In today’s interconnected world, offshoring and outsourcing have become integral components of the global economy. SMEs and entrepreneurs use them to scale and grow their businesses in volatile markets. And large corporations take full advantage of offshoring on a grander scale to streamline and boost their operations for a fraction of the cost.
Offshoring and outsourcing have revolutionized how businesses operate, enabling them to tap into cost-effective resources and expertise beyond local and national borders. To truly appreciate their significance, understand how they can impact your own business, and predict how they may further evolve, we must look at offshoring and outsourcing’s origin and history.
The Emergence of Offshoring
The origins of offshoring can be traced back to the late 18th century when the Industrial Revolution spurred a surge in international trade. As colonial powers expanded their territories, they sought to take advantage of resources from distant lands. Merchants and companies began establishing overseas operations to secure access to raw materials, labor, and new markets. As it is today, the purpose of offshoring has remained the same over the centuries, albeit with many improvements and conveniences owed to technological innovations.
The modern concept of offshoring, as we know it today, gained momentum in the late 20th century. Advancements in transportation and telecommunication facilitated the rapid movement of goods and the near-instantaneous relay of information around the globe. In the 60s and 70s, large manufacturing companies such as General Electric began moving their processes to lower-cost countries, which other industry leaders then followed.
One of the first examples of modern-day offshoring was the maquiladora in Mexico. Maquiladoras were manufacturing plants or factories licensed to operate under Mexico’s Secretariat of Commerce and Industrial Development. The Maquiladora system was established to encourage US foreign businesses to set up operations in Mexico and ease the country’s unemployment problems. Between the 1980s to the late 1990s, jobs provided by maquiladoras rose from 200,000 to over 1 million. The success of this offshoring prototype prompted other countries to follow suit and take advantage of the benefits of opening their economies to international companies.
Companies also began exploring other countries, such as the Philippines, India, and China, as offshoring options. Initial costs of transportation, partnerships, and tariffs were fairly high, but companies realized that the massive drop in labor expenses still made the whole operation viable and vastly profitable.
The Rise of the Internet, Offshoring, and Outsourcing
Amidst all this innovation in business methodologies and practices, a revolution in IT technology was also starting to take off. During the 1990s, the world saw a technological explosion with the internet and telecommunications. Our more veteran audience may recall that the internet was introduced just a decade prior and was not yet in the same state as we know it now. However, during this time, it was already capable of facilitating the transmission of digital data.
With IT technology gaining more prominence and becoming more and more essential for business functions, the need for more personnel and experts in the field also exploded. And what would be a practical and affordable solution to this burgeoning staffing issue? Offshoring and outsourcing, of course. And IT was the most obvious department to offshore and outsource since, except for a few personnel managing and overseeing servers and equipment, most of what they needed to do could be done remotely and offshore.
During this time, companies also began outsourcing non-critical processes, such as payroll processing and facilities management tasks, to domestic third-party vendors. This practice allowed them to reduce costs, improve efficiency, and facilities management tasks, to domestic third-party vendors. This practice allowed them to reduce costs, improve efficiency, and enhance their competitiveness in a gradually globalizing world.
The Offshoring-Outsourcing Synergy
The rapid advancement of information and communication technologies, coupled with the globalization of trade, led to a symbiotic relationship between offshoring and outsourcing. Offshoring enabled companies to establish their operations in foreign countries, while outsourcing allowed them to delegate specific tasks or processes to external partners, regardless of geographical location.
Over time, this synergy evolved into a comprehensive approach where companies strategically assessed their operational requirements and leveraged a combination of offshoring and outsourcing to achieve optimal outcomes while eliminating or at least minimizing risk. For instance, a software development company may establish an offshore development center in a low-cost country while outsourcing non-core functions like customer support and maintenance to specialized service providers.
The Changing Landscape
The offshoring and outsourcing landscape has undergone significant transformations since its inception. Initially, companies primarily offshored manufacturing operations to countries with lower labor costs. This practice allowed them to remain competitive by reducing production expenses. However, as technology advanced and economies evolved, offshoring expanded beyond manufacturing to encompass a wide range of industries, including services such as customer support, finance, and healthcare.
Moreover, as developing countries gained expertise and improved their infrastructure, they started providing more sophisticated services, resulting in a shift from low-skilled to high-skilled offshoring. Countries like India, the Philippines, and China emerged as global leaders in information technology, business process outsourcing, and manufacturing, respectively, attracting significant foreign investments.
In more recent developments, automation and artificial intelligence (AI) have significantly impacted the offshoring and outsourcing landscape. With the eventual rise of technologies like robotic process automation (RPA) and machine learning, repetitive and rule-based tasks are increasingly being automated. This has led to a shift in outsourcing patterns, with companies focusing on knowledge-intensive processes that require human expertise while AI systems handle automated tasks.
The history of offshoring and outsourcing reflects the dynamic nature of the global economy. As we see our societies, economies, and cultures advance and become more intertwined, we may also find new ways for offshoring and outsourcing to evolve.
iSupport Worldwide Is Your Offshoring Partner for the Future
If you’re looking for an offshoring solutions provider that can make the whole process easy and simple for you, then iSupport Worldwide is your best bet. We have extensive experience providing businesses with the services, support, and facilities they need to build their offshoring teams.
We cover a wide variety of industries, fields, and verticals. If your business is looking to scale or grow rapidly while remaining flexible, then our offshoring solutions can help keep you competitive.
Call us today, and let’s discuss your next offshoring strategy.