Outsourcing Times

HP Discusses Outsourcing Growth Strategy

Despite having just three years in outsourcing, Hewlett-Packard is already listed amongst the "Big Six" of outsourcing companies.  HP has revealed that its focus for 2005 will be in the four areas of: communcations, financial services, public and manufacturing.  Additionally, the company hopes to gain market share by stealing customers back from firms that got on board with outsourcing over 10 years ago and whose contracts are up for renewal.  By offering second-generation outsourcing, in which companies who are already familiar with outsourcing can be coaxed into working more deeply with a company or multiple companies HP hopes to gain new contracts.  CNET News.com Reports:

"Certainly in the last 10 to 15 years, big companies were being selected to do big implementations as sole-source deals.  Now, there's a big swing in trend.  Some big companies are swinging it back to picking an expert for a certain bundle, a certain area," he noted.

Read More: HP takes aim at outsourcing rivals

Book Discusses Effects of Outsourcing on US Labor

In an attempt to counter-balance the numerous books which cite the positive long-term effects of outsourcing on US labor, a recent book called "Outsourcing America" attempts to point out some of the negative consequences.  The book cites some typical complaints including quite prominantly that company's are more concerned about meeting quarterly reports than providing a good long-term product.  This leads to outsourcing, which leads to an undercutting of wages and benefits for US workers. 

While the book raises some very valid concerns, its premise relies on a common premise among such books, that outsourcing equals a loss of jobs short-term, and economists can only provide promises that new and better jobs will be created in the future.  From the perspective of those threatened by outsourcing, this view is certainly understandable.  It glosses over the fact, however, that at no time in history can we adequately predict what industries will burgeon in the future as a result of present cost-savings. 

Certainly, this book's underlying conclusion stems from a misinterpretation of economists understanding of the economy, however, it does raise some very valid points about re-integration into the job market.  It points out that one third of displaced workers remain so for long periods of time and that often newly created jobs are less well paying.  These are serious concerns for proponents of offshoring and outsourcing because a public backlash is not in their interest, nor more humanely is it in the interest of the world population collectively.  The Washington Times Reports:

Outsourcing forces Americans to "compete head-to-head with foreign workers" by "undermining U.S. workers' primary competitive advantage over foreign workers: their physical presence in the U.S." and "by providing those overseas workers with the same technologies."

Read More: Outsourcing after-effects

Wipro's Profits Climb 58% for 2004

Wipro Ltd., India's third largest computer software exporter, said Friday that its profits have climbed 58 percent to $363 million for 2004.  The growth has been primarily due to surging demand for software and back-office services.  Despite predictions of a long-term decline in demand for outsourcing services from India, top firms are continuing to flourish.  Predictions abound, however, that as wages continue to increase and the Rupee holds steady the cost differential and thus incentive for outsourcing to India will decline, making the future of these firms dependent upon their ability to diversify services provided.  KansasCity.com Reports:

Shares of Wipro rose 42 cents, or 2.2 percent, to $19.50 in early trading Friday on the New York Stock Exchange.  The stock has been trading at a 52-week range of $11.61 to $25.70

Read More: Wipro full-year profits up 58 percent on outsourcing growth

Outsourcing to Become Philippines Top Earning Industry

The outsourcing industry will overcome telecommunications to become the Philippines top earning industry within the next five years, according to a recent study by BNP Paribas.  The study indicates that outsourcing will contribute 6.5 percent of the Philippines GDP by 2010, a growth driven by the largely untapped pool of english speaking college graduates within the country. While the Philippines will not displace India as the primary outsourcing provider for American companies, it is singling itself out as the leader in some more specific niches.  Manila Bulletin Online Reports:

The Philippines is becoming the choice site of Americans for voice-enabled services with India cornering the non-voice demand. 

'The Philippines has already emerged as an alternative site to India, particularly in the call center segment mainly because American clients are forcing service providers to set up back-up operations elsewhere as a safety measure," said BNP Paribas.

Read More: Outsourcing to overtake telecoms as top moneymaker in five years

Indian Call Centers Losing Market Share to Near-Shore Providers Like Mexico and Canada

A recent study conducted by India's Associated Chambers of Commerce and Industry indicates that Indian outsourcers are losing market share to countries such as China, the Philippines, Malaysia, Mexico and Canada.  Gartner echoed this conclusion as they predicted Indian market share would fall from 80 percent to 55 percent by 2007.  This change indicates that despite an initial thrust towards english speaking India, western corporations are re-examining the benefits of outsourcing and concluding that a number of near-shore providers, Canada and Mexico, or cheaper far-shore, China, are providing more beneficial services.  World Peace Herald Reports:

"The inflationary aspects on compensation, real estate and other costs used to be mitigated by the depreciating rupee," said Raman Roy, chairman and managind director, Wipro Spectramind Services, one of India's biggest BPOs.  "But with the rupee appreciating or staying stable, it definitely creates a pressure on profits."

