Online Outsourcing
Encyclopedia
Online outsourcing is the business process of contracting third-party providers (often overseas) to supply products or services which are delivered and paid for via the internet. Online outsourcing
emerged in the early 2000s, along with advances in internet technology
, as a viable option for SME
s and entrepreneurs who lacked the necessary financial resources to meet the costs associated with traditional forms of outsourcing.
Outsourcing or freelancing marketplaces play a pivotal role in connecting buyers of outsourced services (small businesses and individuals) with providers of outsourced services (freelance workers).
The last decade has seen strong growth in online outsourcing, particularly through freelance marketplace
s, with over $500m USD spent on the top outsourcing sites between the turn of the Millennium
and the start of 2010. In the first quarter of 2010 more than $50m USD was spent on these same marketplaces by the second quarter of 2010 this figure had jumped to over $70m USD, representing a 40% growth in quarterly spend in just 3 months. In the 3rd Quarter of 2010 this figure had reached $78.8m and did not take into account spend on crowdsourcing
sites like 99Designs or Amazon's Mechanical Turk.
The exponential growth of online outsourcing has been attributed in part to the global economic downturn, however there is a strong indication that this method of doing business is becoming increasingly popular for SMEs (particularly micro-enterprises) and start-up
businesses, despite the downturn, rather than because of it.
. This process is when one department, or indeed a whole area of work, transfers tasks and projects to a third party company.
As they can be easily achieved through the internet, it is mostly services within IT
and Marketing that are most often sourced out to a third party. Examples of such tasks could be programming and web design, multi-media production, logo design or search engine optimization not forgetting services like translations, research and editorial work. In this case, online platforms can serve to simplify the process of attaining and assigning projects (see online outsourcing in practice).
With offshoring, a variant of outsourcing, respective tasks can be situated in another country. This could be both business tasks or indeed business processes.
With Nearshoring
Offshoring also has its own variant. While the former relocates tasks to a country usually very far afield on another continent, the latter is, as the name suggests, relocation closer to home.
Homeshoring, as a variant of outsourcing, describes the location of third party services which are not undertaken by companies but by individuals working from home. This form of working is also known as Home-Office or often telecommuting
.
. Workers should focus their position according to their own specializations in order to be effective and efficient.
Online outsourcing and its subcategories follow the same principles of outsourcing that Smith highlighted. Through outsourcing a company can relieve itself of secondary tasks and concentrate on core issues, thus improving its efficiency. “Do what you can do best – Outsource the rest.“
Online Outsourcing has its origins in the United States of America (USA), where it has been an established practice since the mid 1990s. In Europe
, the model has found success since the development of the Internet in early 2000.
Large companies have been using Outsourcing for many years. Recently however this model has also been employed by small and medium sized businesses.
. Moreover, this can mean an additional and often more efficient source of revenue for service providers from countries with relatively low wages.
A further advantage with Offshoring for Service Contractors is the global source of service providers that are available. It is possible for the Service Contractor to identify the most appropriate experts but to help in this effort there are Service agents who can often provide the Service Contractor a large database of global experts.
Online Outsourcing allows clients and to take great flexibility
in terms of time and labor provision. Since most Online Outsourcing deals with the outsourcing of project contracts, there exists a professional – yet temporary cooperation between the Service Contractor and the Service Provider. Thus, neither of the contracted parties are committed in the long-term, yet the contract is still a private agreement that is not open to any third-parties. In addition, through Online Outsourcing new markets and customer groups can be reached.
due to the large distances between them. This is not a problem with permanent staff that are based on-site. Thus effective Communication
becomes a much greater effort.
The situation for the employer varies depending on the nature of the Service provider. When outsourcing, a company loses the executive control of the outsourced work process. The longer the outsourcing partnership, the harder it will be to reintegrate the outsourced Know-How through In-sourcing into the company
. There is a risk that over time, the fruits of this relationship (the Know-How) will be lost within the buyer company.
