The most popular and apparent reason for outsourcing is to access a lower cost base of the vendor – whether in a different country or a different cost base situation.
In the outsourcing context, outsourcing to low-wage nations is considered an example of cost arbitrage, particularly labour costs. For instance, India emerged as a venue for labour cost arbitrage following China’s decreasing appeal as an outsourcing destination due to increasing incomes.
However, without proper planning and preparation, this value driver can be lost during the outsourcing implementation, as what happened to Dell in their call centre outsourcing to India back in 2001.
We would like to point out the importance of preparation to take full advantage of cost arbitrage.
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