Read More: Analysis: Indian call centers losing out

Reasons Why Outsourcing Contracts Fail

According to Paul Beaucham, a UK based consultant, outsourcing can be a very profitable venture, but only if handled correctly. Mr. Beaucham recommends making a number of in-house preparations prior to engaging in outsourcing.  These include, identifying the current status, the level of performance, and the cost allocation of a particular service.  Then, determining the need and attempting to reduce in-house costs. Silicon.com Reports:

The first two tasks help you work out what you could or should be outsourcing, but some IT should not be outsourced at all.  The third (and it's a good process to work through anyway) is to reduce your costs - if you do not, the outsourcer will.  But in doing this task you will identify the true cost of your services - and the answer may show you provide an effective service for the price.

Read More: Leader: Ancient reasons why outsourcing fails

R & D Outsourcing Offers Huge Cost Savings

Despite increasing evidence that US companies are not achieving the types of cost savings they anticipated when entering into outsourcing contracts, in the field of Research and Development the savings still heavily outweigh the costs.  While in some fields the wage differentials have shrunk to the point that including administrative costs in offshoring makes it hardly worthwhile, R & D continues to offer huge multiples for western firms.  The profitability of such contracts is evidenced by the more than 500% growth of Indian pharmaceutical firms in recent years, a rate driven primarily by western outsourcing. Business Standard Reports:

"While the average R&D cost in the US is $400,000, it is $250,000 in Europe and only $50,000 in India," said Motti.

Read More: 'Outsourcing' set to catch up

Medical Outsourcing Targeted

Having radiology images, MRIs, and ultrasounds read by overseas outsourcing firms is not an entirely new phenomenon.  Recently, however, it has sparked a whirlwind of controversy as legislators in the US attempt to cope with the security and privacy issues that the practice raises.  Recently, a number of both state and federal bills have been proposed to ensure that doctors performing the examinations are both trained and liscenced.  Additionally, there are bills aiming to ensure that patients are notified if and when their personal medical information is sent to a third-party examiner.  The practice is profitable for US medical providers because the labor savings are so great through foreign firms.  Many such firms fear, however, that increased regulations may make the cost savings of doing business with them decrease to such a level that US medical providers are no longer interested in doing business abroad.   Some skeptics indicate that while many of the legislative steps being undertaken fill necessary security and privacy issues, others are merely designed to prohibit the practice by increasing costs.  The Times of India Reports:

Democratic Senator Hillary Rodham Clinton and Democratic Representative Edward Markey have introduced legislation that will require patient care in advance before reading for them is done abroad.

Read More: Medical outsourcing: US in ICU

Outsourcing: Losing its Luster Amongst US Companies

A recent report by Deloitte Consulting indicates that an astounding 70% of surveyed companies had a "negative experience" with outsourcing.  Like similar surveys released in recent months, this survey seems to indicate that US companies are no longer heading full tilt into outsourcing projects like they once were.  Rather, most firms are now strategically weighing the costs/benefits associated with each individual project and are attempting to make more concrete and long-term relationships with the outsourcing firm.  This will have serious consequences for large indian outsourcing firms who are already indicating their own predictions about the abatement of interest in Indian outsourcing by diversifying their holdings to outside services firms in other nations.  The Economic Times Reports: 

However, instead of simplifying operations, many companies have found that outsourcing activities can introduce unexpected complexity, add cost and friction into the value chain, and require more senior management attention and deeper management skills than anticipated, according to the study.

Read More: Outsourcing no more on US' hot list

Selective IT Outsourcing Will Drive Outsourcing Growth in 2005

A report put forth this week by outsourcing analyst Gartner predicts that the Western European outsourcing market will grow by near five percent in 2005.  This growth will be driven primarily by selective outsourcing especially within IT services.  Following four years of cost cutting and international competition which has weighed heavily on the IT industry, more and more companies are opting to utilize selective external services to deliver their IT requirements. vnunet.com Reports:

Customers are trying to get results-based contracts, where performance is more closely related to business objectives than in the past.  It's a pretty substantial change for the IT department.

Read More: European outsourcing to increase by 5 per cent in 2005