Moreover, great care must be taken, as when undertaking Offshoring, there is the possibility to employ the expertise of Service Providers from around the world with diverse cultural and linguistic backgrounds. It goes without saying that different work ethics and working styles may also present an issue. Therefore, full and clear communication is crucial to reach a satisfactory conclusion for both sides.
Examples for Online Outsourcing companies
Global Player
European Player
Local Player
Online service agents provide virtual Internet
platforms on which clients can advertise projects. On the platforms potential Service Providers can register and make offers for individual projects.
For greater transparency, qualifications, work samples and feedback are required of every Service Provider which can be viewed on the platform by registered users. The Online service agent provides invaluable guidance and assistance through the platform, and also provides the infrastructure within which your team can be led. After much consideration, the Service Contractor can decide with whom they wish to work with.
Particularly in Online Offshoring, experts have predicted a great amount of growth in the future. The Duke University
has judged that in 2008 over 50 percent of US companies were involved in Offshoring. This represents a doubling of the amount in 2005. The prognosis therefore is, that the importance and revenue of small and medium-sized businesses will surely grow. According to a study from SpiceNetworks, eight percent of small and medium-sized businesses globally will increase their involvement with external IT-Service Providers.
Since the 1980s, India has emerged as one of the main providers of Online Services Offshoring. But in India
, the wage and housing costs are rising rapidly. Therefore, experts expect the diversification of Online Offshoring countries in the future. In essence, any country that possesses the necessary infrastructure
and skilled workforce can expect a growth in Online Offshoring into this country.
Outsourcing
Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
emerged in the early 2000s, along with advances in internet technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
, as a viable option for SME
SME
SME may stand for:*Small and medium enterprises, a synonym for Small and Medium-sized Business *Subject matter expert, a work role description...
s and entrepreneurs who lacked the necessary financial resources to meet the costs associated with traditional forms of outsourcing.
Outsourcing or freelancing marketplaces play a pivotal role in connecting buyers of outsourced services (small businesses and individuals) with providers of outsourced services (freelance workers).
The last decade has seen strong growth in online outsourcing, particularly through freelance marketplace
Freelance marketplace
Freelance marketplaces are websites that match buyers and sellers of services provided via the internet. Service providers, or sellers, create a profile where they include a description of the services which they offer, examples of their work and in some cases information about their rates...
s, with over $500m USD spent on the top outsourcing sites between the turn of the Millennium
Millennium
A millennium is a period of time equal to one thousand years —from the Latin phrase , thousand, and , year—often but not necessarily related numerically to a particular dating system....
and the start of 2010. In the first quarter of 2010 more than $50m USD was spent on these same marketplaces by the second quarter of 2010 this figure had jumped to over $70m USD, representing a 40% growth in quarterly spend in just 3 months. In the 3rd Quarter of 2010 this figure had reached $78.8m and did not take into account spend on crowdsourcing
Crowdsourcing
Crowdsourcing is the act of sourcing tasks traditionally performed by specific individuals to a group of people or community through an open call....
sites like 99Designs or Amazon's Mechanical Turk.
The exponential growth of online outsourcing has been attributed in part to the global economic downturn, however there is a strong indication that this method of doing business is becoming increasingly popular for SMEs (particularly micro-enterprises) and start-up
Startup company
A startup company or startup is a company with a limited operating history. These companies, generally newly created, are in a phase of development and research for markets...
businesses, despite the downturn, rather than because of it.
Background
Online Outsourcing is the internet-based version of outsourcingOutsourcing
Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
. This process is when one department, or indeed a whole area of work, transfers tasks and projects to a third party company.
As they can be easily achieved through the internet, it is mostly services within IT
Information technology
Information technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...
and Marketing that are most often sourced out to a third party. Examples of such tasks could be programming and web design, multi-media production, logo design or search engine optimization not forgetting services like translations, research and editorial work. In this case, online platforms can serve to simplify the process of attaining and assigning projects (see online outsourcing in practice).
