A Brief History of Outsourcing

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Outsourcing involves hiring independent contractors or entering into an agreement with another company to perform services on behalf of the hiring organization. Today outsourcing and offshoring are associated mostly with remote IT jobs, and offshore software development is considered to be among the best remote jobs. However, the history of outsourcing dates back to the time of the Industrial Revolution, which began in Europe in 1750. In this article, we will highlight the most important moments of this history, give some interesting facts regarding the evolution of outsourcing, and discuss how it affected the IT industry.

The History of Outsourcing: Key Moments

Here are the most remarkable moments in the history of outsourcing:

  • 1750 – 1900: The Industrial Revolution lead to the mass production of goods and caused the growth of markets and profits. Many companies experienced a shortage of local human resources, so they started contracting with third-party firms to delegate the accounting, legal, and insurance tasks.
  • 1920s-1980s: The two wars devastated and changed the world. At the same time, they resulted in technological progress because of an urgent need to rebuild the destroyed infrastructure. The technological progress required more workforce, and this caused the further development of outsourcing. For example, in 1921, outsourcing of salary calculations helped General Motors to get out of the crisis. The 1970s can be considered as a period when remote work was born. In 1972, the term “telecommuting” was first coined by Jack Nilles who was working remotely for
  • 1980s-1990s: In 1981, economist Ronald Coase invented the term “outsourcing”. The term consists of two words: “outside” and “resourcing”. The publishing industry was one of the first industries to actively outsource such services as composition, printing, and fulfillment. Besides, the evolution of computers initiated outsourcing in the IT industry, when IBM and EDS started lending their high-capacity hardware to other companies. In the 1990s, application service providers (ASPs) started renting software applications to other companies. This was close to modern software development outsourcing.
  • Modern outsourcing trends: Nowadays a wide range of companies in the textile, automotive, electronics, and IT industries establish offices or move their production capacity to other countries. For example, Apple outsources manufacturing to China, and software companies hire remote developer teams from other countries because of cost efficiency and access to the tech talent pool. Today, you can even build a distributed dedicated team which is significantly different from outsourcing but just hasn’t gained wide popularity yet.

Jobs Lost to Outsourcing Statistics and Other Facts

Unfortunately, the rise of outsourcing can impact the US economy. Specifically, it can increase the job loss rate. According to the jobs lost to outsourcing statistics report by George Faraday for Good Jobs Nation, more than 93,000 jobs were lost due to outsourcing as of 2017. In total, this number is higher than the average job loss rate of 87,576 between 2012 and 2016.

The results of the Global Outsourcing Survey by Deloitte show that IT still remains the most outsourced industry, as specified by 29% of survey respondents. According to the State of Remote Work 2018 Report by Buffer, most remote workers also belong to the IT and software development industry. It means that the remote tech jobs are on the rise now, thus disrupting the outsourcing trend.

Is Remote Work the Future?

Modern technologies simplify remote team communication and thus increase the number of remote software developer jobs, which are especially popular with young startups. Remote team collaboration has the following advantages both for the employers and employees:

  • Larger talent pool. There’s a limited number of local developers at certain locations. Outstaffing opens new horizons for companies because now they can choose from a wide range of skilled tech talents across the world.
  • Cost efficiency. The cost of living in offshore countries is lower than in the US or Western Europe. As a result, the cost of offshore software development is also relatively low but the quality of work is still high.
  • Increased team productivity. Remote team members do not spend time on commuting to work, thus being more efficient with their tasks.
  • Remote team management software. Today’s technology market offers a wide variety of project management tools such as JIRA, Trello, Asana, etc. that are tailored specially to remote team communication.

Working with remote teams can also be a real challenge both for the employers and distributed team members due to the following reasons:

  • Lack of knowledge on how to manage remote teams. It’s not easy to work with people whose faces you’ve never seen. You can read tons of instructions on how to manage a remote team and still not be prepared for unexpected issues such as the sudden disappearance of team members without any explanations.
  • Time zone differences. Being located in different time zones is common for any distributed team. This leads to asynchronous communication issues, making it necessary to choose optimal time slots for meetings. However, it is possible to fix those issues with special team communication tools that consider the time zone differences.
  • Team efficiency analysis. Lack of face-to-face communication makes it difficult to monitor the efficiency of remote teams. Again, specialized project management software for distributed teams can handle this problem.

The Bottom Line

The IT outsourcing trend began in the 1980s when IBM and EDS started renting their computers and acting as data centers for other companies. In the 1990s, IT companies started outsourcing not only hardware but also software, calling themselves application service providers (ASPs). The trend of remote work, which is close to outsourcing, has its roots in the 1970s when a NASA employee created the term “telecommuting”. Today outsourcing, offshoring, and remote work are extremely popular with software developers. Working remotely has both advantages and challenges, but the latter can be solved with remote management software. Anyway, it’s up to companies to choose if they need outsourcing.