Outsourcing Times

Limiting Risk Through Nearshoring

Offshoring undoubtedly offers significant financial benefits for companies across a wide range of fields and sizes.  Undertaking such a venture, however, requires a cost benefit analysis that includes downsides such a political instability, language and cultural barriers, and time zone differences.  While over 75% of companies (according to recent estimates) have decided that the potential benefits outweigh these costs, many potential outsourcers would be willing to sacrifice some cost savings for significantly limiting their risk.  This is the principle behind nearshoring, a form of sending operations offsite to nations closer (both culturally and geographically) to the source nation.  Nations such as Canada, Mexico, and South America are benefitting greatly from the expansion of this practice.  CIO Reports:

With nearshoring, the benefit of proximity is more than just working in the same, or close, time zone.  For small projects that require close interaction with the company and its outsourcing partner, nearshoring is an excellent solution with less expensive travel costs and shortened travel time as an added benefit. 

Read More: Is Nearshoring A Real Alternative to Offshoring?

Hollywood Partners Up With Baliwood

A recent study by KPMG indicates a huge potential for outsourcing camera and special effects work to India.  The country already boasts one of the globes largest film industries, and with animation already being offshored, outsourcing other aspects of film production is right around the corner.  While the Indian film industry is currently estimated at $685 million, this is miniscule in comparison with the American industry.  Because of cheap labor, an established industry, and an integrated talent pool of software professionals, the potential for profits through outsourcing are enourmous.  New Kerala Reports:

A beginning has been made by organisations like the Hyderabad-based Ramoji Studios that has provided equipment, crews, sets and post-production facilities to at least seven Hollywood productions, including the Oscar-winning "Gladiator".

Read More: India can emerge as outsourcing destination for films

Delta To Outsource Heavy Maintenance Work

The struggling Atlanta-based airline carrier, Delta Airlines, has planned to cut up to 7,000 jobs by the end of the year in order to regain profitability.  The company announced Tuesday that it will outsource heavy maintenance work for 45% of its fleet, a move which will cut 2,000 jobs and save an estimated $240 million over five years.  While somewhat unexpected, the labor force cuts in non-core areas must have been anticipated by those following the company.  Cincinnati.com Reports:

"Our costs must be reduced and we must remain competitive," he wrote in a memo to maintenance employees.  "In order to accomplish this, we must not stick out head in the sand and pretend that the airline business hasn't changed."

Read More: Delta outsourcing plan to cut 2,000 maintenance jobs

Pharma: The Next Big Wave

In the wake of the BPO boom, we may be seeing the first signs of the next great outsourcing wave, the pharmaceutical industry. A recent report by Gartner Dataquest projects that the now $20 million dollar Drug company outsourcing industry, will explode to over $2 billion in the next decade. Early signs already indicate the overwhelming potential for growth in this area, as IT overhead and the time required to bring drugs to market shrinks under competitive pressures. The Financial Express Reports:

Says R Chandrasekaran, managing director, Cognizant, "Pharmaceutical companies are fast catching up in terms of offshore outsourcing, and rank after financial services, manufacturing, telecommunication and retail industries. The healthcare and life sciences vertical for cognizant put together contributed to about 21% of its total revenue of $586.7 million last year.

Read More: The Next Pharma Hunt: pharma pops the IT pill

Fueling the Outsourcing Debate

For offshoring companies and their clientele, the threat of a public relations fiasco is becoming a significant factor in the financial/risk calculation of deciding whether to offshore. Despite the fact that most large companies are currently engaged in the practice in some for or another, the public's generally negative perception of the practice necessitates that most firms keep their offshoring efforts under wraps. Consequently, a number of outsourcing and offshoring firms are trying to fight the stigma associated with offshoring, in the hopes that they might liberate other companies to join ranks. On the opposite end, however, are a number of commentators and surveys which speculate on the potentially negative short-term effects on domestic labor demand and wages. One such report appeared this week, further muddying the debate on the greater economic ramifications of outsourcing. Scotsman.com Reports:

New research has shown between 10,000 and 15,000 financial services jobs could join the flood of low-skill call centre and back office administration posts already moved abroad. According to Troika, the financial services consultancy behind the research, a total of 100,000 jobs will be lost to low-cost countries by the end of the decade.

