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IT Outsourcing (ITO) & IT Outsourcing to the Philippines

Author: Gretel Digo

Posted: November 6, 2014

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BPO (business process outsourcing) has evolved to include information technology services previously deemed too technical to be farmed out.  Today, emerging markets like India, China and the Philippines are offering everything from IT management to software programming to match the needs of global companies that range from startups to conglomerates.

What is IT Outsourcing (ITO)?

Information technology outsourcing (ITO) refers to the practice of companies subcontracting information technology services, usually to third party providers in developing economies where labor costs are low.  BPO and ITO go hand in hand; ITO enables BPO.  As BPO firms improve their tech capability, they enable clients to move quickly and scale up and down.

Companies use ITO for a multitude of functions, including software development, programming, infrastructure, IT maintenance and IT support.  Many organizations use ITO to cut costs significantly.  Studies show that ITO can slash your business costs by more than half annually.

How does ITO work?

For example, company ABC in the U.S.  chooses to outsource software programming because it is significantly cheaper to hire a programmer in the Philippines than to hire, train, and support a local programmer.  Company DEF, on the other hand, farms out IT management services to a third party because it takes too much trouble to buy, run and maintain its own data storage devices.

Some companies prefer to establish dedicated IT headquarters outside the organization, but most outsource only a portion of their IT functions.  A growing trend in ITO is called "hybrid offshoring," a business model that features insourced and outsourced services.  For companies looking to outsource their IT services to the Philippines, it's great to have a game plan.  Identify your strength and weaknesses, and evaluate which IT functions are better performed by an ITO provider than by your in-house department.

Outsourcing Blog: IT Outsourcing (ITO) & ITO to the Philippines | Sourcefit BPO

The Benefits of IT Outsourcing

The biggest reward of IT outsourcing is monetary for most business owners, but the benefits go beyond the bottom line.  Back in 2000, Outsourcing Institute's Outsourcing Index listed several reasons you should offshore, and these reasons are equally relevant to ITO.

  1. Cut and manage costs. When you outsource IT services or any function, you save money on hiring and recruitment, training, oversight, health insurance, retirement plans, taxes, infrastructure, overhead and other associated expenses.
  2. Reduce risk. Companies have to keep up with technology to remain competitive.  This can be expensive and labor intensive.  Outsourcing to an experienced IT provider who knows what works and what doesn't reduces your risk of making a costly mistake.
  3. Access to specialized skills. No IT professional is an island.  When you outsource an IT function, you are outsourcing to a team of skilled professionals, and you gain access to a collective pool of capabilities and experience.  ITO to the Philippines also means that you gain IT professionals that possess the required training and certification.
  4. Better workforce management. You hire local professionals to fill a need.  IT outsourcing allows you keep your in-house employees doing what they do best instead of doing tasks they were not trained for.  Other companies need IT professionals but don't have the budget to hire a full-time employee.  ITO lets you fill the need for the short and long term.
  5. Handling difficult functions. An obvious benefit of ITO is letting experts handle an IT function or component of your business that is out of whack.  You will still be involved once control is restored, but you can draw on resources from the right people.
  6. Control management shakeup. Are you in the middle of a restructure to improve service and cut costs? You may notice that you don't have the energy or time to devote to your non-core services.  ITO is the perfect way to keep up with your non-core functions while reorganizing your company.
  7. Increase focus. Excellent performance depends on people doing what they do best.  It's impractical and stressful to expect yourself to master every competency.  ITO lets you focus on your core competencies while providers focus on theirs.
  8. Reinvest funds. The money you save by outsourcing your IT functions can be reinvested into improving your service or product.

Why Outsource IT Functions to the Philippines?

While India remains the biggest player in ITO, the Philippines is fast becoming the alternative destination.  According to data released by the Department of Science and Technology (DOST), the Philippines has the third largest IT talent pool in Asia Pacific, and the country's ITO costs are among the lowest in the world.

  • Industry powerhouse. Tholons' listed Metro Manila as the no.  2 outsourcing destination in the world for good reason.  PH is an "industry powerhouse," with one of the most sophisticated and established offshoring and BPO industry in the world.  The country was part of the first outsourcing wave before 2000, and the BPO and IT sectors show no signs of slowing down.
  • Lowest ITO costs. Companies that outsource IT functions to the Philippines enjoy up to 70 percent lower costs than companies that forgo outsourcing, according to advisory and research firm Everest Group.
  • More locations. ITO is expanding beyond the central business districts.  Today, international companies are setting up HQ in Philippine cities like Cebu, Davao, Iloilo, and Sta.  Rosa Laguna, which all made it to the Tholons top 100 list.
  • Rich talent pool. The Philippines' qualified talent pool is one of the deepest, with the BPO sector employing about 1 million people as of 2014.  It has never been easier for international companies to connect with and leverage the expertise of the country's talented programmers, software developers, designers, and IT administrators.
  • Excellent cultural compatibility. One of the biggest advantages of outsourcing your IT functions to the Philippines is the country's high cultural compatibility with the West.  Majority of the country's labor force is highly proficient in American English, and Filipinos enjoy strong historical ties with the U.S.

To learn more about IT Outsourcing please read IT Support: System / Network Admin Outsourcing.

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