Outsourcing is the contracting out of a businessprocess, which an organization may have previouslyperformed internally or has a new need for, to anindependent organization from which the process ispurchased back as a service.The meaning of outsourcing includes both foreign anddomestic contracting, which may includeoffshoring, described as ―a company taking a function outof their business and relocating it to another country. Anoutsourcing deal may also involve transfer of theemployees and assets involved to the outsourcing businesspartner.
It is the practice of hiring an external organization toperform some business functions in a country otherthan the one where the products or services areactually developed or manufactured.
The practice of purchasing a business function—instead of providing it internally—is a commonfeature of any modern economy, the termoutsourcing became popular in America near theturn of the 21st century when it entered intobusiness lexicon. Outsourcing only became a force inthe global economy in the 1990s with advent ofinternet.
Internet combining of regional computer networksinto a worldwide Internet allowed people from allreaches of the globe to be connected to one another.Increased computing power, data storage, andsoftware capabilities made it possible to managetheir labour. By 1998, outsourcing alone wasresponsible for $100 000,000,000 of the globalrevenues of American companies and in 2003 it hadincreased to $298,500,000,000.
COUNTRY POPULATION AREA (Sq. Km) GDP (USD) LABOUR FORCENIGERIA 162 000,000 923,770 235,900,000,000 48,530,000INDIA 1,200,000,000 3,200,000 1,848,000,000,000,000 487,600,000BRAZIL 196, 000,000 8,500,000 2,477,000,000,000,000 104,700,000INDONESIA 248,000,000 1,900,000 846,800,000,000 116,500,000CHINA 1,300,000,000 9,600,000 7,298,000,000,000,000 795,000,000
The basic elements in the current outsourcing storyare:-A large pool of talented and skilled providers-An equally large market of buyers looking forglobal talent and skill-A mutually agreed compensation package-The existence of the internet as the medium ofcommunication and workspace.
The following tasks are commonly outsourced:Human Capital Management and Development -includingRecruitment, Training and Talent Management.Software development – programmers, as individuals or asa team can work on their homes apart from each other andstill deliver the needed software.Research and Content Development – researchers andwriters can develop different types of content for anyoneneeding an article on a one time or on-going basis.
Back office tasks – office tasks like document filingand integration, customer support and client contactbuilding is being done routinely through the web.Design work – architectural or graphic design is alsoroutinely outsourced through the web.Others include cash management, IT Infrastructure,security, human resources, payroll, insurance claims,etc.
Companies outsource to avoid certain types of costs.Among the reasons companies elect to outsource includeavoidance of the following-Burdensome regulations-High taxes-High energy costs, and;-Unreasonable costs.
All these may be associated with defined benefits inlabour union contracts and taxes for governmentmandated benefits. Perceived or actual gross marginin the short run incentivizes a company to outsource.With reduced short run costs, executivemanagement sees the opportunity for short runprofits while the income growth of the consumer’sbase is strained. This motivates companies tooutsource for lower labour costs.
Moreover, companies may seek internal savings tofocus financial resources towards their core business.A company may outsource its landscaping functionsirrelevant to the core business. Companies andpublic entities may outsource certain specializedfunctions, such as payroll or benefits, to AutomaticData Processing (ADP).
In recent times, India has continued to blossom fromOutsourcing despite weak economies in key marketsin United States and Europe According to NationalAssociation of Software and Services Companies(NASSCOM) report,―Revenues for India’s outsourcing industries areexpected to cross $100, 000,000,000 this financialyear, a 14.8 percent increase from last year anddouble 2007. The group, which has over 1,200corporate members, predicts that revenues willreach $225, 000,000,000 by 2020.‖
Outsourcing industries continue to be one of thelargest employers in India. Over 230,000 jobs wereadded in the current fiscal year, bringing total directemployment to about 2,800,000 people. The numberof foreigners in the industry has grown significantlyas well – as of this year, some 40,000 employees arenot Indian.While India is doing great with IToutsourcing, China is doing the same with manycompanies outsourcing their manufacturing toChina.
Against this backdrop, the opportunity vested inoutsourcing needs to be taken a lot more by theFederal and State Government as well as thecommanding heights of the private sector.We have these in our favour:1. Skilled and Unskilled Manpower2. Land Mass3. Geographic Location
The latest figure for India is $101,000,000,000(Outsourcing income is 67%) in the year that endsMarch 31, 2012 out of GDP of 1,484,000,000,000. –National Council of Applied Economic Research.For Nigeria to experience tremendous growth in ourGDP we have to make our nation one of the leadinginvestor-friendly destinations. To achieve this Ibelieve we have a lot to learn from the Indian model.
According to a report by Ernst & Young, for the yearthat ends March 31, 2012, out of GDP of. FDI in Indiastands 5.9% of the total GDP($1,484,000,000,000)while outsourced work done for clients outside Indiais $69 000,000,000 . Also, over 230,000 jobs wereadded in the current fiscal year, bringing total directemployment to about 2,800,000 people.
Today, as it stands what Outsourcing contributes inNigeria as compared to India to our Gross DomesticProduct (GDP) is less than 2% which is very smallwhen compared to India of 67%. The existingOutsourcing in Nigeria is dominated by the foreign-owned entities from Indian, China, South Africa andLebanon. We can infer that if we embrace the Indianmodel on outsourcing Nigeria can make the following:
If Outsourcing has generated 70% of the Nigeria’scurrent FDI $8,900,000,000 we will be looking at$6,230,000,000 income.
It can add more than 630,000 jobs yearly in thefollowing sectors: Banking and FinancialServices, Information Technology, SoftDevelopment, Telecommunications, Electronics(either SKD-Semi Knocked Down or CKD- CompleteKnock Down), Manufacturing, Transportation, etc.With the huge pool of unemployed graduates oftertiary institutions, it is clear that outsourcing couldbe a way out to solve a critical problem, all thingsbeing equal.
In addition, a rise in global technology spending will bea key factor behind the industry’s boost.
For Nigeria to reach its projected growth by 2020, wehave to take advantage of the opportunity vested inOutsourcing. From my analysis, it is now commonknowledge that the Outsourcing will boost ourhome grown business, increase gainfulemployment, and fast forward our economygenerally.