Outsourcing Times

HSBC On An Indian Romp

HSBC is expanding its offshore outsourcing operations in India with a new BPO facility in Kolkata (Calcutta) and a software development center in Hyderabad. The bank already has one wholly owned BPO subsidiary - HSBC Electronic Data Centre - in Kolkata, which has 2,000 employees working on back-office operations, and is now planning to set up another center in the same city. Silicon.com reports:

Last year HSBC said it plans to double the size of its offshore operations to 25,000 employees within three years to help reach a target of cutting costs by $1bn by the end of 2007. HSBC CIO Ken Harvey recently revealed that almost half (42 per cent) of the bank's IT development work is now done in low-cost offshore centers.

Read more: HSBC ramps up Indian outsourcing presence

Outsourcing Re-engineering Services: Rewards & Dangers

--By Priya Jestin, Staff Writer

When a firm outsources its re-engineering services, it can do away with the necessity of having to provide large infrastructures with the requisite machinery. Not only is this method more practical, it is also very cost-effective. This way, the firm can concentrate on its core activities. And now that the market is expanding, there is a growing business segment that offers re-engineering services.

While all this sounds very good, there’s one worrying aspect. Does the outsourcing argument allow for quality management in re-engineering services? One of the biggest problems a firm may face is of ensuring that the final quality is as good. Also, the work should be in line with original-equipment manufacturer specifications. These are important factors that influence the operational reliability of plant and equipment.

Israel’s Native English Speakers Has US Excited

While India and China may still be outsourcing hotspots, there are other countries trying to woo US firms. Israel, which differentiates itself from India and the Far East by offering a vast pool of highly educated workers who are native English speakers and share a cultural affinity with the West, is one that has attracted a lot of attention. Boston.com reports:

The heightened interest comes as the government is offering firms a $200-per-month subsidy for each worker employed by foreign companies. While Israel's workforce still doesn't come as cheap as its rivals, salaries are far less than in America. And perhaps surprisingly, all the figures for economic growth, credit ratings, and investment this year indicate the instability in Israel has not affected business at all.

Read more: US firms turn to Israel as outsourcing alternative

Move Over India, The Filipinos Are Coming

--By Priya Jestin, Staff Writer

Well, it’s not yet move over time for India. Rather the country has moved up-market in outsourcing. This means there is a market for customer-service call center businesses. And the Philippines has quickly jumped into the fray It may be a low-end, low-margin business, but for the Philippines it has been an employment boon.

The main attraction when it comes to the Philippines is that it is very cost-effective when compared to India. There is however a bigger advantage here: cultural similarities to the United States and employee loyalty. The country has an exceptionally long history of contact with the United States, which includes several decades of American colonial rule. This means call center employees here can relate better to Americans and are also quick to adapt to a variety of accents.

Another benefit of outsourcing to the Philippines is that the attrition rate in the industry is a quarter of what it is in India. One of the biggest reasons for the rise in Indian BPO salaries is the poaching of employees. According to estimates, in some Indian call centers annual staff turnover has been around 200 percent. In Philippines, the corresponding rate is 40% or lower!

India’s huge employee turnover means that the company has to regularly invest in educating and training new employees. This doesn’t look too good on the company’s balance sheet. The longer an employee stays in one company, the better the quality of service. This means the Philippines has a definite advantage over India with its low attrition rates.

Rebuilding In-House Capacity Is Not Feasible, Say Australian Majors

This one’s for those who thought that this outsourcing problem was a passing phase: It is NOT. The problem does not lie with the great capabilities of the people in the country to which work is outsourced. The problem lies with the company that outsources its capability. Once a company outsources, it is next to impossible to rebuild in-house capability.

According to a Gartner study that was conducted last year, only 23 per cent of the Australian companies that outsourced managed to bring services back in-house. And the outsourcing deals today are nothing like they were in the past. This is the age of selective sourcing which focuses on getting assistance in areas where the company either faces an IT skills shortage or wants to free up staff and resources. Computerworld.com reports:

One high profile recent example is Qantas, which has outsourced internal IT applications support and maintenance. The transition will take over 15 months and Qantas will shed some 340 Australian IT staff. Qantas chief executive officer Geoff Dixon said it would require an investment of up to $100 million to develop an in-house capability, an investment it could not support.

