Outsourcing Times

The Great American Outsourcing Deceit

By Priya Jestin, Staff Writer

When we talk about learning the fine art of outsourcing, there’s probably no one better than our very own US President Bush to begin with. His presidency is marked by great outsourcing ideas. A recent article in the New York Times describes how the Coast Guard has run a $17 billion modernization program. The huge bill was thanks to the expertise that the Coast Guard outsourced to two of the nation’s largest military contractors. They were supposed to plan, supervise and deliver the new vessels and helicopters. And the result? Expensive ships that aren’t seaworthy.

Now that we’ve checked out the home front, let’s take a look at the international scene. They first bomb the place down and promise a good regime. Then when it comes time to help the Afghan government train a new police force, our great administrators outsourced the work to DynCorp International, a private contractor. Today, after throwing $1.1 billion into this police-training project, Afghanistan still doesn’t have an effective police-training program.

The Story Of A Tech Upstart

This is the story of Steve Hamm who was sent to India by Business Week, USA to study the story of Wipro, one of the big three that spawned the phenomenon of outsourcing of computer-based services over the past two decades. In his book How Indian Tech Upstart Wipro is Rewriting the Rules of Global Competition, Hamm tells the story of how Wipro rose from its humble origins of a vegetable oil processing and wholesaling company called Western India Vegetable Products.

Azim Premji, the man behind the vision managed to convert Wipro into a software giant with a current turnover of $ 2340 million and a profit of over $400 million. One of the main reasons for Wipro’s success is the importance given to serving the customer at all costs, building relationships and maintaining the highest standards of integrity. Hindu.com reports:

Though software is seemingly a technology business, the fact is that success has far more to do with personal relationships and sustaining customer confidence and comfort levels. In Wipro, this has been repeatedly shown not only by Premji, but also others like Ashok Soota, and Vivek Paul who contributed significantly to the development of the organization. At the root of the successful growth, according to the author, is also a managerial style, to an extraordinary extent based on open debate, participative action and strong work ethic.

Read more: How Indian Tech Upstart Wipro is Rewriting the Rules of Global Competition

My Two-Bit Prediction For The Industry

By Priya Jestin, Staff Writer

Predictions are what most people are good at. At the end of each year or financial year, we see this huge array of predictions from self-styled experts in the field. While some of them may have really done their bit of research to arrive at their conclusions, most others are just trying to get their moment in the sun.

Well, whatever be the case, let’s take a look at what the predictions for 2007 and the next few years are:

Firstly, India has become everyone’s favorite dartboard. So just about everyone is rushing to predict how India will cease to lead the outsourcing market in the next few years. Princes in waiting for the crown of outsourcing king include Israel, China, Russia and the Philippines. What most of these guys don’t realize is that India was never leader and the outsourcing industry cannot be clubbed as one single market. It has software, hardware, HRM, KPOs, BPOs, and well… many other Os. What my point here is how can we put it so simplistically?

Did anybody know that the outsourcing phenomenon would become so big? Did we realize ten years ago that many, many people will lose their jobs and that we might need to learn new trades in order to earn money? As the saying goes, there’s only one thing constant: change. So, probably, we may see a resurgence of jobs at home. But then here too predictions come in the way to play spoilsport. According to some ‘gurus’ in the field, tightening U.S. labor supply in technology, accounting and other processes, will force U.S.-based companies to accelerate their outsourcing strategies to stay competitive.

So, what happens if policies change? Recent news has it that the Democrats, alarmed with the rising student loan costs, are planning to reduce the rates. That might happen in the near future. So our doomsday fears of students being unable to bear the burden of debt may be misplaced after all. So what says, a policy change occurs, one that makes US companies realize that operating from home base is better? And yes, I’m being simplistic about it, but you never know. It could happen.

Change Is The Name of the Game

By Priya Jestin, Staff Writer

In outsourcing, the easiest part is signing on the dotted line, or doing the deal. And then begins the really hard part. Everything in the agreement may seem absolutely watertight and both parties in the relationship may think they have a really strong relationship going. However, what they don’t realize is that the rules of the game change constantly depending on various factors. Hence instead of trying to play by the rules, if the companies learn to adapt to changing realities, they will find their relationship growing stronger.

Now, adapting doesn’t mean trying to foresee and predict changes well into the future. You just cannot tell what the global scenario is going to be like five or ten years down the line. So, instead of wasting resources, time and energy trying to prepare for the future, your company must try other methods of maintaining and building a strong relationship. One of the best ways of strengthening a relationship is to build on it by creating a platform for information sharing and dialogue with vendors. Adaptability to changing conditions is another prerequisite to success in the outsourcing game.

