes, financial services, web development, business
research, clinical research, market research and many
more. In today’s competitive environment every
organization is trying to concentrate on core specialization
and outsource the other processes that are less core
competency areas. As they realized that outsourcing
improves the business by decreasing business costs and
increasing the efficiency.

3. Literature review:

Now that we know what exactly is out sourcing and the

types of outsourcing available today, the next topic of our
thesis will provide a comprehensive report on the
advantages and disadvantages of different outsourcing
methods available today and which are employed by
different organizations Once the general advantages are
identified on a broad level, then in the next stage, we will
go a step further and provide the advantages in two
different levels which basically provides you what are the
advantages which out sourcing company or country has
and similarly advantages which are available for out
sourced company or country. Once all these things are
completed, at the final step, we would then provide a
small over view on what are the important destinations
for such companies

To start of with, the biggest advantages of outsourcing

are many. Each company has its own reason to outsource
a particular project to another company. The most
important factors to out source a particular project will be
the cost effectiveness and the reliability of work which the
companies provide for 24/7 support. Few biggest
advantages of outsourcing are

1) Cost Saving: - this is the first and foremost

advantage for any organization to outsource a
particular project is the cost savings it would
provide. When a particular project can be done for
only few thousands of dollars or pounds which are
taking some millions of amount in their own country
for a period of time, then, it's an obvious choice that
 if the project is outsourced, it would yield benefits.
For example, if there are some back end
functionalities which needs the support of at least 3
people continuously working for 24 hours a day, it
practically is impossible to keep only three persons
there and the minimum pay you need to pay them
would be around 1800-2500 pounds a month for
each employee. If we outsource the same project to
some company way back in India, they would
provide the same efficiency and results and the over
all cost of the project would be hardly 200 pounds
which is one third the original amount and thus is
showing 67% profits on the first level
2) Focus on Core Business: - for a new start up
companies or small firms who are taking up their
first bids, it is very important for all the
entrepreneurs to concentrate on business rather than
the small technical glitches of the applications. To
eliminate all these kinds of issues from their notice,
outsourcing the project is the solution. By doing this
task, for the same amount, they can get better
quality of work and all the external factors of
pressure related to this area would be eliminated
totally and they can mainly concentrate on
developing the business rather than on small internal
things. If we rapidly want to grown an organization,
the main concentration should be on sales and
 marketing. As the sales, grow, the back office
functionalities will also grow and thus the resources
required for each phase would be more and more.
So, if we outsource the project at the initial level
only, all these issues will not affect the core business
and our focus will be on the point

