A Brief History of Outsourcing
August 5, 2017
Outsourcing has become one of the major industries in the world today. The emergence of BPO companies has offered a number of services to client companies that simply could not be matched by having those functions in-house. In the modern context, outsourcing means having a third-party provider handle numerous tasks and departments that do not necessarily need to be performed by the main office. However, that was not always the case. The history of BPO services starts not with services and office functions, but with manufacturing.
Prior to the advent of IT outsourcing, manufacturing companies had a virtual monopoly on the demand for outsourcing services during a time when BPO companies were virtually nonexistent. The logic behind it was simple enough. It was far more cost-effective to have manufacturing facilities in the areas where the raw materials were obtained. It cut down on the time required to manufacture a product and eliminated the need to ship the materials long-distance to a separate facility. More U.S. companies began to outsource a number of manufacturing support tasks to countries such as Canada, Mexico, and Brazil in the 1980s.
It was only during the tech boom of the early 90s that these manufacturing companies took a backseat to IT outsourcing. Companies began to hire third-party contractors, BPO companies, to handle more functions. These were no longer support tasks, but functions directly related to the business but did not require local handling. India, having experienced a technological boom of its own, had the necessary infrastructure to handle the initial demand. The first wave came in the form of software development and support. Call center outsourcing companies were not too far behind, with some setting up shop as early as the late 90s.
Contact centers began to overtake the manufacturing industry in the number of outsourcing opportunities during the mid-90s. Their primary clients were American businesses that were cutting on costs. Technical support had been slowly moved to Indian providers due to the country’s large pool of technology-related talent. Customer service and sales services from BPO companies had also followed suit. Around 1994, the Philippine government instituted infrastructural and economic reforms to help boost the incentives of foreign investors to take advantage of the country’s labor pool. Part of that push involved improvements on the local IT sector. Two years after, a few companies began to move part of their data entry operations into the country.
Outsourcing advantages also began to attract the attention of other industries. Medical and media transcription emerged. Legal transcription services also appeared in India, but companies quickly moved them to the Philippines. The legal system in the Philippines more closely reflected the American one, which made the local talent pool more likely to understand critical precedents and procedures. IT outsourcing has also become important, with an increasing stake in the Philippine BPO market each year.
Currently, BPO companies are worth an estimated $3 billion. Facilities in India and the Philippines are expanding, with China also making preparations to take advantage of the demand. Services that are outsourced have expanded beyond the initial contact centers and data entry. Companies now outsource tasks such as medical and legal transcription, SEO marketing, and content management. This growth has benefited many international companies, and it is likely to continue in the foreseeable future and even beyond.