Source Code China: The New Global Hub of IT (Information Technology) Outsourcing

Chapter 8. IT Outsourcing, Business Process Outsourcing, and Knowledge Process Outsourcing in China

The growth in outsourcing since the 1980s is the result of the increased development of the global economy, accompanied by a shift in business philosophy. With changes in political and economic conditions globally, there has been an emergence of a global labor pool. China’s labor pool and its availability to the global marketplace is a significant example. Prior to this period, companies sought to diversify their business in order to reduce risk brought on by limited talent choices, locking companies into higher costs and little choice among service providers.

This diversification of labor was achieved in a number of ways (e.g., organic growth by adding new lines of business to produce new products and services. However, diversification was perhaps more commonly achieved through mergers and acquisitions). The intention of building highly diversified businesses was to reduce risk by having an overall portfolio of lines of businesses or distinct business entities themselves. Many industries are cyclical in terms of demand and production, impacting their profit cycle. The intention of increasing company diversification was to balance the timing of industry cycles within diversified businesses and thereby offset risk and maximize profit.

Companies discovered, however, that there were significant challenges to running a group of highly diversified businesses. One need only look back at the ...