Abstract
With increased globalization and severe economic downturns, corporations have chosen to outsource many business functions rather than keeping them in-house. Small businesses are also seeing the benefits of outsourcing. The paper examines this growing trend and the reasoning behind those decisions to outsource. There has been speculation about future trends and changes in the business model. Advances in technology have been a driving force in these movements. A new wave of outsourcing, often referred to as “land grabs” has been increasing in popularity.

A World of Outsourcing At the heart of most successful companies you’ll see a growing movement toward outsourcing. Business outsourcing can best be defined as:
The contracting or subcontracting of noncore activities to free up cash, personnel, time, and facilities for activities in which a company holds competitive advantage. Outsourcing is often an integral part of downsizing or reengineering. Also called contracting out ("Outsourcing," n.d.) At one time, the United States thrived in manufacturing but little by little those jobs have been eliminated or moved overseas. This is evident by the abandoned manufacturing facilities scattered through-out the country. Manufacturing jobs are not the only functions that have been outsourced. So, why do we outsource and which key business functions have been moved off-shore?
The Beginning of Outsourcing Outsourcing was officially recognized as a viable business strategy in 1989. At that time, the primary focus was on IT and telecommunications functions. Organizations recognized true cost savings by turning to outside suppliers to provide these services. As we progressed into the 1990’s, the World Wide Web took us to a whole new level. Businesses started to evaluate areas of their organization, not specifically related to the core business, which could be outsourced. By 1998, outsourcing had grown to a $100 billion per year industry. In 2003, that figure nearly tripled at a staggering $298.5 billion globally (Andric, 2007).
When to Outsource and When not to There are three areas to consider before deciding to outsource; budget and costs, business model, and availability of the expertise required to perform the task. Is it more cost effective to keep it in-house or outsource to a supplier? Many things need to be taken into consideration. When a task is performed in-house you have to consider things other than just the cash value of the function such as salaries and the time spent on these tasks. If the business function is a core competency or an integral part of an organizations business model, the function should not be outsourced. The exception to this would be those organizations in niche or highly localized industries where there are low levels of competition (Steimle, 2013). There has often been a misconception about “sub-contracting” and actual outsourcing. Sub-contracting services primarily supplement existing resources, whereas, outsourcing requires the restructuring of an organization’s business activities to an outside supplier that specializes in those areas (Handfield, 2006). Businesses outsource for many reasons (see Figure 1) but delegating these responsibilities to external suppliers helps companies mitigate risk and focus on their core business. Businesses must remain competitive to survive. According to an article on Max Biz Media (2014), the advantages of outsourcing include: * Operation cost reduction * Easier cost control * Cooperation with specialists form narrow area * Process optimization and rising efficiency * Liberating capital for other purposes * Releasing internal capabilities Now that we know the advantages of outsourcing, which common business responsibilities are most likely to be outsourced? To reduce costs and improve efficiency the following functions are the most common; order fulfillment, accounting/billing, information technology, marketing/advertising, web design/development/maintenance, sales/business development, human resources/payroll/benefits, and customer relationship management (Maini, n.d.). When making the decision to outsource, Q/P Management Group, Inc. suggests the following six-step outsourcing process: * Establish the baseline * Assess goals and alternatives * Determine contract scope and terms * Identify measures to support terms * Negotiate performance levels * Measure, audit, and report results
Small Business and the Online Marketplace Outsourcing isn’t limited to just big businesses anymore. Many smaller companies are opting to outsource in order to lower costs. The online marketplace makes it easy for small companies to find foreign workers for many activities and one-time projects. The most common online marketplace is oDesk. They started their operations in 2005 and have grown substantially. From 2009 to 2013, the number of employers that have used the site grew 900% per quarter. Additionally, the number of service providers grew 1,000% (Korkki, 2014). While this provides the small business owner substantial cost savings, the online marketplace isn’t for all freelance workers. Those residing in the United States or other high income countries will find it hard to benefit when competing with those in less developed countries. A job that may average $20 per hour in the United States may pay $5.00 per hour in the Philippines. How can one compete with that (Korkki, 2014)?
Disadvantages of Outsourcing There are many potential disadvantages with offshore outsourcing and why it can be a bad business move. A Moneywatch article written by Geoffrey James in 2011, lists these as the top ten reasons why companies should not outsource: 1. You can lose control of your intellectual property. 2. It can result in low quality, brand-damaging products. 3. You may be supporting slave or child labor. 4. You might create massive environmental degradation. 5. You may not get access to local markets. 6. You may be empowering political thugs. 7. It makes you vulnerable to energy spikes. 8. Your product might end up killing people. 9. You’re helping to destroy your own country. 10. Everyone is doing it.
To expand on a few of these topics, it would be wise to think about the countries that we are entrusting our products and services to. These countries are not governed by the same laws and regulations that are mandated in this country, so it would be easy for them to produce an imitation and distribute it at a fraction of the cost. Furthermore, if everyone is outsourcing the same product or service, where’s the competitive edge (James, 2011)?
Land Outsourcing Another type of outsourcing centers around land acquisition, land leasing, or “land grabs” as it is commonly referred to. Wealthy food importers are acquiring parcels of land in poor countries to grow crops such as wheat, barley, and rice. After the crops are harvested, the food is then exported back to their country. This venture is appealing because many countries provide investors with tax breaks and even tax exemptions for several years. Land outsourcing is nothing new. In fact, it goes back to the 1940’s when Great Britain attempted to use tracts of land in southern Tanzania for peanut farming ("third wave," 2009) In 2009, investors from Saudi Arabia spent $100 million to lease land to farm wheat, barley, and rice by the Ethiopian government. The World Food Program spent almost as much as the investors ($116 million) in food aid from 2007 and 2011 to feed the 4.6 million Ethiopians that suffer from hunger and malnutrition ("third wave," 2009). The one new feature about land deals is their enormous size. A big land deal used to be around 240,000 acres. Now, large land acquisitions can be many times that. The South Korean government signed a land deal in Sudan for nearly 1.7 million acres. The United Arab Emirates also signed a land deal in Sudan for 960,000 acres. This is not just happening in the Gulf countries. China secured the rights to 6.7 million acres of land in the Congo to grow palm oil for biofuel ("third wave," 2009). The International Food Policy in Washington, D.C. conservatively estimates that all of the land deals that have either transpired or are subject to acquisition since 2006 are valued at $20-$30 billion. That is “at least ten times as much as the emergency package for agriculture recently announced by the World Bank and 15 times more than the American administration’s new fund for food security” ("third wave," 2009, p. 2). When these investors capitalize in foreign farmland, water for irrigation is always included in the lease or purchase agreements. Instead of using local labor to farm the land, many of these investors bring in their own workers. Ideally, these business deals could provide jobs for the poor in poverty stricken countries but this is not the typically the case with many of these transactions.

