Larry Oldman
"You biggest enemy is your enthusiasm and talent..."

Outsourcing is not the word of 10 recent years but has a long history, which I want to tell you from the earliest time till now.

Software Outsourcing - The Service That Goes From Local To Global

Nevertheless the term ‘Software Outsourcing’ in its modern meaning has appeared a few decades ago, I was surprised to know, that its history and conception has existed for centuries.

So, the Software Outsourcing process was taking shape in different fields of industry as a supreme form of labour division. It started when little communities became more formed and was based on simple products, such as food and household goods trading. The specialization of marketers made them to outsource some services to each others.

The general idea of Software Outsourcing, as a way to make business competitive was pronounced by Adam Smith in his 'The Wealth of Nations', published in 1776.

Naturally, geographical separation and total absence of connection, logistical forces between different geographical areas made only existence of ‘outsourcing’ service per se possible. Another kind of the division and transferring of some elements of workflow to the third party, called ‘offshoring’, appeared later, as consequence of total globalization, telecommunication development and intercultural interactions between different countries.

First examples of Software Outsourcing were the competitive lost of market by marketers who had no industry technologies. For example, in 1830s British textile industry became so efficient, that Indian veawers could not win the fight around cloths trading. That time all weaving job was moved to England, while all Customers were Indians. Read more....

The main aim of outsourcing was to optimize the workflow, allowing to minimize energy expenses, keeping the final product of the same or even superior quality. As a consequence, it improved total competitive ability and attention value of companies.

But, the whole outsourcing tendency was very inert until Industrial Revolution has come. Essentially, before it almost all companies were built as self-sufficient or mostly self-sufficient structures, controlling the whole process from raw materials mining to shipping. They had their own lawyers, accountants, insurers, etc.

1970s-1980s delivered the first significant wave of outsourcing in fields of engineering, architecture, financial and insurance services. It followed idea ‘I can share with you everything you`re making better’. One of the brightest examples of that is the explosion of auto-market because of ‘Asian Tigers’ appearance, which used outsourcing to low wage countries such as Taiwan and Malaysia. Japanese Toyota had bitten the large piece of USA auto market, offering cheaper and qualitative cars to Customers.

Being pressed with growing extreme business struggle USA General Motors made ‘unusual’ and very unpopular decision to close 10 Flint Michigan factories and to moved them to Mexico. Finding this strategy really cost-saving and despite wide criticism several others huge auto-giants have joint this initiative. Read more...

Brand new life was brought to the Software Outsourcing by invention of high-tech products. It has stimulated to move its management facilities out of internal resources to keep flexibility and creativity and to avoid too rigid management structure.

Technically, outsourcing formally became a business strategy in 1989. It was a part of cost-saving policy that insisted to outsource functions and services that were important, but not crucial to the business itself. The very first was Eastman`s Kodak, that was, on that time, in extremely hard financial state because of 10 billion debts, related to acquisition of Sterling Drug. While being one of the largest companies in USA, Kodak was pressed to gamble with principal new project. So, they have outsourced their data processing to IBM. The name of the ‘hero’ was Katherine Hudson. It was she, the vice president and corporate information systems director, who led this sharing. Read more...

In such way human resources, data processing, security, call centers, payrolls, all kinds of insurance and research mostly became outsourcing services.

Speaking about outsourcing and offshoring we can`t but tell about offshore Programming. IT technologies used these options from the beginning of their existence. First examples of outsourcing in IT industry were seen in 1970s. Primarily they mentioned only payroll services. But later, after other nations reached sufficient level of education in this field, foreign Programming market became very attention valuable for large Customers.

The first country, which became a market of the service was India. Government of India have began the nationwide project to improve telecommunications since early 90s. The law about privatization and private participation, approved in 1994, became crucial in following growth of interested market participants from 'overseas'. Main advantages of Indian Implementers were English-speaking, high level of education, time-zone and, especially, extremely low cost and weak worker protection laws. First Customers of Indian Teams were American Express, GE Capital and British Airways. Read more...

In presence, outsourcing and offshoring are services with nearly 315$ billion revenue. Indian Teams have kept the first place, but it is often said, that the future winner of offshore competition will be China. Other main offshore providers are Russia (Software development) and Pakistan (Software development, Services), some part of offshore market also belongs to Bangladesh, Bulgaria, Ukraine, Belarus, Romania.

Released online: 7/19/2007