3) Technical Expertise: - When we want to set-up an

organization, it is very important for us to get the
required technical expertise who can deliver our work
more efficiently. If we want to hire all these
technical people right from the scratch, then it’s a
very time consuming process and it might take a lot
of time before we come up with correct output.
Outsourcing the entire project will be benefiting this
point as well because the company to whom we
outsource will surely have all the people with the
technical expertise we are looking out for and thus
our job of making the things would surely become
easier. For example, if we want to write a simple
website with content management system, we
should have a web designer to develop the website,
a hosting person to host the site, a programmer to
write the back end functionality and a tester to test
the entire application. If we out source this project,
we will only deal with the main person and remaining
 aspects will be taken care by him and thus, is a lot
time saving activity
4) Staff Headcount Requirements: - One of the
important advantages of outsourcing is to keep track
of the proper head count and ensure the
requirements are met. A project when initially
started might require more people to work where as
it might require less staff once the entire
development is completed and we are only
maintaining the application with some basic
functionality. The staff fluctuation is always possible
and few may resign when there is high possibility of
their need. Also, if we taken an example, accounting
section of a particular organization will need more
time during the financial year ends where as not
many are required during the other phases of the
year. So, the staffing in these areas can be managed
as per the requirement if they all are outsourced and
there is no additional over head or burden on us to
maintain the same
5) Operational Control: - this is also a big reason for a
particular work to be outsourced. If we take an
example to explain the same, Shipping goods to USA
would cost us around 10 Millions per Cargo in USA
where as the same can be Shipped for 2 Millions in
India and hence, we can literally see around 8
Millions profit if we ship them to India and sell the
 goods internationally from there. From this example,
we should always bear in mind that all the operations
which are going out of control should be outsourced
as this would provide us better options along with
great profits. Outsourcing and getting the work done
is far better than poorly managing and spoiling the
relationship with the clients and hence this
operational control is an important advantage of
Outsourcing
6) Expansion: - if the company's business is growing
rapidly, then there is a big need to expand the
organization and include new staffing as well. If the
cost of staffing and expansion is really high in the
area where we have initially set-up or for some
reasons, if we don’t find enough space to expand, we
cannot stop business at this point of time.
Outsourcing the project and expanding it in a new
place is the concept which would be used here and
thus, outsourcing will help us in expanding our
existing business into new horizons
7) Risk Management: - Managing the risk is one of the
most important aspects for any business or
organization. Attrition rate periods of high turnover
are certain factors which come under the radar of
risk management and al l these kinds of risks should
be eliminated at the first level only if we want a rapid
growth in the business. Outsourcing will provide this
 risk management capabilities and also some level of
confidence and continuity and thus maintaining good
relationships with the existing employers.
8) International Relationships: - If we want to upgrade
our existing technologies, there is a very big need for
all the employers working currently in the
organization to understand the new technology to
which we are upgrading and then work on it
accordingly. To attain this, we need set of skilled
people who understands both the technologies and
this requires multi-skilled people with in the same
organization which is a rare scenario. Out sourcing
these kind of projects will help us getting all these
things done really easily and also will help us
developing the international relationships
9) Flexibility: - Staffing flexibility and their availability
for 24/7 is one of the most important facts for a
particular project to be outsourced. Due to the time
difference between different countries, outsourcing a
particular project will ensure that out of peak hours
in a particular country are also supported effectively
by an another country
10) Training: - Last but not the least training the
current staff on the new technologies on a bulk ratio
is always expensive. Outsourcing these kinds of work
would ensure that skilled people are already
 available for us to use and time as well as money is
saved

Now that we have provided all the advantages in details,

to end the topic, below is the gist of all the advantages
[3]

 Outsourcing will provide us more time to concentrate

on real business activities
 Offshore onsite model of outsourcing will provide
more high quality services
 Efficiency is always guaranteed and 24/7 support
 Business processes can be easily streamlined
 Flexibility will surely be improved
 Control over the activities which we perform will be
increased
 Money and time will be saved
 Have a chance of continuously upgrading to latest
technologies available in market and thus become a
tough competitors
 Management level problems will become really less
 All the customer demands can be implemented with
even more ease
 Operational costs of the over all project is reduced
by a lot of amount
 Provides a competitive edge over the competitors for
our business
  All the infrastructure problems and network problems
will be easily resolved
 Capital expenditure will be saved
 International relations will be build and more
exposure to new horizons for development

Thus, the above mentioned things are some important

advantages of out sourcing a project. Though there are
many advantages, this also has some disadvantages. In
the next section, we will concentrate on certain
disadvantages of outsourcing. To start of with,

