Outsourcing has been the basis for all trade since the birth of organized society. Best usage of resources have always characterized the advance of civilizations. Outsourcing looks hot as this upsets the conventional financial patterns in enterprises where nature of substantial direct cost spending is dramatically altered. This is firmly established as a mainstream business practice delivering tangible business benefits to enterprises reflected in Cost savings, Flexibility, Scalability, Performance & Standardization.

Delivery models - outsourcing included, are measured by the value delivered to the enterprise When the value delivered is perceived as declining or weakening, the enterprise starts to look for new value. The assessment of value delivered via outsourcing that was prevalent in the early days may not be relevant today and would change in the future.

There is no cookie cutter approach to follow in embracing outsourcing. Different approaches require investment, managerial energy commitment, offshoring experience to varying degrees, and made suitable for different purposes. Smart enterprises would manage a number of different arrangements with vendors and choosing varying options for different processes. The size of the firm or the sector in which it operates will not determine the outsourcing ratio. The outsourcing stretch of an organization is a reflection of its unique characteristics and not necessarily relatable to its market position, profits, capital structure, employment skills or competitive standing. There is no correlation between outsourced value and traditional financial measures like profitability and growth.

Multiple approaches to working with offshoring vendors are now in vogue :
* Staff Augmentation
* To build turnkey projects or provide ongoing support
* To gain assistance in building centers of excellence
* To build, operate, and transfer facilities.
* To provide specialized infrastructureassets.
* To enter joint ventures.

A mixed approach may help to spread risk. From an enterprise's perspective, as outsourcing matures, there are different set of expectations in terms of potential for value add. The future measures would be along the lines of:

* Getting good price/performance for the service levels that enterprises need
* Responsive service provider aligned with changing process metrics of the customers(enterprises)
* Stakeholder satisfaction measured

An evolving trend is the relative use of service providers across different service categories for sourcing. In the application-related service category, companies have a relatively high usage of vendors to deliver IT services. In the BPO arena, many companies have established, considering establishing, captive centers outside the US to handle their business processes and call centers. The main drivers are security, privacy and IP protection reflecting a sense that the requisite process expertise may not be available offshore; and the belief that this may be more economical. These captive centers will be short-lived - for want of scale, competitiveness and ability to keep cutting edge in technology and process deployments.

Among the most contentious issues centered on global sourcing of IT services is the perceived threat to U.S. jobs. The actual job loss resulting from offshoring has been relatively minimal as a percentage of the total jobs lost in the United States. The greatest impact on jobs (creation and loss) will be from improved productivity via automation and tools.
The critical concern for the US is the potential loss of significant competencies and knowledge-edge. The most-critical strategic decision facing companies today is to make a detailed and comprehensive risk assessment that clearly analyzes knowledge creation and safeguards in leveraging established knowledge for competitive parity and future advantage.

Paul Strassmann reports that his findings don't support the frequent predictions that U.S. firms will tend to outsource in order to increase profits and thus eventually leave us with a "hollow" economy.

Offshoring, creates net value for the US economy. Data suggests that gross job losses due to offshore outsourcing have been minimal when compared to the size of the entire U.S. economy. McKinsey Global Institute has estimated that for every dollar spent on outsourcing to India, the United States reaps between $1.12 and $1.14 in benefits. The creation of new jobs overseas will eventually lead to more jobs and higher incomes in the US The McKinsey Global Institute estimates that for as little as 4 to 5 percent of the savings companies realized from offshoring, they could insure all full-time workers who lost jobs as a result.

Every form of digital data ? creation,transformation and reporting is up for grabs in the offshoring world. But as Daniel Drezner points out,?Close to 90 percent of jobs in the United States require geographic proximity. Such jobs include everything from retail and restaurants to marketing and personal care - services that have to be produced and consumed locally, so outsourcing them overseas is not an option?. There is also no evidence that jobs in the high-value-added sector are migrating overseas. The parts of production that are more complex, interactive, or innovative - including, but not limited to, marketing, research, and development - are much more difficult to shift abroad.. Outsourcing would affect less than 2 percent of employed Americans.

Who will win the offshore race? The US IT services firms are under tremendous pressure from their customers to demonstrate better value for money. That is why they are now in global centers to lower their costs trying to adapt global delivery models of functioning. The legacies between India headquartered enterprises and traditional IT services companies are different- It's the Southwest Airlines Vs United Airlines legacy difference. Having talented employees trained to deliver services is not enough. Leading offshore service providers have developed tools, methodologies, processes, and the management expertise for providing services to clients across geographies. India headquartered vendors think of focus on speed, imagination, and excellence in execution as a sustainable competitive differentiator. The already established western service providers often tout domian knowledge and well entrenched relationships as their edge - Empirical evidence suggests that this is not an exactly inimitable edge.

Offshore outsourcing is undoubtedly taking place, and it will likely increase over the next decade. However, it is not the tectonic shift that many blow it as - Its effect on the U.S. and western economy are disproportionately exaggerated This is a marketplace realignment that can?t be stopped.

S. Sadagopan, heads consulting and eBusiness for Satyam in the Asia Pacific and African markets based out of Singapore. He has led several consulting and technology transformation engagements covering multiple industries cutting across wide variety of technologies around the world. Sadagopan?s blog is also theindiblog award winner of the technology category in the recently concluded indibloggies contest for 2004.