Outsourcing & OEM Direct Costs

At the TFI's Quarterly Forum recently there was one point that seemed to come up pretty often. That of the knee-jerk reactions of OEMs and their manufacturing partners to the challenges of global electronics manufacturing. The fact that this mode of functioning doesn’t work is pretty obvious. Most of these people seem frustrated with the tactical measures required to meet environmental regulations such as China RoHS.

They are also finding it increasingly difficult to find profitable and socially responsible ways to manufacture the low-volume, high-mix products that represent the next wave of electronics outsourcing for the global arena. One attendee from an OEM member company succinctly expressed this frustration: "I am so tired of the fire drills for WEEE, RoHS, and now China RoHS."

What they don’t realize is that there IS a better way. It’s actually now a time to reconsider their management strategies. In the first wave of outsourcing, OEMs' transferred their manufacturing costs from their bottom line to that of the EMS. Now, they must focus on their internal management costs. They must find ways to increase the efficiencies on the supplier interface and the first step toward this is knowledge.

The best way to gather knowledge is to check out TFI's 8th study on environmental requirements, which focused on OEMs' performance and paths to profitable compliance. The research on electronics manufacturing in India uncovered several trends: Based on a Web survey of over 400 electronics industry managers, TFI projects that the number of electronics companies selling product in India will rise by 24% in the next two years.

Moreover, the number of companies manufacturing in India is expected to rise by 63% during the same period. India’s major attraction to most OEMs and EMS providers is the huge local market, which they can serve. This differs from the typical manufacturing strategy in China. The question for OEMs and EMS providers is the size of India's consumer electronics market.

Is Your Doctor Googling Your Symptoms?

Is it okay for your doctor to use Google search as part of his/her practice? Well, it has caused a furor in certain parts. There is an implied suggestion of incompetence over the process. But do you really think so? I mean if I don’t know how to solve a case and try to get help, it means I am competent enough to recognize when I need help. It also shows that curing a patient is uppermost on the doctor’s mind.

A recent study in Australia has actually approved of the practice in difficult cases. Using 26 difficult diagnostic cases published in the New England Journal of Medicine, doctors from Brisbane's Princess Alexandra Hospital Googled three to five symptoms from each case. And guess what? There was a significant improvement in diagnosis using the search engine! Desicritics.org reports:

The controversy seems needless considering the larger trends that have been occurring in Western Medical Practice. The two trillion dollar U.S Health industry is increasingly forcing financially overburdened Americans to seek other avenues for their health procedures. The internet has opened their eyes to the possibility of affordable health care in foreign destinations, India being a particular hot spot.

Read more: Medical Procedure Outsourcing: Truly Alternative Medicine

Financial Health As A Determinant For Outsourcing

How financially healthy is your company? The reason for this question is that 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. Manufacturing.net reports:

A merger or acquisition is a common outsourcing trigger for either the divested or newly formed organizations. When two companies become one, there is always extensive redundancy of infrastructure and staff. This duplication typically includes departments, equipment, machinery, and people. Facing the challenge of eliminating this duplication and its ensuing upheaval, a company may choose to look at to an outsourcing provider as an alternative to taking on this task themselves.

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

IT Boom In Russia

Exports of Russian programming products increased by 80 percent, from $1-billion worth last year to $1.8 billion in 2006. Analysts now predict that Russia will be one of the top three countries for IT outsourcing by 2010. Kommersant.com reports:

“Russia now controls 3 percent of the market for offshore programming,” said Viktor Vainshtein, head of the Aplana company. “By 2010, our country might confidently claim 10 percent and, if things go right, 15 percent. That will be possible in large part thanks to active state support.”

Read more: Russia's IT Boom

Kodak renews Nortel outsourcing deal

Eastman Kodak Co. recently agreed to a renewal of its existing agreement with Nortel Networks Corp. Nortel will now manage Kodak’s U.S. voice network for another three years. Marketwatch.com reports:

The Rochester, N.Y., film and camera company said the renewal calls for Nortel to continue managing Kodak's network of PBX's and telephone services through 2008. Kodak has outsourced its voice network to Nortel since 1995.

Read more: Kodak renews Nortel outsourcing deal for 3 more years

Chinese Dragon To Overtake India As Outsourcing Hotspot

According to analysts, in a few years about 5-10 percent of US and European software outsourcing would be diverted from India to China. Increased outsourcing contracts will boost mergers and acquisitions in China's software industry, so that enterprises can upgrade and win more deals. Cio-weblog.com reports:

A recent survey shows that in the mid-1990s, only 15 per cent of China's software companies were under contract to foreign companies to provide outsourced software, but in 2005 the figure had climbed to 40 per cent. The global service outsourcing market is worth between 300 billion and 500 billion dollars. Business insiders have predicted the market will reach one trillion dollars in 2008 with an annual growth of 7.9 per cent.

Read more: China & India Outsourcing 1