Outsourcing Times

Watchlist for outsourcing

Outsourcing is a double-edged sword. If managed properly, it can reap immense benefits; however, there can be unpleasant surprises also in an outsourcing deal. Outsourcing companies need to take care of factors such as back-end loading, cultural misalignment, preferring quality to size of the deal, and ensuring that a contractual benchmarking clause provides for periodic checks and balances regarding pricing and service quality. CIO.com reports:

There's no denying that outsourcing in large organizations is a complex situation that requires careful management and oversight. It's also true that implementing some basic mechanisms of governance at the outset of the agreement can help ensure accountability and alignment over the long term. 

Outsourcing centers in India: soft targets for terrorists?

The recent attack on the Indian Institute of Science in Bangalore has shifted the focus of attention regarding terrorist attacks from north India to this southern city of information technology. Analysts believe that outsourcing could be the next terror target. Evidence has been building that terrorist outfits could take advantage of the soft targets such as the outsourcing industry.

The question that is now being asked is: how well-prepared are the outsourcing centers in India to answer the terror threat? Security is being strengthened in Bangalore, and only time will tell regarding the seriousness of the threat. Time Online Edition reports:

The attack is likely to shift attention within India to the question of how well prepared the country's outsourcing centers are for terror strikes. In a press statement released immediately after the terror attack, NASSCOM, the trade body for India's technology sector, stated that the country's outsourcing companies already have many security measures in place; however, it said that the incident “highlights the need to review and upgrade these.”

Asia: A destination for outsourcing in the biotech industry

The Asian market is expected to witness a continued inflow of outsourced work in the biotech industry. The attraction to Asia stems from the low-cost services with world-class facilities. Technewsworld.com reports:

Many Asian nations have made significant investments in science parks. Australia, China, Hong Kong, Singapore, Japan and Taiwan are all recognized as having topnotch facilities. Foreign direct investment agencies, meanwhile, are happy to sweeten the pot by offering tax breaks.

Online marketplaces and project outsourcing

With the availability of online freelance marketplaces in South Africa, the trend of project outsourcing is catching on as a means to achieve efficiency in business processes. Project outsourcing has varied expressions, including creative writing, copy writing, press releases, translation, editing, graphic design, multimedia and photography.

The easy accessibility to resources has enabled companies to complete projects with a controlled budget and without straining their own infrastructure. Through an online marketplace, projects can be placed and allocated, based on the bids received from resources. One such online marketplace is Freelanza.co.za. Projects are streamlined, with minimum risks and higher profits.  Biz Community reports:

The benefits of project outsourcing are becoming obvious to professional managers in advertising, marketing and media. The more innovative managers are embracing the concept in order to step up profitability. They are quick to appreciate the efficiency gains of adding resources without adding cost. Over time outsourcing will become common practice in South Africa. Using the Internet to improve the experience is a great step forward.

More outsourcing contracts from the US, but fewer large contracts

Infosys Technologies Limited, a major IT offshore provider based in Bangalore (India), reports an increase in its workforce by 14200, bringing its total strength to 49,422. This expansion is a direct result of increasing outsourcing opportunities from the US.

According to Technology Partners International Inc. (TPI), compared to 269 outsourcing contracts in 2004, 2005 saw 293 contracts going out from the US. However, Computer World reports that the total value of outsourcing contract saw a downslide from $78 billion in 2004 to $75 billion in 2005. One of the reasons for this reduced figure is that there is a shift from large comprehensive deals to those focused on a single service.

In a separate but related report, Reston, Va. consultancy Input that the federal outsourcing market is expected to grow from $12.2 billion last year to $17.6 billion by 2010.

The Philippines gears up to provide application-outsourcing services

There is a steady increase in the demand for application outsourcing, and this has its repercussions in the service skills offered in the Philippines. Vendors there are now providing services to meet this demand. This is against the past trend where services were focused only in the call center industry.

The capabilities in application requirements is being recognized by industry experts, evident in the recent statement by Senator Manuel Roxas who was speaking at the inauguration of HP Philippines’ new Global Delivery Philippines Center (GDPC) in Ortigas. GDPC, which a strength of 600 employees across its offices in the Robinson Summit Center in Makati and the new facility in Ortigas, would now be concentrating on providing services based on SAP, Oracle, and .Net applications. Computer World reports:

During the GDPC inauguration, Roxas said that application outsourcing companies like HP not only make a financial investment, but an emotional and psychological investment as well by inspiring current and future workers to acquire and develop very sophisticated skills set required for application services positions.

