IT is used to refer to the supply of information-based technologies. IS is understood as organizational applications, more or less IT-based, designed to deliver the information needs of the organization and defined stakeholders. 'IT outsourcing' narrowly is the commissioning of third-party management of IT/IS assets, people and/or activities to required result. So defined, outsourcing does not exhaust the ways in which markets can be used.
Thus, a key distinction can be made between contracts that specify a service and result which the market is to provide ('outsourcing'); and contracts which call for the market to provide resources to be deployed under the buyer's management and control. Elsewhere we have described the latter as 'in sourcing' contracts (Feeny et al. 1993). IT outsources occurring in the context of significant changes in broader organizational structure and strategy. Outsourcing may be defined as where 80 per cent or more of an organization's formal IT budgets are spent on IT outsourcing.
Other research suggests that, as at 1993, fewer than 7 per cent of UK organizations that outsourced IT/IS did so on a total outsourcing basis. At the same time some 51 per cent of UK organizations outsourced some aspect of their IT/IS, and the market may be growing at up to 20 per cent per annum (Willcocks and Fitzgerald 1994). The findings presented here emerge from a larger, in-depth thirty-case study project that found six major factors helping to explain the degree of, and patterns in, IT outsourcing, and the degree of its perceived success or failure in UK organizations.
These were: the degree of business uncertainty; whether the IT/IS system or activity was strategic or useful, a business differentiator or a commodity; the degree of in-house expertise compared to that available on the market; the degree of in-house 'technological maturity'; and the degree to which the system or set of activities were integrated with other systems and parts of the business, or relatively discrete and stand-alone (Feeny et al. 1993; Willcocks and Fitzgerald 1993). Basically, Globalization is a mega trend that, short of a world war, will persist for decades perhaps for the whole of the twenty-first century.
All thinking companies are developing strategies to compete, win, or at least endure in that world. A factor that makes operating globally multifarious and difficult is that the forces of protectionism, nationalism, and isolationism are rising again. The manufacturers as well take advantage of global trends through outsourcing. Outsourcing has become a popular practice amongst many competitive manufacturers. In other words, outsourcing has been measured one of the major factors contributing to a company’s competitive advantage.
The chief vehicle to achieve outsourcing is subtracting agreements. Major international companies outsource their labour. Global competitors such as Nike and Timberland utilize outsourcing in their operations. “Nike discovered years ago that it can pay to let somebody else do your manufacturing. Its skills were in research, marketing, and distribution. Others are increasingly making the same calculation. Five years ago, Timberland produced 80% of its shoes in its own plants. Today, it produces just 18% by itself” (Alfaro, L.
and Rodriguez-Clare, A. 2004). Also, Motorola divulged plans to outsource more than $30 billion of consumer-electronics production over the next five years with Flextronics International Ltd. and take a small stake in the contract manufacturer. The deal is the largest outsourcing agreement between a name-brand electronics company and a contract manufacturer. By 2008, the companies expect Flextronics to make more than $10 billion of cellular phones, two-way pagers, set-top boxes, and wireless communications gear and components for Motorola.
That would be nearly twice Flextronics’ total revenue of $5. 7 billion in the fiscal year 2000. (Alfaro, L. and Rodriguez-Clare, A. 2004) Rising international trade has numerous implications. It provides new or better or cheaper goods to the importing country. It gives new markets for countries' exports, resultant in employment and rising living standards. But it also is an intimidation to those companies and employees with whom imports compete. Protection of local employment through trade barriers is as old as the Roman Empire.