To be competitive in today’s global market, companies have been turning to global sourcing as a solution.  As more and more companies look for ways to cut costs, while still remaining productive, the popularity of global sourcing has increased.

Global sourcing refers to the practice of sending certain aspects of business development to other countries, either near shore or offshore.  When it comes to IT, global sourcing gives companies the opportunity to send certain business operations or processes to third-party suppliers outside of the country.  Global sourcing generally provides lower labor costs, access to qualified IT personnel, lower overhead expenses, increased productivity and an operation that virtually runs 24 hours a day.  All of these benefits give the company looking to outsource a competitive edge over other IT companies.

According to TechsUnite.org, a website for a high-tech workers union, 528,478 U.S. jobs have been offshored since January 1, 2000 through August 2008.  With the Internet and continuous changes in technology, it is now easier for companies to manage projects sent to global sourcing providers.

Many foreign governments have begun offering companies incentives relating to global sourcing.  India, China and Malaysia boast highly skilled technical workers and graduate thousands of IT professionals every year from the colleges and universities.

Even though global sourcing can create a competitive advantage, companies looking to outsource should be cautious when choosing a vendor and location.

Benjamin Shao, associate professor of Information Systems at Arizona State University’s W.P. Carey School of Business, was quoted in an article as saying, “It (offshore outsourcing) is still a very popular business practice nowadays.  But I think U.S. companies now have learned from their own experience or from their competitors’ experiences over the last few years.  So now they also try to be a little bit more discreet and careful when it comes down to the idea of offshore outsourcing.”

Data and intellectual property protection are often major concerns for IT companies.  When choosing a global sourcing provider, it is crucial to find out what systems are in place to protect data.  This information should be available before a global sourcing contract is signed.

Other factors to consider when choosing a vendor are the country’s benefits and risks, the vendor’s expertise and qualifications and communication capabilities. 

Global sourcing is great tool to use to stay competitive in the global environment.  Companies need to be aware of what global sourcing has to offer, but should also be aware of the risks and how to minimize them.

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According to a recent research study, large companies are increasing the use of global sourcing and are expected to send as many as 25 percent of IT jobs to offshore locations by 2010.  These figures are based on the information gathered from Global 1000 firms.

The article, Survey: One in Four IT Jobs Moving Offshore, posted on Networkworld.com, summarizes the key findings of this study conducted by a Miami-based firm.

Researchers found that over the next two years, companies with revenues of at least $5 billion are expected to transfer approximately 350,000 corporate jobs offshore.  More than 50 percent of these jobs will be in the IT sector, while some will be in the areas of finance, procurement and human resources.

Some experts believe that eventually 60 percent of IT jobs will be sent offshore and in some firms, this figure could hit 80 percent.  This data has been referred to as “a confirmation of a mega-trend.”

Another study that examined the impact of global sourcing on IT suggested that up to 8 percent of all IT employees have been affected in some capacity by offshore outsourcing.  That study collected information from 10,000 people.

There are many theories as to why there has been an increase in global sourcing within the IT industry.  One belief is that companies are becoming more experienced and comfortable when it comes to global sourcing and are more willing to send additional work offshore.  Many companies have developed standardized practices that have helped in the success of outsourced projects. 

Global sourcing is not expected to slowdown during the economic crisis and may actually increase as companies look for ways to cut costs, while still retaining productivity.  According to the article on Networkworld.com, the average company is currently realizing approximately $16 million in savings each year from global sourcing, with more than 50 percent of that amount in IT cost savings.  As global sourcing grows, the annual savings could reach $30 million by 2010.  Surprisingly, this figure only represents about a third of what companies could eventually save.

In order for companies to remain competitive, there has to be avenues to increase productivity, while cutting costs.  Global sourcing gives companies the opportunity to accomplish these goals, as well as focus on core competencies. 

A&E Consulting is a leading consulting firm that helps businesses take advantage of the many benefits offered through global sourcing.  The consulting experts at A&E Consulting help organizations choose the right global sourcing provider and will oversee the first outsourced project.

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As President-elect Obama prepares to take office, many people are wondering what impact his administration will have on global sourcing, as well as the types of policies he will put into place.

Obama is stepping into power at a time when the American economy is struggling.  According to the article posted on CIO.com, What Effect Will President-elect Obama Have on Outsourcing, he will need to develop programs and policies to help stabilize and turn the economy around.  Obama will need to put governance systems and agencies in place to ensure another financial crisis will not happen again.  Once the economy begins to stabilize, there will also be more fiscal stability.

According to the article on CIO.com, Obama will be facing so many major issues that it is not likely that he will place outsourcing on his priority list. 

Indian suppliers have transformed from using their initial business models and are now providing more than just labor arbitrage.  These global sourcing providers are offering business models and services that focus on increase in productivity, faster turnaround time of products, improved quality, intellectual property protection and more.

Numerous global brands, such as GE, IBM, Microsoft and AOL, have large facilities and direct employee bases in India.  These Indian centers help the companies stay competitive, while increasing revenues.  Even if Obama’s proposed $3,000 tax credit to employers for each employee hired in the United States goes through, it should not affect the decision to hire offshore.  The reason has to do with the reduction in labor costs and overhead associated with offshore locations, such as India.

Another point addressed in the CIO.com article had to do with the diversity in Indian business models.  Business models among Indian suppliers are much more diverse than in the past and have the capability to withstand economic fluctuations better than before.  IT companies in the United States will continue to look for ways to cut costs and improve competitiveness, which should drive the global sourcing industry.

The bottom line is that most people feel that Obama will not have the time or resources to focus specifically on large-scale policies regarding outsourcing.  Therefore, his administration should not immediately impact the global sourcing market.

A&E Consulting is a leading global sourcing consulting firm that helps businesses with their global sourcing needs.  The consulting experts at A&E Consulting can help organizations choose the right global sourcing provider, as well as assist with overseeing the first outsourced project.

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