U.S. Businesses

American companies have an incentive to outsource to due to the tremendous cost reductions and savings they gain by doing so, which directly affects their bottom line. Moreover, the strategic value and competitive edge provided by outsourcing gives businesses an advantage in domestic and global markets.

As per a study conducted by Martin Kenney, a professor at the Department of Human and Community Development at the University of California, Davis, offshoring to India allows companies shave costs, as labor costs in India are 25-40% of what they are in the United States. He suggests that offshoring is a good business strategy for corporations, as the ability to secure significant savings is motivating more corporations to centralize certain global processes in India. The primary motivation of most businesses involves generating and expanding profits, and offshore outsourcing certainly provides businesses with the opportunity to do so.

Besides the cost-reducing capabilities of outsourcing, the practice also seems to provide businesses with greater strategic value by forming valuable connections with foreign contacts. These foreign contacts can prove especially useful for expanding into global markets, which is particularly important for multinational companies such as Apple, Walmart, and McDonald's.

While the benefits of offshore outsourcing to businesses is rather clear to most business owners, many often overlook the drawbacks of offshore outsourcing to businesses. According to Mary Lacity and Rudy Hirschheim, both professors of information systems (IS), IS outsourcing can result in undesirable outcomes such as hidden transition costs, contractual difficulties, and service quality and service cost issues with outsourcing vendors. Therefore, companies seeking to outsource certain functions of their operations must be wary about the complexities involved in working with vendors from overseas.

Taking the cost reductions, strategic benefits, and quality issues of outsourcing into consideration, companies may have a greater incentive to outsource some of their business processes abroad so that they can focus on their core competencies and drive profits.