History of Outsourcing

In fact outsourcing is said to have emerged a few thousand years ago with the production and sales of food, tools and other household appliances. As soon as small communities and societies began to form, people with specialized professions began to trade with each other for goods and services. In effect it can be said that each worker was outsourcing some activities to others. The history of outsourcing shows that even in the industrial age, a few thousand years later, very few companies outsourced any of their operations. Companies in the 1800s and 1900s were vertically integrated organizations, taking care of their own production, mining, and manufacturing from raw materials to finished goods as well as then shipping the goods to company owned retail outlets. These companies were often self-insures, handled their own taxes, employed their own lawyers, as well as designed and built their own buildings without outside assistance. This of course is not applicable to all companies during that time period, but it gives a general idea of the time.

The history of outsourcing shows that through specialization contracting began to be more popular, especially in the service industry. This in turn led to the first wave of outsourcing during the industrial revolution pushing the large-scale growth of services such as insurance services, architecture and engineering services, among many others. At this time the companies doing the outsourced work were mostly located in the same country, often in the city, just like the customers.

The history of outsourcing portrays that as onshore outsourcing continued manufacturing outsourcing of low-tech items such as toys, shoes and apparel goods began to take place. After this manufacturing higher value items like high-tech components and consumer electronics began to appear. In fact outsourcing history demonstrates that manufacturing was the first activity that began to move to offshore destinations in a quest for lower costs. Through the development of infrastructure as transportation and logistics improved, the costs decreased and offshore manufacturing increased. As the education and skills on lower wage countries developed, outsourcing manufacturers gained more value. More recently, in the US during 1970s, it was common for computer companies to export their payrolls to outside service providers for processing. This continued into the 1980s, when accounting services, payroll, billing, and word processing all became outsourced work.

Towards the end of modern day history of outsourcing, the trend has moved into the world of information technology, data transcription and call center operations. Studies on the history of outsourcing conclude that outsourcing is clearly not just about payrolls and call centers. This can be seen by simply looking into your medicine cabinet. It is very likely that the R&D of your daily medicine was outsourced to companies in India. Your insurance company which covers the costs of your medications may have their claim processing to offshore transcription providers. And your medical clinic may easily be outsourcing the administration of your confidential medical records to India, Russia or the Philippines.