BUSINESS ENGLISH II

Unit 20: Offshoring and

Outsourcing
Free Powerpoint Templates
Page 1
Free Powerpoint Templates
Page 2
 Background:
Offshoring and Outsourcing
These terms have had various meanings and are
used interchangeably in some of the literature,
to clarify:

Free Powerpoint Templates

Page 3
 “OFFSHORING”

• Moving business from one country to

another.
• “The delegation of administrative,
engineering, research, development, or
technical support processes to a third-
party vendor in a lower-cost location.”
• “Transferring business outside of the
country, to another firm”.

Free Powerpoint Templates

Page 4
 “OUTSOURCING”

• “Subcontracting business outside of the

company”.
• “Act of moving some of a firm’s internal
activities and decision responsibilities to
outside providers.”
• “Procuring of services or products from an
outside supplier or manufacturer in order
to cut costs.”

Free Powerpoint Templates

Page 5
Reasons for offshoring / outsourcing
Businesses outsource for the purpose of
cutting costs and raising profits. An early
example of outsourcing in America in the
1970’s, IBM developed the IT industry in
India.

Free Powerpoint Templates

Page 6
Economically, if some people can use some
of their skills more cheaply than others,
then those people have the comparative
advantage. The idea is that countries
should freely trade the items that cost the
least for them to produce.

Free Powerpoint Templates

Page 7
 How it came to be:
• Production offshoring got its big push when the
NAFTA made it easier for manufacturers to shift
production facilities from the US to Mexico.

• After its accession to the WTO, China emerged

as a prominent place for offshore outsourcing:
– Cheap prices through very low wage rates, cheap loans,
land, and huge economies of scale based on cities with
populations of over a million workers.

• Currently, India's engineering talent has made India

the offshoring destination of American high-tech firms,
lead by HP, IBM, Intel, AMD, Microsoft, Oracle, and
Cisco.
Free Powerpoint Templates
Page 8
 • Main Factor:
– Huge Cost
Savings
• 30-60% Overall
– Labor
– Technology
Investments
– Process
Efficiencies

Free Powerpoint Templates

Page 9
Advantages of Outsourcing &
Offshoring
• Free up company resources
• Lower personnel costs
• More flexible working practices
• More advantageous labor laws
• A friendly tax structure
• Cost advantage
• Better focus on core competency
• Be closer to markets
Free Powerpoint Templates
Page 10
• Prices lower for products sold in the U.S.
and made in other parts of the world
• Countries in the rest of the world can
become more developed: employment,
taxes, generation of wealth.

Free Powerpoint Templates

Page 11
WOW! Huge Cost
Reductions!
Offshoring is the Way To Go…
RIGHT???????
Not So Fast My Friend…. There are
Some Risks Involved With that
Decision!
 The Major Risks In Offshoring
 Contract (political changes)
 Privacy and Security

 Diminishing Technical Returns

 Increased/ Hidden Costs

 Loss of Expertise (Mainly IT)

 Impact On Your Employees

 Impact on Your Customers

 Failure of Outsource Provider
Disadvantages of offshoring/outsourcing
• Dependence on a service provider
• Risk to loose Know How
• Undesirable results
• Security issues
• Cultural incompatibility
• Language
• Additional effort for knowledge transfer and
process set up

Free Powerpoint Templates

Page 15
• Qualified professionals are losing their
jobs to offshore workers who will work for
less
• Difficulty of monitoring child labor
• Difficulty of managing remote locations
with those who understand the culture,
and are in synch with corporate objectives

Free Powerpoint Templates

Page 16
• Loss of incentive for college students to
pursue IT careers as family members and
friends lose jobs
• Loss of trust between employees and the
employer as more jobs move offshore
• Due to new roles, competencies, and skills
required when outsourcing, inefficiencies
and disorganization result

Free Powerpoint Templates

Page 17
 Finding the right Destination
and Partner
• Availability of Respective Talent in the
country
• Financial benefit / Cost
• Flexibility and Degree of control offered by
local law
• Communication and Infrastructure
• Risk of Partner compatibility

Free Powerpoint Templates

Page 18
• Upfront Investment
• Business Treaties
• Commitment to quality and value-added capability
• Price/ Financial Benefits
• References/Reputation / Existing relationship
• Flexible contract terms / Level of management
bandwidth
• Others factors like ability to hire & retain talent,
Execution Speed, Location, Infrastructure, Cultural fit
etc.

Free Powerpoint Templates

Page 19
 Looking to the Future:
Potential Negatives
• American unemployment rate will rise
• Americans will spend less because they
will feel less rich
• American resources such as concrete,
drywall, and oil will be shipped over seas
and America will experience a shortage of
goods.

Free Powerpoint Templates

Page 20
 Looking to the Future:
Potential Positives
• Quality of jobs increase as lower wage jobs
are replaced with high-wage, high-skill jobs
• As competition increases, savings from
decreased costs will be passed on to
consumers
• Domestic companies will be able to
compete with foreign companies easier,
causing a decrease in tariffs and increase
in world trade

Free Powerpoint Templates

Page 21