Offshoring is the increasingly widespread practice of moving IT and other business processes to other nations where skilled knowledge workers earn less than their local counterparts. As software skills become commoditized and as standard transactions become able to be processed on a global basis, decision makers are looking at this practice to cut IT costs and deliver better business capabilities. Typically, the relocation of the business process to a foreign country is achieved regardless of whether it is still performed by the local company or a third-party. This research intends to provide a better understanding of the phenomenon of IT services offshore outsourcing, it will focus on Morocco as an IT services outsource base for the Spanish speaking and Francophone parts of the EU.
For decades companies expanded their conglomerates by buying other companies. But many of them began to collapse under the weight of the acquired companies. Profits started falling and companies began to retract to their core businesses. Next they discovered that they could shed even core functions by hiring them out to companies that could do them more efficiently and, thus, less expensively. Outsourcing made sense; specialized companies provided their services to many client companies at lower prices than the client companies could do the work in-house.
In addition, in globalized free economies, local outsourcers face competition from foreign vendors. Therefore, most organisations have found themselves looking at offshore outsourcing as an alternative. Mabey and Mayon-White (1993) stated that instead of advocating resource accumulation and control, companies who want to be successful in the 21st century will have to embrace the following:
Search globally for opportunities and resources,
Maximise returns on all the assets dedicated to the business – whether owned by the firm or not,
Perform only those functions for which the company has, or can develop, expert skill,
And outsource those activities that can be performed quicker, or more effectively, or at lower cost, by others.
Thus, offshore locations become an increasing part of organizations’ location and sourcing strategies, especially in regard to back-office activities such as finance, accounting, IT and HR. These intangibles industries, and the IT functions in particular, are highly prone to outsourcing and offshoring because of the ease by which companies can modularize their processes and because the cost of transmitting information overseas, as opposed to shipping tangible products, is extremely low.
Clearly, IT offshoring is related to the larger economics debate on free markets and globalization. Bhagwati et al. (2004) argue that outsourcing is just another form of trade. Free trade entails free flow of labor and work, and thus encourages economic efficiencies that will ultimately benefit both countries.
In one hand, many developing countries have taken advantage of these tendencies, and are working hard to capture the IT capital being invested in offshoring operations. And with a well-educated and well-qualified population of French and Spanish speakers and a good telecommunications infrastructure, Morocco is poised to serve as an offshoring destination for industries in French and Spanish speaking countries.
In the other hand, American and European companies understand that the disparity in living wages between their countries and developing countries makes offshoring economical, and have seen that outsourcing companies can complete the contracted work adequately in most cases.
However, offshoring success does not come without pain for the client countries. In fact, based on a report by U.S. Government Accountability Office, while traditional economic theory predicts that offshoring is likely to benefit the overall economy, concerns have been raised about four areas of potential impact : on the average U.S. standard of living, on employment and job loss, on income distribution, and on security (GAO, 2004). In Europe as well, offshoring of IT services has been controversial because some IT workers fear it will reduce jobs, wages, and opportunities because of the large wage differences between them and experts in the developing world. Hence, offshoring has become a topic of public debate and media have expressed a range of views about its likely impacts on many areas.
This research is not about discussing the impacts of the phenomenon of offshoring on the economies of source countries. It looks at the offshoring aspects at the client firm level and provider country level. It seeks to shade more light on the approach that the client organisations take while taking the decision to outsource their projects offshore and to try to identify the factors that influence the choice of the location of offshoring.