With offshoring, a variant of outsourcing, respective tasks can be situated in another country. This could be both business tasks or indeed business processes.
With Nearshoring
Nearshoring
Nearshoring is "the transfer of business or IT processes to companies in a nearby country, often sharing a border with your own country", where both parties expect to benefit from one or more of the following dimensions of proximity: geographic, temporal , cultural, linguistic, economic, political,...
Offshoring also has its own variant. While the former relocates tasks to a country usually very far afield on another continent, the latter is, as the name suggests, relocation closer to home.
Homeshoring, as a variant of outsourcing, describes the location of third party services which are not undertaken by companies but by individuals working from home. This form of working is also known as Home-Office or often telecommuting
Telecommuting
Telecommuting or telework is a work arrangement in which employees enjoy flexibility in working location and hours. In other words, the daily commute to a central place of work is replaced by telecommunication links...
.
History
Outsourcing can be traced back to the 18th century and the principles of the division of labor and specialization championed by Adam SmithAdam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
. Workers should focus their position according to their own specializations in order to be effective and efficient.
Online outsourcing and its subcategories follow the same principles of outsourcing that Smith highlighted. Through outsourcing a company can relieve itself of secondary tasks and concentrate on core issues, thus improving its efficiency. “Do what you can do best – Outsource the rest.“
Online Outsourcing has its origins in the United States of America (USA), where it has been an established practice since the mid 1990s. In Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
, the model has found success since the development of the Internet in early 2000.
Large companies have been using Outsourcing for many years. Recently however this model has also been employed by small and medium sized businesses.
Advantages
Online Outsourcing brings many opportunities both for the service contractor and the service provider. Due to varying international wage rates, costs of up to 70 percent can be achieved by Outsourcing online services from countries with high wage levels to countries with low wage levels. In particular, for small and medium sized businesses and Entrepreneurs the Online Outsourcing model brings many financial advantages, as it is these people who have to rely on a tight budgetBudget
A budget is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods...
. Moreover, this can mean an additional and often more efficient source of revenue for service providers from countries with relatively low wages.
A further advantage with Offshoring for Service Contractors is the global source of service providers that are available. It is possible for the Service Contractor to identify the most appropriate experts but to help in this effort there are Service agents who can often provide the Service Contractor a large database of global experts.
Online Outsourcing allows clients and to take great flexibility
Flexibility
Flexibility may refer to:* Flexibility , the distance of motion of a joint, which may be increased by stretching* Flexibility , in the field of engineering systems design, designs that can adapt when external changes occur...
in terms of time and labor provision. Since most Online Outsourcing deals with the outsourcing of project contracts, there exists a professional – yet temporary cooperation between the Service Contractor and the Service Provider. Thus, neither of the contracted parties are committed in the long-term, yet the contract is still a private agreement that is not open to any third-parties. In addition, through Online Outsourcing new markets and customer groups can be reached.
Disadvantages
Online Outsourcing also brings many challenges. Meetings are not feasible between Service Contractors and ProvidersProviders
Providers is a Danish hip hop, R&B and pop song production team made up of Jeppe Federspiel and Rasmus Stabell.Jeppe Federspiel and Rasmus Stabell started as musicians playing drums. Years later, they joined forces to form Providers, an urban production team...
due to the large distances between them. This is not a problem with permanent staff that are based on-site. Thus effective Communication
Communication
Communication is the activity of conveying meaningful information. Communication requires a sender, a message, and an intended recipient, although the receiver need not be present or aware of the sender's intent to communicate at the time of communication; thus communication can occur across vast...
becomes a much greater effort.
The situation for the employer varies depending on the nature of the Service provider. When outsourcing, a company loses the executive control of the outsourced work process. The longer the outsourcing partnership, the harder it will be to reintegrate the outsourced Know-How through In-sourcing into the company
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
. There is a risk that over time, the fruits of this relationship (the Know-How) will be lost within the buyer company.