1) Managerial Control: - the biggest challenge of all is

the loss of managerial level control which you have
with the organization. When we outsource a
particular task to other company, you are initially
signing a contract which states that the total control
of that task will be under the new organization and
now the control which you have on this task is no
longer available. The set of core values and rules and
morals which you maintain may be different for the
new company and they would perform the activity
according to their ideologies and we don’t have any
decision to take against them unless this is proving
 bad for the company overall performance. The same
standards and mission which drives our company
may not be the driving factors for the other company
2) Hidden Costs: - When we initially write a contract, all
the details must be included in the contract. If
something is missing which we come to know after
the contract is written and if there is a need for
change after a period of time, then all the additional
work which we do will be accomplished with
additional costs and sometimes, this would surely
become an extra burden. We need to understand
that outsourcing is a business for other companies
and they know all the loop holes of the business.
Hence, we must take all the necessary care before
completing the contract and in most of the cases,
some or the other details will be missing
3) Confidentiality: - It is 100 percent certain case that
all the project confidential information which we will
be dealing with surely will be with us only when the
entire information is with us. But when we
outsource, there is always a possibility of misuse.
Some company confidential information may be
leaked and used to others advantage. Though there
is a confidentiality clauses written at the time of
agreement, there are a number of cases reported
like for example, in January 2004, WIPRO
SPECTRAMIND a New Delhi based telemarketing
 contracting company lost its contracts after an audit
survey proved that their employers were inflating the
credit terms [1]. Similarly in the year 2003, a
Pakistani transcriber threatened to post the medical
records of university of California San Francisco
medical centre [2]. So, it is one of the biggest
problems of outsourcing
4) Quality Problems: - the biggest motivating term for
all the outsourced companies is to make profit. So,
as a part of their profit making abilities, they
sometimes tend to go down on quality of the product
and this is another disadvantage of outsourcing. At
the time of writing the contract. If they say that this
is a fixed term contract, to make more profits from
the work, the only way for them would be to
decrease the expenditure and all the other additional
costs which sometimes will surely be of less quality.
This sometimes will also take us to a stage where in
we loose our ability to respond to the business
changes quickly
5) Financial Issues: - when we outsource a particular
task, it means that the part of our job is moved to
other company and hence the financial issues of their
company will also play an important role. If due to
some financial down drains, the other company to
which our product is outsourced is bankrupted, then
this would also affect us. So, basically the
 performance of the product is depended on the
financial output of the second company. Similarly,
vice versa is also a possible disadvantage of
outsourcing where in one company will be at loss.
For example, All the Bit Indian IT companies
received a major jolt then NORTOL filed for
bankruptcy, NORTOL is linked up with major biggest
in the Indian IT Market like INFOSYS ,TCS , WIPRO
and SANSKEN and all these companies had to bear
losses [4] Entire IT market was in losses due to this
filings and will thus have major financial issues
6) Publicity and Loss of Jobs: - When we outsource a
particular project, it means that all the staff who
used to work in that project is no longer required and
this would surely increase the loss of jobs for its
employers. Sometimes, the people who lost the jobs
will go out for bad publicity and ill feelings would also
be created.[6]
7) Contractual Agreements: - When we outsource a
particular project, the company's will basically go for
long term contracts and these kinds of things will
have certain disadvantages. For example if the
company to which we outsourced the work turns out
to be unsuitable for our requirements and is not
doing the work as per the required standards, then it
would be really difficult for us to move out of the
project. Also, it is difficult for us to assume and
 foresee what out requirements are after five or ten
years and cannot write agreement for all those
things right away. Thus, there are few other
agreements which are tough to act upon and turnout
to be major disadvantages for outsourcing
8) Competitiveness: - When an IT team sits with you
and work along with the business requirements and
vision of the organization, there is more competitive
edge for our work rather than it being moved out.
So, this always is an issue for outsourced projects.
The internal divisions of our organization will surely
have more knowledge than the outsourced company

Now that we have understood the major disadvantages of

outsourcing, like we provided a gist of all for advantages,
below are some simple points which show a negative
shade for outsourcing
 More cost effective at time with the inclusion of
hidden costs
 Companies confidential information is leaked
 Managing processes with in the organization is
always easier than managing the process
outside the organization
 Finding other company if in case the original
company is not working properly will always be
a tough task
  Outsourcing company will have many clients
and hence the complete devotion will never be
only on us
 Employers with the organization will never want
their products to be outsourced as its their loss
 Renewing contracts, misunderstandings,
communication and cultural issues, time
differences
 Customer focus will not be there and this might
affect the business
 May have some potential threats and
redundancies in the organization

