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Outsourcing of Telecommunications & Internet Technologies: Does It Work?

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Outsourcing of Telecommunications & IT Outsourcing of Telecommunications & Internet Technologies: Does It Work? Haw Hsin Yang Rutgers University-Camden Abstract As we are continuously making greater and greater progress in information technology and telecommunication infrastructure, more and more do not have to maintain an in-house IT department and decide to outsource it to outside vendors. There are many benefits that IT outsourcing may bring to outsourcers, but a lot of concerns and challenges are also introduced. Even though, my paper examines whether IT and telecommunication outsourcing does work or not, and discusses the challenges and issues for today's managers. I contend that IT and telecommunication outsourcing is positive to companies and defend my position. Outsourcing of Telecommunications & Internet Technologies: Does It Work? Introduction What is "outsourcing"? Outsourcing means that paying another company to provide services which a company might otherwise have employed its own staff to perform. (HyperDictionary.com, 2003). In 1990s, "outsourcing" has become one of the burning issues in business administration field. Many companies strategically use outside resources to perform tasks that would traditionally have been done in-house. Those tasks may include all types of business activities of one company, e.g. manufacturing, recruiting, customer service, and so forth, except its core competencies. People call this "Business Process Outsourcing" (BPO). Generally speaking, reasons for a company to outsource can be: 1. Cost reduction. ...read more.


Finding a vendor and writing the contract costs an average of $500,000, or about 3% of the average total outsourcing cost. (Betts, 2001). Such a big number of costs are not pleasant for every company. Besides, in the process of transferring IT system, it is hard to quantify and to control the total dollar cost. Some unexpected situations may happen due to a lack of understanding between the outsourcer and the vendor. 2. Possible loss of control Some people who oppose IT outsourcing contend that outside vendors are impossible to exactly match the responsiveness and service levels offered by an in-house function since in-house function department must follow its management direction and control but vendors do not have to. In addition, they also argue that the end users may become vendors' hostage. Once outsourcers' technical staff and end users get locked into vendors' software and hardware, they will totally lose control of their IT function. Though outsourcers have more leverage when making a contract with vendors, vendors instead have more leverage after the contract is signed. 3. Downtime loss Outsourcers may suffer loss due to vendor's fault. Once a vendor is unable to deliver services to its clients because of failure of its equipments or operations, the downtime loss of productivity and revenue of clients will be hard to quantify and to make up. Some questions need to be addressed first, such as "how much should the vendor compensate for clients?", "does this kind of responsibility need to be covered by insurance?" ...read more.


Because, first of all, since IT and telecommunication technology change at a tremendous speed, top management of most companies do not have a comprehensive enough knowledge base to make the most appropriate decisions on their IT and telecommunication function. Outsourcing can free them from those technical terms and protocols. Just like they do not want to put resources into low-relevant activities, such as cleaning offices, and then decide to outsource it to professionals. They would like to spend invaluable time on more value-added activities, such as their core businesses. In addition, from the viewpoint of cost, outsourcing obviously decreases business expenditure in some ways, such as personnel expense and capital expenditure. On one hand, fewer headcount means fewer benefits on current employees and less burden of retiree in future. On the other hand, less depreciation of assets on financial reports is able to realize profits earlier and deduct those outsourcing expenses from income tax. Furthermore, as technology progresses so quickly that most IT services can be easily and promptly delivered via telecommunication infrastructure. It seems that onshore outsourcing cannot satisfy some companies' needs. Offshore outsourcing market is growing rapidly. Though some people argue that offshore outsourcing takes away jobs from domestic people, the long-term benefit it brings is to force domestic industry to upgrade. Since most of those IT and telecommunication jobs are routine and operation level ones, the related industries and work force are therefore pushed to invest in and study on research level jobs. In this way, the economy and the industry can grow much faster and shift to higher levels. ...read more.

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