A Comprehensive Report on the History and Future of Outsourcing

This report provides a comprehensive overview of outsourcing, tracing its historical roots and projecting its future trajectory. It begins by defining outsourcing and highlighting its significance in modern business, emphasizing cost-cutting and efficiency gains. The report then delves into the history of outsourcing, starting in the late 1900s with early examples like Kodak's deal with IBM. It explores the role of technology, particularly in the rise of call centers in India and China, and the impact of the internet on white-collar outsourcing. The report also examines nearshoring and the influence of technological differences and environmental concerns on outsourcing decisions. Finally, it analyzes the future of outsourcing, emphasizing the continued impact of technology, including cybersecurity and cloud-based solutions, and the importance of adapting to rapid technological changes. The report concludes by highlighting the potential for outsourcing to create new learning and development opportunities and its sustained relevance in the business landscape.

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Introduction
The trend of outsourcing is considered to be a prominent practice of business
organizations in the current era. A misconception is present that outsourcing is a fairly new
concept, however, it has started for several decades. The current research has attempted to shed
light on outsourcing and its history. In this research, the history of outsourcing has been
discussed. The future of outsourcing in the coming years has been evaluated as well.
Background
The process of outsourcing is a business practice in which a company hires a party
outside to perform a service or create a good that was traditionally performed in-house. In most
of the cases, outsourcing is considered for increased efficiency and cost-cutting. According to
Ensslin et al. (2020), IT is considered to be one of the most fruitful areas of outsourcing due to
its operating nature and history. It is evident that in the late 1900s, outsourcing started for the
first time in the USA. Companies started outsourcing the areas in which they were not self-
sufficient. At first, Kodak struck a deal with IBM during 1989 as they asked IBM to design,
build as well as manage a data center in the place of Kodak (Johansson, Hallén, Persson &
Tarland, 2017). After this step of Kodak, several companies started outsourcing. A similar step
was taken into account for the service process thinking with the concept of shared services.
In the early days of outsourcing, businesses started sharing their services. For instance,
the first important company to incorporate outsourcing for back-office services was General
Electric in 1985. According to Yves (2019), outsourcing was highly influenced by technology.
Even before Kodak, the Caribbean Data Services attempted to process information which was
done in the US. The study also stated that knowledge related services were outsourced in the
USA predominantly in the early days of outsourcing. In addition, Manning, Larsen & Kannothra
(2017) argued that voice communication technology played a major role in the outsourcing
services. US companies started outsourcing their customer services. Technology helped the way
in which services could be provided. India and China were flooded with call centers after the
Fortune 500 countries started outsourcing their services. According to Costa & Costa (2018), GE
opened its maiden international call center in India in 1999. This also helped Indian software
companies to strike deals with foreign companies.

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During the early years of the 21st century, outsourcing played a significant role in several
industries as companies started outsourcing services to reduce cost. As per Calia & Pacei (2017),
the emergence of information technology businesses in almost all the industries contributed to
white-collar outsourcing. Manufacturing companies started outsourcing a major part of their
operations outside their county. For example, American Express started business process
outsourcing in India. In the early years of 2021, businesses started contributing to the creation of
white-collar outsourcing. It is imperative to consider that China and India have become the main
areas in which there is a concentration of white-collar jobs. According to Peck (2017), low-cost
workforces of India, China and Malaysia contributed to the outsourcing of major white-collar
jobs from the USA to these countries. Outsourcing became effective for white-collar jobs due to
the flexibility of choosing working hours. US companies were being benefitted as they had to
pay a significantly low payment to the employees of developing countries compared to the US
minimum wage.
On the other hand, Pankowska (2019) argued that the use of technology helped in
outsourcing the tedious tasks of developing countries for the USA. The emergence of the internet
played a major role in outsourcing jobs. As per Drahokoupil & Fabo (2019), the contemporary
outsourcing dynamics needs to include the consideration of the effect of technologically guided
change of labor organization. The increase in the use of the Internet was seen in labor market
matching. For instance, West point Home, the company which makes lines of Ralph Lauren,
started using Genpact in India in 2007. The emergence of the World Wide Web helped
businesses to shift entire tasks to developing countries. For example, Microsoft went to Costa
Rica for their sales and marketing services in the late 1990s. During the 21st century, the
developing countries have been able to attract several foreign companies and secure white-collar
jobs for their citizens.
In the discussion of outsourcing, it is imperative to discuss the aspect of nearshoring.
Nearshoring can be defined as a procedure of outsourcing business processes to the companies in
a neighboring country. According to Panova & Hilletofth (2017), nearshoring from European
countries to China and Russia has been contributed by low labor cost as well as labor
productivity. Most of the companies in these companies focus on nearshoring to target the
customers of those countries as well. According to Baumert et al. (2019), outsourcing can be
attributed to technological differences across nations. Businesses have also engaged in