Moreover, great care must be taken, as when undertaking Offshoring, there is the possibility to employ the expertise of Service Providers from around the world with diverse cultural and linguistic backgrounds. It goes without saying that different work ethics and working styles may also present an issue. Therefore, full and clear communication is crucial to reach a satisfactory conclusion for both sides.
Online Outsourcing in the real world
Online Outsourcing and Offshoring has been available since the 1990s and continues to find new ways into the global labour market. Worldwide, there are several companies that specialize in this area. Whilst the largest online service agents are located in the United States, there are numerous companies working globally, regionally and locally.Examples for Online Outsourcing companies
Global Player
| | Name | Home-Country | Numbers of providers | |
| | Elance | United States of America | 341,143 | |
| | Guru | United States of America | 336,574 | |
| | Odesk | United States of America | 212,334 | |
| | Freelancer.com | United States of America | 1,440,048 | |
| | V worker | United States of America | 306,290 | |
European Player
| | Name | Home-Country | Number of providers | | |
| | freelancermap | Germany | 8,055 | |
| | mondayworks | Germany | 2,900 | |
| | PeoplePerHour | United Kingdom | 158,732 | |
| | twago | Germany | 30,023 |
Local Player
| | Name | Home-Country | Numbers of providers | | |
| | Codeur | France | 19,817 | |
| | Infolancer | Spain | 45,943 | |
| | 12Designer | Germany | 5,017 | |
| | Netjobbing | Germany | 1,000 | |
| | Projektwerk | Germany | 26,000 | |
| | zlecenia przez net | Poland | 1,000 |
Online service agents provide virtual Internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
platforms on which clients can advertise projects. On the platforms potential Service Providers can register and make offers for individual projects.
For greater transparency, qualifications, work samples and feedback are required of every Service Provider which can be viewed on the platform by registered users. The Online service agent provides invaluable guidance and assistance through the platform, and also provides the infrastructure within which your team can be led. After much consideration, the Service Contractor can decide with whom they wish to work with.
Trends
The global market for Outsourcing and Offshoring has recorded an increasing trend in the use of these models. Experts from McKinsey have calculated that the Offshoring-business will grow from the current annual rate of 80 Million US-Dollars to a level of over 500 Million US-Dollars in 2020, representing a six-fold increase in 12 years.Particularly in Online Offshoring, experts have predicted a great amount of growth in the future. The Duke University
Duke University
Duke University is a private research university located in Durham, North Carolina, United States. Founded by Methodists and Quakers in the present day town of Trinity in 1838, the school moved to Durham in 1892. In 1924, tobacco industrialist James B...
has judged that in 2008 over 50 percent of US companies were involved in Offshoring. This represents a doubling of the amount in 2005. The prognosis therefore is, that the importance and revenue of small and medium-sized businesses will surely grow. According to a study from SpiceNetworks, eight percent of small and medium-sized businesses globally will increase their involvement with external IT-Service Providers.
Since the 1980s, India has emerged as one of the main providers of Online Services Offshoring. But in India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
, the wage and housing costs are rising rapidly. Therefore, experts expect the diversification of Online Offshoring countries in the future. In essence, any country that possesses the necessary infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
and skilled workforce can expect a growth in Online Offshoring into this country.
Literature
- Specht & Lutz (2007). Outsourcing und Offshoring als strategische Handlungsalternativen. Wiesbaden.
- Kennedy & Sharma (2009). The service shift. New Jersey.
- Dittrich & Braun (2004). Business Process Outsourcing. Stuttgart.
- Bruch (1998). Outsourcing. Wiesbaden.
- Specht (2007). Insourcing, Outsourcing, Offshoring. Wiesbaden.
- Hermes (2005). Outsourcing: Chancen und Risiken, Erfolgsfaktoren, rechtssichere Umsetzung. München.
- Wißkirchen (1999). Outsourcing-Projekte erfolgreich realisieren. Stuttgart.
- Kennedy & Sharma (2009). The service shift – Seizing the Ultimate Offshore Opportunity. New Jersey.