So far in our discussion, we mainly concentrated on the

advantages and disadvantages of outsourcing on a global
level. If we take it at a particular company level, both the
outsourced company and outsourcing company will have
its own advantages in passing on and taking over the
project. On the whole, the outsourcing has benefits and
this has been proved by many economists who
continuously worked on a number of projects. Despite a
lot of backlash and a number of strategies proposed by
Barrack Obama ( The President of U.S.A) to not outsource
the projects and a number of fines and additional charges
applied on the outsourcing companies, major US clients
are still outsourcing their product for the over all gains
they are achieving.
Let us consider the global example and identify from the
real statistics which are applicable today and thus find out
the real advantages and disadvantages of outsourcing. It
is a well know fact that USA and Europe has got the
maximum number of projects which they are outsourcing
to countries like India and China to get the work done for
cheap labour and expenditure. A number of articles have
been written in USA on many websites about the outcry of
outsourcing The Economist in the year 2003 came up with
an article entitled " America's Pain is India's Gain" [6]
where in they clearly mentioned that outsourcing is
turning out to be an advantage only for the company or
the country to which the project is outsourced. Now
outsourcing will have its own advantages and
disadvantages as discussed previously. Once should never
feel that outsourcing is an issue and it should be
understood that the projects are outsourced only to get
over all benefit to the organization. Once the benefit at
the high level is evaluated, then we understand the
importance of outsourcing. In the next section, we will
now concentrate on various advantages of outsourcing by
a particular country A to a particular country B. and find
out as to what are the global benefits
4. Methodology:
In this research two methodologies were used while
conducting the research:

4.1Secondary data collection:

Large amount of secondary data is taken from article,
journals and previously conducted researches. All this
collected data regarding outsourcing helped to determine
the trends of outsourcing. The data gathered also helped
in identifying key parameters to examine through further
exploration and this helped in defining the hypotheses for
further study and it also helped in preparation of
questionnaire.

4.2Primary data collection:

Primary data is collected through the means of sample
survey. The questionnaire prepared was mailed to some
of persons working in BPO, HRO and KRO's and their
response was solicited. The data collected through this
survey is analyzed to determine patterns and for testing
the validity of the hypotheses for formulated.

