Western countries initiated manufacturing goods in low-cost, labor-intensive locations a few decades ago despite the high cost of transporting the finished goods, it was cheaper to make them in offshore locations than at the factory onshore.
However, any suggestion of outsourcing would have been laughed at. The major concerns everyone had were about the outsourcing vendor’s financial stability, security and service.
Development of reliable and low-cost global communication systems and the emergence of skilled labor forces in the third world nations have made outsourcing become a feasible reality. Initially banks and allied financial institutions began business process outsourcing efforts in which whole business processing tasks are outsourced.
Early success stories by these financial institutions encouraged others to promptly follow suit, and according to an estimate by 2008, worldwide offshore outsourcing expenditures are expected to reach $346 billion.
Outsourcing is particularly attractive to financial institutions because of the nature of their operations that involve database operations, which are expensive to process onshore but easy to outsource. In addition, since their savings can amount to more than 10% of non-interest expense, moving as quickly as possible to an offshoring model seems the obvious choice, right?
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