Read more: Outsourcing a done deal with very few able to rebuild in-house capability

Tips To Know When It’s Time To Outsource

Outsourcing has today, become more of a need as companies feel an increasing need to reduce costs and focus on the core business of developing, manufacturing, and marketing their products. Pharmaceutical companies are no different. Only problem is, how does a company know when the time is right to outsource? Manufacturing.net reports:

There is no better indicator of a company’s health than its financial results. All companies are driven by their return to shareholders or owners. If the results are not as strong as they should be, it is time to thoroughly examine the cost structure. This is more than a financial analysis; it is a strategic and organizational exercise as well.

Read more: Determining When To Outsource: Indicators For Pharmaceutical Companies

Outsourcing Is Beneficial, Says IDC Study

--By Priya Jestin, Staff Writer

Outsourcing has helped may industries reduce costs and increase profits. But businesses have as yet been unable to properly convey the real-time benefits of outsourcing. This has led to increased sensitivity to the offshoring of jobs, which have seemingly led to loss of employment opportunities in the local economic system. I say seemingly because such is not the case. Agreed, for a short while it may seem that people are losing their jobs to outsourcing, but in the long run, as profits rise, the economy improves and with that new jobs are created.

Agreed, there may be cases of abuse and poor management. But the global delivery mode is a reality of business and so is the fact that this mode delivers significant benefits. And I’m not the only one saying so. In a recent study, 'Does Business Process Outsourcing Reduce IT Jobs in Asia/Pacific (Excluding Japan)?’ IDC answers the question of whether or not BPOs reduce jobs locally.

Obviously, not everyone is going to get immediate and direct benefits from outsourcing. But if you look back in history, every time there’s been a change in the way industries function, there’s been an upheaval – one that cost many jobs. In the long run however, things did turn out for the better. What needs to be done is find alternative employment opportunities for the people who are being displaced by this trend. At present, outsourcing operations will force high-cost countries to look at new ways of operating in a more efficient manner so they can compete at a global level. And as the economy gets stronger, more jobs will be created.

One also needs to remember that while outsourcing is happening on a large scale, only services like finance, HR, or IT are being offshored. Core areas such as corporate strategies, sales, governance, and policies still need to be retained in-house.

TCS Bags $ 100 m Kimberly-Clark Contract

TCS seems to be on a deal-winning spree. The latest deal TCS bagged is from US healthcare company Kimberly-Clark, which owns brands like Huggies and Kleenex. The US$100 million deal follows on the heels of the $90 million deal TCS signed with Qantas Airways last week. The company is also said to be closing in on a major deal from Bank of China.

The Indian outsourcing industry is dependent on oversees clients for a major part of its revenues. The US is one of the largest markets for Indian software firms. If the Bank of China deal comes through, it will be one of the largest outsourcing deals in Asia. Sda-india.com reports:

Earlier, TCS announced that it was working on at least five deals and was hopeful of garnering over USD 100 million in this quarter. A 200 million euro contract from ABN Amro and a USD 200 million deal from CitiGroup were the other major deals bagged by the company.

Read more: TCS Wins USD 100 Mln Outsourcing Contract from Kimberly-Clark

Retail Giant Myer, IBM sign 5-yr Deal

On Demand Zone Retail giant Myer recently announced a five-year IT outsourcing deal with IBM Australia. IBM will now supply a host of IT services to Myer. This includes AS400 support, midrange services, data networking, desktop, applications maintenance and development as well as help desk services. Computerworld.com reports:

IBM Global Technology Services general manager Peter Campbell said the company aimed to help Myer reach its full market potential. In a statement, he said: "IBM is delighted to work with Myer on its transformational journey, and will draw on the breadth of its technology services and retail industry expertise to support Myer's overall business strategy."

Read more: Myer inks five-year outsourcing deal with IBM

New BPO Mantra: Divest & Rule

--By Priya Jestin, Staff Writer

First global firms set up the BPO or business processing outsourcing units in India and other countries where they could get cheap labor to handle their myriad tasks. As time wore on, these global giants realized that their BPO units were a profit-making industry in their own right. And that’s when the recent trend of divesting outsourcing units began. Today, a growing number of multinational firms are divesting their outsourcing units, cashing out while maintaining their outsourcing relationships.

BPO is big business today and according to industry predictions, by 2010 India’s BPO operations alone will touch $25 billion from the current $7.5 billion. So if the BPO industry is so big, why are the multinationals selling out? Because they have found that there are other big, global outsourcing firms that can easily handle their requirements.

This means an unnecessary in-house unit could be a drain on precious resources. Probably what we are now seeing in the BPO industry is a trend similar to the ongoing changes in the steel industry. Consolidation seems to have become the keyword required for survival and growth. And if you cannot consolidate, divest your unit and use somebody else’s resources to grow your organization. Whichever way you look at it, it’s sunshine time for India’s BPO industry.