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outsourcing heavy industries in other countries to avoid high carbon emission. This negatively
impacts the environment of the nation where the industry has been outsourced. For example,
Toyota has established a manufacturing facility in India which has contributed to a significant
level of pollution in the country.
In addition, the pharmaceutical industry also outsources its operations in other countries.
For example, Johnson & Johnson has outsourced its operations in China and India for
inexpensive labor forces. It is imperative to consider that technology is a major contributor to the
increase in outsourcing. Most of the companies have been able to outsource their services owing
to the emergence of technology. Businesses have mainly gained benefits from outsourcing which
suggests that in future they would employ outsourcing as well. As per Todoran & Popa (2020),
businesses are expected to create new learning and development opportunities for people with
the help of outsourcing. Outsourcing would continue to survive in future as well due to its time
and cost-saving nature. It is relevant to consider that technology has changed the dynamics of
outsourcing in the past, hence, in future, outsourcing will be influenced by technology as well.
According to Moon et al. (2018), outsourcing decisions of the businesses are expected to
be influenced by technological innovation. The technical resources which can be provided by an
outsourcing partner can be a major concern for future outsourcing decisions. On the contrary,
Yuan, Chu, Lai & Wu (2020) argued that the advent of technological innovation also increases
the cost of updating technology. Hence, for outsourcing the cost of updating technology will
increase, which will further require companies to incorporate more funds. It is also expected that
the change control becomes focused on the changes that would require changes to the
integrations and automation. As per Eisner, Masur & Peterson (2018), the complexity of the
change control can increase if the digital outsourcers act as an integrator. This will be a result of
improvement of third-party technologies. In addition, technology standards will also change in
the future which will ensure customers’ ability to exchange data efficiently.
It is imperative to consider that technological innovation will mostly benefit the
outsourcing facilities in future. Over the years, outsourcing has been benefited by technological
advancement specifically for the internet. According to Zhang et al. (2018), cybersecurity will be
the biggest concern for outsourcing facilities in the future. However, it can be expected that with
the advancement of technological innovation, data security will also increase. Tools and policies
will be introduced to combat the data security threats in future. In addition, Hedenstierna et al.

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(2019) argued that a trend will be seen in replacing the in-house IT operations with IT
outsourcing. In addition, cloud-based technologies will ensure that means of data security and
storage. In future, companies will choose outsourcing, it will be a financially beneficial decision.
Moreover, the size of organizations will not be able to support the growth of IT needs.
Businesses will also focus on delegating the IT functions to their parties to ensure that
they are able to improve their key performance indicators. As per Pankowska (2019), in future,
businesses will outsource an area of core competency which will help them to free up valuable
resources to acquire new growth opportunities. In near future, businesses will mainly take
advantage of outsourcing services such as small device repairing, on-site repairing, hardware
installation and outsourced IT staffing as well as services. The traditional technology
acquisitions will change in the future. Owing to outsourcing, data processing, data collection as
well as analysis will be provided by several suppliers which will also create several integration
points. In the arena of outsourcing, a rapid pace of technological change will necessitate the
inclusion of contractual terms.

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