SMB’s Strategies in Developing Markets Markets are becoming interconnected due to advances in internet technology. Changes in how people work and interact can be attributed to social media, cloud, virtualization, and mobility. These technologies are changing how goods and services are created and distributed. In the U.S. alone, 89.7% of all small to medium businesses (SMB’s) employ less than 20 workers. Approximately, 99.7% employ less than 500 workers (Nagendra, 2014). International companies are quickly learning that they need to be ahead of expanding markets in Third World countries. These markets are inconsistent, unpredictable and rapidly changing. These market trends put pressure on organizations that are not flexible and resourceful. Businesses need to stay successful in the midst of constant change. Most global organizations prefer large scale outsourcing contracts but smaller suppliers may be the best source due to constant market and technology changes and subscription-based modeling (Nagendra, 2014). Outsourcing has been evolving over the last 20 years and 2014 will see even more changes. Trends are shifting and industry outsourcing leaders have identified five key trends supporting business outcome-based models; mobility, which allows consumers and businesses to communicate in entirely new ways; globalization, emphasizing consistency in delivery methods, even in unstable regions of the world; information technology, continuously changing on a daily basis so smart devices are becoming more commonplace; labor costs, which will decrease due to an abundance of globally available candidates, and; innovation, such as cloud computing which will make a huge impact on all business outcomes and services (Fisher, 2014).
Outsourcing in 2020 What will the workforce be like in 2020? Most of the workforce will have been raised on technology so more business interaction will be done electronically. Outsourcing will be transformed from what we have today. Most deals will no longer have lengthy contracts. Instead, shorter contracts offering more options will be the norm. Experts do agree that no matter how much outsourcing changes, there will always be a need for provider-client relationships. Social media will play an even bigger role in business development. This decade will also embrace more freelancers, contract workers, and those who work from home (Putnicki, 2014). The business world will be moving at a much faster pace than it is today and leadership changes will happen more frequently. Putnicki said it best with, “Outsourcers who can adapt to changes quickly and continually add value are the ones that will survive"
Where do we Draw the Line With Outsourcing? As more banking IT services are being outsourced, one has to wonder if we are making intelligent choices. Using outside service suppliers to provide helpdesk support and some developmental functions is not too troubling but when production support is also provided by an external provider, this could be disastrous. Banks have relied heavily on their legacy systems for well over 40 years (Flinders, 2014). A high level of skill is needed to maintain these systems that were written in a computer language rarely used today. So, why would you take an important core function that takes years to achieve proficiency and move it to an off-shore company with just a few months of training? That is exactly what the Royal Bank of Scotland found out the hard way. Because of a software glitch within the IT system, bank customers were unable to access their accounts for over a week.

References
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