Online outsourcing

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 SMEs 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 marketplaces, 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.

Background

Online Outsourcing is the internet-based version of outsourcing. 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.^[1]

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.

History

Outsourcing can be traced back to the 18th century and the principles of the division of labor and specialization championed by Adam Smith. 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.

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 budget. Moreover, this can mean an additional and often more efficient source of revenue for service providers from countries with relatively low wages.^[2]

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.

Disadvantages

Online Outsourcing also brings many challenges. Meetings are not feasible between Service Contractors and Providers 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.

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 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.^[3]

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.^[4] According to a study from SpiceNetworks, eight percent of small and medium-sized businesses globally will increase their involvement with external IT-Service Providers.^[5]

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.^{[citation needed]}

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.

References

1. ^ Lüder & Fuchs (2008). IT-Buzz-Wörter im Vergleich
2. ^ twago press portfolio(2010)
3. ^ Nasscom und McKinsey Study about offshoring (2009)
4. ^ Studie Duke University zu Offshoring (2010)
5. ^ Spiceworks study about small and medium-sized companys (2010)

^{[1] [2] [3]}

1. ^ WhichLance.com freelance marketplace review, Q1, 2010. July 2010.Freelance Marketplace Review, Q1, 2010 WhichLance.com
2. ^ WhichLance.com freelance marketplace review, Q2, 2010.Freelance Marketplace Review, Q2, 2010WhichLance.com
3. ^ WhichLance.com freelance marketplace review, Q3, 2010.Freelance Marketplace Review, Q3, 2010WhichLance.com