Read More: Exodus of City jobs to India to top 15,000 by 2010

The Future of Near-Shore Offshoring

With recent surveys indicating that between 50 to 60% of companies who offshore feel that the benefits of such a move did not meet initial expectations, customers, and thus offshoring companies are looking for alternatives. The recent purchase of American firm Account Solutions Group by Indian Outsourcing giant ICICI OneSource may give some indication of the future of the industry. Under pressure to both cut costs and maintain customer services, many companies are looking for more comprehensive outsourcing services including a range of domestic outsourcing, near-shore offshoring, and more traditional offshoring. The retention of Account Solutions Groups 500 member workforce means that the move was more than simply PR, but that it indicates a concentrated effort by the firm to offer comprehensive services for a wider array of clientele. More recently, the ICICI has stated that it hopes to acquire a firm in Canada, a nation which provides some of the cost benefits of offshoring while maintaining some of the cultural benefits of work done domestically. GlobeandMail.com Reports:

Canada satisfies those customers who prefer to go "nearshore" rather than "farshore," but expansion of ICICI OneSource's operations into Canada will also increase the company's capacity to provide round-the-clock services through its offices in different time zones to customers around the world, Mr. Chatterjee said.

Read More: Outsourcing

New Report Ranks Nations on Future Opportunities

A recent report, compiled by Horasis: the Global Visions Community, a Geneva-based strategic advisory firm and Going Global Ventures, a US-based international consulting firm, provides a unique tool for prospective offshorers.  With three quarters of US companies outsourcing but only about one-third offshoring, the need for reliable international data that can be projected into the future is significant.  The Global Outsourcing Report 2005, attempts to fill this gap by offering statistics not only on the current outsourcing situation, but also by the opportunities and projected growth of potential offshoring destination in the future.  This may prove a vital tool as companies, both large and small assess the benefits of offshoring in both the short and long term.  India Inc. Reports:

Twenty countries have emerged as the leading technology outsourcing destinations in 2005.  China, Costa Rica, the Czech Republic and Hungary round out the top five countries.  The Report predicts that in 2015 the top five outsourcing destinations will be China, India, the US, Brazil and Russia.

Read More: China to be world's top outsourcing destination

Former USSR Nations Provide Unique Offshoring Advantages

The Ukraine's history as a former Soviet Union country gives it some unique benefits as a potential outsourcing destination.  The Ukraine benefited from an educational and research and development program implemented under the USSR, and which has continued on through to today.  Despite some funding cuts after the nation achieved its independence, the programs are continuing to create a nation with a heavy emphasis on math and sciences.  Companies such as EDS are finding such workers particularly adept in the areas of programming and software development.  At the same time, the regions proximity to western europe mades it accessible both geographically and culturally.  IT Business Edge Reports:

Ukraine did not have to just build its educational infrastructure, as many of the offshoring countries have had to do, rather it is benefiting from a structure that has been in place for decades.  Literacy in Ukraine is 99 percent, with over 80 percent of the high school students going on the higher education.

Read More: 3 Questions: The Ukraine Warms Up To IT Offshoring

Lawyers Outsource Legal Research

With salaries at 1/10th the US wage, an almost idential judicial system, and english speaking personnel, it seems it was only a matter of time before the potential of legal outsourcing was uncovered.  More and more, however, American lawyers are impressed not only by the labor cost differential, but also by the quality and speed of work done.  In fact, some Indian companies report being staffed 24 hours a day.  HindustanTimes.com Reports:

Highly impressed by the quality of work executed by Indian lawyers, Larry Newman, who specialises in corporate transaction, said: "They have been instrumental in getting favorable results even in complex cases."  Author of Texas Corporation Law, Newman said he favoured legal outsourcing to India because of cost efficiency, fast response and good quality of work done by the advocates.

Read More: US outsourcing Indian advocates

Outsourcing: By Any Other Name

Despite the fact that a growing number of pharmaceutical and medical companies are offshoring work, the pulic backlash that exists in industries such as call centers is simply not there.  One reason may be that companies in these industries refer to their outsourcing by a variety of innocuous psudonyms such as "strategic sourcing" and "foreign partnerships".  While the difference exists only in vocabulary, the public relations successes of these companies may in the future propel a growing number of companies to rename their outsourcing ventures.  Boston.com Reports:

Outsourcing (aka offshoring) has become a dirty word in technology circles over the past two years as programmers in the United States lose jobs to programmers in India, the Philippines, Russia, and other low-wage countries.  As the life sciences industry gets more serious about sending some of the work of developing drugs and conducting clinical trials overseas, they're trying to avoid the dreaded "O" words.

Read More: Be careful not to call it outsourcing