4.3 Analysis of data:

A survey was conducted with the sample questionnaire
which we have prepared in the earlier section and
distributed it to around 500 different people across
various places. Though all were not totally encouraging,
around 200-250 applicants have provided us proper
details of the survey. Below given are the various results
of the survey for each question wise. In the below given
section, we will again recap all the questions and the
responses which we received
Our first aim was to segregate the business or the number
of applicants according to the industry or the vertical they
belong to. This was mainly put to distinguish different
sectors and what are the major sectors under which boom
are present. From the various options which we have
provided, ITES /BPO Sector and IT sector stood out to top
the list. Most of the projects and the people which are
getting outsourced today are more or less in ITES/BPO
and IT sector. A number of projects from various parts of
the world and a number of companies turning up today
require an IT section and it is really difficult for any
organization to concentrate both on their IT as well as
business priorities. Hence, if they can move this IT sector
to another place or out source it, the burden will be really
high. Also, all the companies are thinking about the
flexible and cheap labor which they are getting by
outsourcing and hence, we see maximum percentage of
outputs in these areas. Out of the survey results which we
received, a total of 40% approximately were from
BPO/ITES sector followed by 32% from IT sector. After
these two, it is a bit surprising to know that rather than
manufacturing and retail sector, major projects from
medical and Healthcare are being out sourced a lot and
there were around 20% of the projects from the survey
which we conducted. Remaining all the organizations like
manufacturing, retail and others have very small point.
Of all the options, government sector has the lowest
priority in outsourcing as they mainly concentrate only on
their teams
Once we differentiated the organizations based on the
industry, then we on to the second question and here, we
segregated the industry based on the number of years
they are into the field. Out of the numerous results we
have received, around 60 percent of the companies are
the ones who are into the market from long time and
already have some products for them to define. They
already have a stabilized system but the main reason why
they are trying to outsource is for the basic reason to
enhance their existing applications. Also, if they want to
enhance their existing applications with the same IT team,
they need to provide some additional training tot he IT
team which is becoming more burdensome. Henceforth,
they are rather moving the entire division to a separate
place and thus saving time, resources and well as money
put in the project. Then the next trend is major among
the start up companies. A company which is established
recently is directly outsourcing their projects or different
modules of their project so as they can actually
concentrate on other business requirements. So, around
33 percent of the turnout percentage was checked for the
companies with less than 3 years of experience. Middle
level companies like 3-5 years have not been of high
range as they are already up to date with their IT sector
and application development and also formed a team
capable enough to get on to the recent trends
After this was completed, then we moved to the vertical
based analysis where in we tried to find out as to what
are the major kinds of services which an organization is
most likely to pass across as a part of outsourcing and
from the survey results, Business process outsourcing or
the BPO took the maximum lead with 74% of the
applicants. Now, its a well know secret that almost all the
companies have their own IT department and they need
continuous on call support for 24/7 to ensure all the users
are happy. So as to accomplish this task, they thought
that outsourcing this project is the best possible solution.
Next in the fray comes the KPO solution which is
approximately 20% of the entire statistics in this section.
Knowledge process outsourcing has slowly started to
develop and the boom in this particular part will be of
great deal in coming times. Hence, though at this point of
time, we see only 20% of the results, the overall
performance is going to be increased in course of time for
sure. Least of all these turn out to be the HR solutions
where in they are transferred to a different organization
only when there is absolute need and requirement
Our next set of questions were to segregate down the
business further into smaller verticals and what exactly
are the different verticals under which the main
concentration is going into. Out of the number of options
which we provided like temporary staff outsourcing,
recruitment and selection, training, and payroll systems,
the first and the foremost priority was given to
recruitment and selection process where in a company is
going through various divisions and outsourcing agencies
to get the right candidates. Around 22% of the entire
results were for this particular point. After this, training
and development section as well as pay roll systems took
the next big lead with 20 percent each as the companies
can divert their attention to a different level. Managing
benefits, conducting employee surveys are of low
requirement and henceforth are rarely outsourced.
Training and development is basically done by big
companies rather than small ones. For example, if a
company needs to training around 100-200 people for a
new project in some latest technology and there is a
requirement to get this job done in a quick time, then the
resources are going for training otherwise, the self
learning modules which they put in the organization are
almost meeting all the requirements
Now that we have segregated everything in terms of
verticals and what are the important things which are
getting outsourced to complete out survey properly, we
thought out next aim was to identify the major reasons
for outsourcing. To complete this part of the
questionnaire, we along with cost savings, provided
various options to the users. Out of all the options
provided in the survey, around 86% of the results showed
us that the main reason for us to outsource the project is
cost savings. The total amount of cost to do the project in
USA is approximately ten times more than the total cost
in India and hence all the major giants or small scaled
industries are outsourcing all the projects to India as they
are seeing a lot of gain. After the cost savings aspect, the
next important priority was given to the access of better
technology. The main reason provided to this was a
simple factor; many companies in which projects are
running like a banking sector etc. are running on pretty
old technologies. If they want to stay ahead in the
market, then it is important that they need to update
themselves with the latest technologies and as a part of
this, the next main emphasis after the cost savings was
provided to better access of systems and latest
technology. Also, one of the important factors is the skill
availability which is not present in their organization
playing a major role. In these days, it has become very
important for a person to be multi skilled rather than
working on the same technology. This is turning out to be
the one of the biggest reasons why companies are out
sourcing the projects as the outsourcing company is able
to provide people who have different skills with ease
After finding out all the benefits of the organization, the
next emphasis was put on the risks involved in
outsourcing and similarly as we have provided the basic
set of questions for the advantages, we also provided
some set of questions to find out as to what are the major
risks involved in outsourcing. Out of the various options
which we provided, mismatch of culture and cultural
understandings played the important part of the risk.
When a project is outsourced, there are some linguistic
and cultural differences which both the outsourcing and
outsourced company should come in terms with. There
are few instances where this was not happening properly.
This turned out to be the biggest risk factor as around
30% of the people found this to be the toughest task to
handle. Once this is done, the next results following the
cultural differences were the justification of the cost
calculations. When an initial contract is made, both the
source and target companies come up with their own
estimates and at the run time, there are many hidden
charges falling on the company for each and every
additional work. So, at the end of the day, the total
amount is turning out to me a lot more than what they
have initially expected henceforth, around 25% of people
chose this as the second most important factor. All the
security level maintenance requirements, financial
stability of the vector and the responsiveness of the
vendor and other things played an important role as well
and came up with good requirements in the survey. Over
all the risks were given a major importance than what we
initially thought
Once this is completed, we moved to a specific section of
HR outsourcing and wanted to get some information
particularly from the HR outsourcing. We basically wanted
to know if the organization would like to outsource
different HR activities to different companies or would
they prefer outsourcing all the activities to the same
company. A whooping 95% of the people directly said that
they would like to outsource it to different companies
based on the requirement and the caliber of their
companies. Also, one more important reason for them to
outsource the module to different companies is to ensure
that there is secrecy maintained. If they handle all the HR
modules to the same company, some legal and important
information is handed over and they don’t want that to
happen and this turned out to be one more important
reason for them not to outsource all the activities to the
same company. The remaining 5 % of the companies who
checked in favor of single company more or less are small
scaled industries and have no big modules to maintain
and hence were not in favor of moving small works to
different companies
When after this, we asked the users to provide the
ranking of different requirements for anyone to outsource
their product and from the various options which we
provided to the customers who took the survey; the first
priority was given to the brand of the company and their
track record in accomplishing the tasks. So, brand value
was always given importance and there are very few
companies who risked giving their products to people with
no brand values. Once this is completed, the next
importance was given to the cost and the range of
services provided to the vendor, all the companies are
looking for those kinds of vendors who provide different
solutions with cost effective models. Last but not the least
importance was also given to the support which they will
be providing and the time they take to provide the
response and when asked whether outsourcing has
achieved its major goal or not, many people from both the
organizations were very happy to accept the fact that
outsourcing achieved its purpose and was really good.
Thus, we tried to provide a comprehensive analysis on all
the major aspects of outsourcing and its importance. This
questionnaire which we prepared was a survey conducted
across small set of people and the over all results might
vary a lot if we conduct this survey for bigger groups in
thousands.
5. Future prediction of outsourcing:
As per the data collected through survey here are some
predictions regarding the future of outsourcing industry:

