Outsourcing Advantages

1.2.2 Cost Advantage

Some studies have indicated that outsourcing reduces costs, albeit at the price of a reduced service. They even contend that cost savings are mostly a result of implementation of cost reduction strategies rather than economies of scale, which could have been done in-house and even without even outsourcing. Some studies even suggest that IT projects and operations may not be deemed as successful when they are insourced, even when in sourcing achieves cost savings on par with outsourcing due to biased expectations about in sourcing and outsourcing held by the different stakeholders in the firm (Hirschheim and Lacity, 2000; Matlus, 2004). Production costs, transaction costs, and firm size are influential economic determinants

However, as the offshore outsourcing phenomenon is maturing, companies are Offshoring their core IT work with a proactive strategic focus rather than with a proactive cost focus (Carmel and Agarwal, 2002). Prior research has also shown that companies engage in IT outsourcing with different strategic intents including IS improvement, business impact, and commercial exploitation, with the latter two intents being more strategic in nature than the former one. Deeper analysis of the outsourcing issues has revealed that economic benefits are not the only issue predominant in the decision to

The huge supply of skilled manpower has helped restrict wages (engineers with 0-5 years experience earn US$ 4,000-10,000/year) and billing rates (typical billing is US$ 45,000/year when work is done offshore, and around US$ 120,000 when done onsite). Below we discuss the key variables that drive the economics of the Indian offshore model.

1.4.1