Outsourcing is an important trend: many companies entrust their business processes to external contractors. These outsourcing statistics can help us understand the extent of this trend and its impact on economies and jobs.
The outsourcing industry is enormous. But who is doing the outsourcing, where are they sending the work, and why are they doing it?
Let’s look.
Jump to:
- Key Findings
- How Many US Companies Use Outsourcing Services?
- How Much Do Companies Save By Outsourcing?
- Why Do Companies Outsource Jobs?
- What Jobs Do Companies Outsource?
- Which Country Takes Up Most of the Tasks Outsourced by US Companies?
- How Outsourcing Affects the Economy
- Market Size of Outsourced Services
- Outsourcing Statistics by Year
Key Findings
- 64% of US firms used outsourcing services in 2022.
- Most companies outsource to save costs (32.2%), followed by access to innovation (20.0%) and quality improvement (15.4%).
- Most companies outsource IT jobs (76%), and only 52% outsource business tasks.
- India, China, and Malaysia are the top three destinations for outsourcing from US companies.
- Global spending on outsourced and shared services reached $620.381 billion.
Outsourcing vs. Offshoring
The terms outsourcing and offshoring are frequently used interchangeably, which can be confusing. There is a distinction between the two concepts.
Outsourcing refers to the practice of contracting or delegating certain tasks or services to an external company or individual, usually with the goal of reducing costs or accessing specialized expertise. It involves hiring a third party to perform these tasks on behalf of the original company, which can be located either domestically or internationally.
Offshoring specifically refers to the practice of relocating business operations or processes to another country with the company retaining full or partial ownership.
Let’s look at an example.
Ford manufactures many of its vehicles in Mexico. This is considered offshoring (even though it’s the same continent) because Ford still owns the factories. They have moved their own processes out of the country.
Nvidia designs microprocessors but contracts the actual manufacturing to outside fabricators, primarily Taiwan Semiconductor Manufacturing Corp (TSMC). This is considered outsourcing because TSMC is purely a contractor. Nvidia does not own or control TSMC, they just pay them to make chips.
In summary, outsourcing involves hiring external help, while offshoring involves moving a company’s own operations to a different country.
In this article, we delve into outsourcing statistics, exploring the various facets of outsourcing, including industry trends and the impact it has on businesses and economies.
How Many US Companies Use Outsourcing Services?
Although outsourcing is prominent in the US (we noted earlier that 84% of outsourcing contracts are signed by American companies), there is no definitive estimate of the number of companies that utilize these services.
Nevertheless, several studies and reports have attempted to quantify the number. One survey ventured that 64% of US firms used outsourcing services in 2022[1].
How Much Do Companies Save by Outsourcing?
The amount of money companies save by outsourcing varies depending on the specific services they outsource, the location of the outsourcing provider, and the size and complexity of the company. However, studies have shown that companies can save between 70% and 90% in labor costs by outsourcing non-core business functions[2].
Why Do Companies Outsource Jobs?
Companies outsource for many reasons, and various studies have been conducted to quantify them. A 2021 survey established that most companies outsource to save costs (32.2%). The other primary reasons for outsourcing include access to innovation (20.0%) and quality improvement (15.4%)[3].
What Jobs Do Companies Outsource?
The processes that most companies outsource vary in terms of the technical ability required and technological capacity. However, most companies classify them into two categories: business and information technology (IT). A recent survey indicated that most companies outsource IT jobs (76%), and only 52% outsource business tasks[1].
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What Business Tasks Do Companies Outsource?
Among business jobs, most companies seek external providers for legal (64%), tax (61%), and human resource (HR) (57%) tasks[1].
What IT Jobs Do Companies Outsource?
On the IT side, companies overwhelmingly outsource cybersecurity functions (81%), followed by software development (79%) and IT infrastructure services (77%)[1].
Which Country Takes Up Most of the Tasks Outsourced by US Companies?
Since US companies make the largest share of outsourcing demand globally, it is fair to say that the top global outsourcing destinations are the countries that take up most of the tasks outsourced by US companies. As of 2017, the AT Kearney Global Services Location Index™ (GSLI) ranked India, China, and Malaysia as the top three destinations for outsourcing from US companies. Four years later, in 2021, the rankings have not changed significantly[4].
| 2017 | 2021 | ||
|---|---|---|---|
| Country | GSLI score | Country | GSLI score |
| India | 7.07 | India | 7.09 |
| China | 6.31 | China | 6.80 |
| Malaysia | 6.11 | Malaysia | 6.22 |
| Indonesia | 5.99 | Indonesia | 6.21 |
| Brazil | 5.92 | Brazil | 6.05 |
How Outsourcing Affects the Economy
Outsourcing affects the economy both positively and negatively. The positive effects of outsourcing on the US economy include:
- It lowers operational costs and increases innovation and efficiency, sharpening American companies’ competitive edge.
- It reduces the prices of consumer goods and increases the range of consumer choices.
The adverse effects include:
- It increases unemployment in the US, erodes domestic skills, reduces benefits and wages, and creates gaping trade deficits.
- Outsourcing can also reduce the security and quality of consumer goods and services.
Outsourcing has become a political issue, but there’s no indication that it’s likely to stop or be significantly reduced.
Market Size of Outsourced Services
The actual size and value of the global outsourced services market are elusive. Reports that have explored the market concur that it is vast and fast-growing.
The most recent report examining outsourcing concluded that global spending on outsourced and shared services was $620.381 billion. The report projects increased demand in the coming years, with the market expanding at a 5.54% CAGR between 2020 and 2027 – this would see the market value hit $904.948 billion by year-end 2027[5].
Outsourcing Statistics by Year
The outsourcing statistics show that the industry is growing in popularity, and while the number of deals/contracts fluctuates, the value tends upwards. The total number of deals across all outsourcing sectors reached 1,473 in 2013 (worth $145.5 billion). Although the number of contracts dropped significantly in 2015 (891), the total value of contracts signed globally grew to $159.1 billion[6].
More companies use ITO services than BPO services, and this trend has been growing over the past decade. In 2010, 88% of Forbes’ Global 2000 companies (G2000) held ongoing ITO contracts, against 62% for BPO contracts. By 2015, the gap was the same, but more companies were outsourcing in both segments, with 90% of G2000 using ITO services and 64% for BPO[7].