 Outsourcing in traditional areas like IT services,

customer care, financial services, manufacturing and

technical support will grow.

 Many companies around the world will invest in

capital BPO units in supplier countries to reduce risk

and improve control quality.

 Customers are looking for business process

excellence, quality of service, world class standards
and good customer service. For any business
customer is god but the organizations and its CEO
can not be in regular contact with the customer to
assist them so on behalf of them the outsourcing
company will assist the customer. Suppliers
understand that they need to compete globally and
in order to do that they need to outsource some of
the services to concentrate on core business thus the
scope of outsourcing is increasing.

 Companies in many countries are available to

outsource so the global competition as a result
margins are reduce which made the cost of
outsourcing less.
 there are some risk factors while selecting a country
to outsource like terrorism, disaster and disease
prone areas so planning is necessary

 the IT industry is predicted to move some if its jobs

to overseas inviting more political debate particularly
during the period of recession

 outsourcing expenditure will continue to rise with

other prices

 More countries will find outsourcing attractive

following countries like US and UK thus making a
multi-polar world.

 clients will take greater control in driving and

designing goals

 The rising price of oil will put increasing pressure on

companies to both utilize technology and outsource
to remain profitable.

 The rising prices of oil and other products will make

countries like USA hard to outsource as a result
 Asian countries like India and china will be
outsourcing more.

 India will show excellence in services that require

high technical skills and advance knowledge thus
scope of KPO in India is more.

 political backlash over outsourcing is likely to

decrease over time as economies strengthen and
companies shall be willing to benefits of off shoring

 by 2015 china and India will take top two positions

respectively in global outsourcing destinations

 Vendor focus will shift from basic skills, costs and

processes to domain knowledge, HR issues and
governance.

 The time zone is also an important factor as the off

shore an outsourcing companies time zones are
different companies will look to outsource in
countries which have similar time zones to them.

6. Limitations of Research:
Along with the various benefits of research, the research
has following limitations too-

• The first and main limitation of this research is that the

selected sample design was very small. May be the
research that is conducted on chosen sample that is
selected randomly, may be the information is not
sufficient for reaching at desired and accurate
conclusion.

• Target audience was reluctant to participate. Hence

slight change in mode of collection of data is done and
190 out of 200 responses were collected online, which
is a bit less authentic source of collection of data.

• Some people are unable to understand the questions,

they are asked in the questionnaire. They perceive
these in their own way and give answers, this leads to
wrong results of research and the whole research will
go in vain.