The US outsourcing market might drop $800 million by 2009: Report

It is estimated that the US outsourcing market of $14.2 billion  in 2004 will decline to $13.4 billion by 2009. This is a direct result of the contraction of market avenues because of the Do Not Call legislation, market maturation, and increasing cost of labor. Consequently, service providers will need to cut costs and diversify in their offerings across different industries within the outsourcing sector. Businesswire reports:

Outsourcers should reduce costs and improve operational efficiencies by continuing to move operations offshore and investing in VoIP, automation and workforce optimization.

Checklist for outsourcing business processes

Companies that outsource business to vendors need to be cautious in their selection of the service provider and take effective steps to remove all ambiguities in the relationship through proper documentation. Go4outsourcing.com, an online freelance outsourcing marketplace to find freelancers/outsourcing companies, has released important guidelines for outsourcing companies in engaging in a third-party service agreement.

The first step is to locate the suitable service provider. One of the avenues through which service providers can be located is an online outsourcing marketplace. The specific business requirement can be posted online, and a service provider with the right set of skills can then respond through a proposal or bid. Another method of locating a vendor is through the many search engines and directories. In making the final selection, it is advisable to evaluate the vendor's past record and service provided to clients.

After the service provider is finalized, information should be filtered, so that confidential information is not divulged to the vendor. An agreement should be signed to clarify that the service provider should maintain the confidentiality of the information made available. It is critical that there is no ambiguity in the requirement from the service provider, and all such clauses should be documented and agreed upon. The various milestones and deliverables of the project must be defined and set, and the payment should be made after the agreed deliverable.

During the project phase, regular feedback must be a part of the relationship, and team members from both parties should be on a one-to-one relationship. Any change in payment, deliverables, and project scope must be documented to remove ambiguity. All interactions must be recorded as they can be used in the event of a dispute.

3 Reasons Russian Outsourcing Will Flop

1. The economic incentives aren't big enough.
Is Russian labor cheap...yeah of course it is.  Russian labor is a full 50% cheaper than Indian labor and 25% cheaper than Chinese labor.  But the labor is unskilled and the infrastructure for most of Russia is so underdeveloped that by the time the product makes it to market the costs are 2 to 3 times as much for a Russian based outsourcer.  The hope is always that a properly designed outsourcing program can compensate for these inefficiencies and ultimately make bank, but truth be told we have yet to see that work.

2. The Indian Labor Pool won't dry up for another 25 years.
Now that it has become evident that the Russian labor market cannot compete with its Indian and Chinese counterparts in current market conditions, making a bet on Russia is in some sense making a bet that demand will rise in tier 1 outsourcing destinations to such a degree that outsourcing to Russia will become the most profitable alternative.  But with over a third of the world's population between them, and with effective unemployment at near 2/3 of their respective populations, it will be decades before the labor market for low-skill outsourcers will reach levels sufficient to consider tier 2 outsourcing destinations.

3. Russia = Russian...Not English.
Russia is currently making heavy infrastructural investments in targeted outsourcing sectors, particularly IT work.  This area has been dominated by China, because it has a strong infrastructure and the growth potential is enourmous.  This market has been shared with India because an educated populace, and English, are able to overcome substandard electricity and other infrastructural deficiencies.  India and China are rolling revenue back in to their countries at a faster rate than Russia and they start from a much higher point.  India was able to edge its way in on the back of English language skills.  Russia doesn't have that advantage.

My Summary
Unfortunately for Russia, this latest focus on tech outsourcing looks like a certain flop.  Like the Latin American countries trying to adopt ISI after the Asian Tigers did in the 90's, it appears that the window of opportunity is gone and Russia is joining the tech outsourcing party too late and with too little.

Corporate Outsourcing of Web Hosting Declines

Rich Miller writes in his blog:

A recent survey of nearly 400 top IT managers by CIO Insights brings difficult news for companies hoping for growth in outsourced web hosting. "Demand for web site development outsourcing services is projected to drop from 42% last year to 30% this year, while demand for Web hosting should decline from 44% to 33%," according to the survey. What gives?

This surprises me. Personally, I outsource hosting to Dreamhost, and I can honestly recommend them. (Incidentally, check out Find a Web Host to get a $50 DreamHost Promo Code.)