Technically outsourcing is the process through which a company hands over part of its work to another company. In this process the new company is totally in charge of the designing and implementing of the business process with guidelines of requirements from the outsourcing company. In other words, the outsourcing company orders a product that is tailor made for it by the service providing company or the service provider.
An estimated 300,000 mainly young people are working in India's booming outsourcing industry, which is set to grow 40% in 2005.
This process is beneficial to both the parties involved as it releases the outsourcing company from the headaches of rolling out the business process and the establishment costs involved. The service provider on the other hand specializes in that service and already has the infrastructure and the expertise, and is therefore able to utilize it to the maximum. There are two principal types of outsourcing; traditional and greenfield. In "traditional" outsourcing, the company ceases to perform the job and out sources it to the service provider. In such a case the company lays off or re-employs the staff related to the shifted process. New jobs are now created at the end of the service provider who employs new people to do the job. In "greenfield" outsourcing, the company changes its business processes without leading to any hiring of personnel by the service provider.
Business Process Outsourcing is not simply another term for outsourcing. It involves creating strategic value through outsourcing by creatively examining the process and changing the way it is actually performed and is therefore more than just changing hands. Here, the supplier not only takes on the responsibility to take over the function or business process, but also to reengineer the way it is done. That includes either applying new technology or applying the existing technology in a new way. As a result, something about the way the process is currently being done gets fundamentally changed even though considerations of how the new process affects the buyer's company and interacts with other departments and functions in it. BPO often increases a company's shareholder value.
A BSP or a Business Service Provider, is an outsourcing service provider that offers scalable BPO services through the Internet.
The outsourcing history of India is one of phenomenal growth in a very short span of time.
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 the term 'outsourcing' has undergone a sea-change. What started off as the shifting of manufacturing to countries providing cheap labour during the Industrial Revolution, has taken on a new connotation in today's scenario. In a world where IT has become the backbone of businesses worldwide, 'outsourcing' is the process through which one company hands over part of its work to another company, making it responsible for the design and implementation of the business process under strict guidelines regarding requirements and specifications from the outsourcing company. This process is beneficial to both the outsourcing company and the service provider, as enables the outsourcer to reduce costs and increase quality in non core areas of business and utilize his expertise and competencies to the maximum. And now we can see the benefit to the service companies in India as they mature, prosper and build core capabilities beyond what would generally be possible by the outsourcing company.
Since the onset of globalization in India during the early 1990s, successive Indian governments have pursued programs of economic reform committed to liberalization and privatization. Till 1994, the Indian telecom sector was under direct governmental control and the state owned units enjoyed a monopoly in the market. In 1994, the government announced a policy under which the sector was liberalized and private participation was encouraged. The New Telecom Policy of 1999 brought in further changes with the introduction of IP telephony and ended the state monopoly on international calling facilities. This brought about a drastic reduction and this heralded the golden era for the ITES/BPO industry and ushered in a slew of inbound/outbound call centres and data processing centres. Although the IT industry in India has existed since the early 1980s, it was the early and mid 1990s that saw the emergence of outsourcing. One of the first outsourced services was medical transcription, but outsourcing of business processes like data processing, billing, and customer support began towards the end of the 1990s when MNCs established wholly owned subsidiaries which catered to the process off-shoring requirements of their parent companies. Some of the earliest players in the Indian market were American Express, GE Capital and British Airways.