• We used convenience sampling technique owing to

limited resources which is not ideal for this kind of
research
• Our limited experience was another constraint on the
quality of the research.
Here is a map showing the major countries that are
outsourcing today

Source: www.mapsofindia.com

7. Conclusion:

More than 60% of the companies around the world are

outsourcing and they are increasing day by day. Thus
outsourcing had become part and parcel of every
business, weather it is with in the same country of in a
different country. The freedom of the organization to
concentrate on its core business had made outsourcing
more beneficial. Outsourcing has benefited both the
outsourcing company and the supplier as the company
can reduce the costs, improve quality of business and
provide extra services to customers. The supplier also has
many benefits like he is able to earn good money, expand
his business and improve technology. All the three types
of outsourcing BPO, HRO and KPO are expected to have
good future particularly KPO which requires high skilled
workers will have a bright future as its ability to solve
issues on behalf of client makes it more beneficial.

I-Questionnaire

Survey on current trends in HR Outsourcing

Data being collected through this questionnaire is purely
for academic research and will be kept confidential.

(Please put “X” against an option to select it.)

Name of Organization:

Location:

Which sector your organization belongs to?

Manufacturing Sector
IT Sector
ITES / BPO Sector
Retail Sector
FMCG Sector
Government Organization
Any other, Please mention     

For how long has your organization been in service?

< 3 years
3 years – 5 years
> 5 years

What type of services does your company

outsource?
HRO
BPO
KPO
Which of these services are outsourced by your
organization (Select all services being outsourced)?
HR service
Providing Temporary
staff
Recruitment & selection
Training &
Development
Managing Payroll
systems
Managing benefits
Conducting Employee
surveys Any other
Complete HR function service
being
outsourced, please mention below.
     

Which of these factors are major reasons for

outsourcing services? (Please rank them from 1
onwards in order of decreasing importance.)

 Cost savings

 increased capacity

 Lack of internal staff / capabilities

 Access to better systems and technology

 Other factors (Please mention)

Which of these are major risks associated with
outsourcing services? (Please rank them from 1
onwards in order of decreasing importance.)

 Mismatch of cultures

 Security of Database

 Financial stability of chosen vendor

 Justification of cost-benefit calculations

  Other factors (Please mention)

While outsourcing more than one HR services,

which of the following approach do you utilize?
(Organizations which don’t outsource HR services
skip this question.)

Consolidating all HR services under one vendor

Employing different vendors for different HR services
according to specialization

While outsourcing services, which of these

parameters are most important parameters for
vendor selection. (Please rank them from 1
onwards in order of decreasing importance.)

 Cost

 Brand Name of Service Provider (Proven Track

Record)

 Range of Services being offered

 Flexible Contract Options

 Other factors (Please mention)

Do you think that outsourcing services has

achieved its purpose for your organization?
Yes
No

Which metric do you use for measuring the

effectiveness of outsourcing services? (Please
select all the measures being used.)

None
Cost saved due to outsourcing
 Service level improvement
Increase in employee satisfaction
Other factors (Please mention)

Any comments on present outsourcing

trends…     

****************** Thank You for Your

Time*******************

References:

1) A Study on Trends in HR Outsourcing in Indian

Context, Anshuman Ankur.

2) “Capital One axes India call center deal.” Yahoo!

Finance. 25March
2004URL:http://biz.yahoo.com/rf/040325/finance_ca
pitalone_india_1.html (12 April 2004).

3) Lazarus, David. “A tough lesson on medical privacy.

Pakistani transcriber threatens UCSF over back pay.”
San Francisco Chronicle. 22 October 2003.
URL:http://www.sfgate.com/cgibin/article.cgi?
file=/c/a/2003/10/22/MNGCO2FN8G1.DTL (11 March
2004).

4) Harveston, P., Kedia, B., Francis, J., 1999 MNE's

dependence on foreign operations and performance:
a study of MNE’s from the “Triad” regions
International Business Review 8 pp 293-307.
Rugman A., & Sukpanich N. 2006

5) Firm-Specific Advantages Intra-Regional Sales and

Performance of Multinational
Enterprises Williams D.
 6) The development of foreign-owned manufacturing
subsidiaries: some Empirical evidence Manikandan
A.D

7) Performance of Foreign Multinationals and Domestic

Companies in
i. India since Liberalization: A Comparative
Study

Websites:

1. http://www.outsource2india.com/why_outsource/arti
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