Outsourcing Times

Indulging In The Politics Of Offshoring

By Priya Jestin, Staff Writer

Guess what’s one of the hottest issues in the current presidential campaign? Offshoring jobs of course. While John Kerry plays to the masses by blaming President Bush for massive job losses, he seems to have forgotten that in 1993 as Senator, he voted to implement the North American Free Trade Act (NAFTA). So, way back then, Kerry knew jobs would be lost. Interestingly in 1993 alone, Senate had reports that thousands of manufacturing jobs would be lost. Job loss estimates ranged from 22,500 to 912,000.

What people like Kerry forget in their game of politics is that a slew of new jobs has been created since NAFTA's implementation. According to Economic Policy Institute, NAFTA resulted in exports that created 794,194 new jobs. Overall, the political economy has only helped create more jobs than lost.

But, for a moment let’s assume that Kerry and his ilk succeed in restricting offshoring jobs. What happens then? The offshoring phenomenon has helped boost the economies of many countries; people in these lands now have the money and access to American goods. Through this they invest in the American economy. So if we restrict job offshoring, we’ll effectively be reducing OUR revenues and our jobs. So, what’s the better option?

The Wheels Turn Finally

By Priya Jestin, Staff Writer

To increase profits, an organization has to increase its revenues, while keeping costs constant – no brainer right? There’s another method – reducing internal costs like overheads. One of the biggest drains on all cash flow for any organization is its contact center.

Over the past decade many firms outsourced their contact centers to a firm overseas or built facilities offshore that will still be part of the parent company. These alternative locations seemed quite attractive as they promised lower overall costs and a skilled and educated labor pool. And the best part? Salaries would be a fraction of what it was in America.

Welcome to present-day reality: degradation in services, backlash from customers, unfavorable cost structures, and an inability to effectively manage these offshore units. Despite significant investments in these offshore units, many firms are finally accepting the reality: it’s time to come home.

Accenture Is Now An Indian Firm

Come August and Accenture Ltd will, for all practical purposes, become an Indian company. That is, the company will have more employees there than in the U.S. The company will increase its workforce in India to 35,000 people by Aug. 31, the end of its fiscal year. The increase in staff in India means Accenture will have more employees there than in the U.S., where it will have just over 30,000, the company's chairman and CEO, William D. Green, recently announced.

Most of the staff in India will work in Accenture's Global Delivery Network, which will have a total of about 65,000 people worldwide by August. The company offers IT and BPO services from India, and it's planning to train its staff there in business consulting and other areas. It has established a business consulting analytics center in Delhi. Computerworld.com reports:

Accenture is expanding in other locations outside of India, including China, where it has deployed four Indian managers at an operation with 3,700 employees. "There will not be another phenomenon like India," said Green, adding that no other country will overtake India in terms of number of employees for at least 10 years,” Green said.

Read more: India will be biggest country for Accenture by August

Why Outsourcing Fails

By Priya Jestin, Staff Writer

The main reason most organizations outsource their operations is to cut costs. Organizations that outsource operations to offshore environments consistently save money by taking advantage of lower labor costs. However, new evidence suggests that most offshore initiatives could do much better at improving cost efficiency.

One of the main reasons for high costs is that most outsourced projects are often poorly planned, shoddily implemented and ineffectively managed. As a result, cost savings from these initiatives fall far short of their potential. Most organizations are known to be unwilling to invest time at the outset to adequately plan and execute a project. They also wrongly assume they have the internal capabilities to govern an offshore operation.

BBC Staff Wakes Up To Outsourcing Trend

Staff at the British Broadcasting Corporation (BBC) licensing headquarters in Bristol are on a two-day strike to protest against outsourcing work to India. The workers fear the switch of work could lead to hundreds of job losses in Britain. Indiaenews.com reports:

'We know that UK customers do not want their bank and other personal details sent abroad and we call upon the BBC to intervene in this matter and reverse the decision,' worker's union assistant secretary Andy Furey was quoted by Ireland online website.

Read more: BBC staff to strike over outsourcing to India

Is Outsourcing Cost-Effective?

By Priya Jestin, Staff Writer

While just about anybody worth is two-bit sound byte has already said something about the outsourcing phenomenon, much is lost in this public debate. What many people don’t realize is that the actual process of transferring business operations to a third-party company outside the US is not an easy task. It takes up a lot of time, is complex and fraught with dangers.

This means without proper oversight, the entire outsourcing drama could end up as an exercise in futility. Most firms don’t realize that in addition to planning and execution, an outsourcing strategy requires continued oversight to succeed. So, why do some companies perform woefully on the outsourcing front?

One big reason is underestimation. Firms don’t realize that it takes a lot of time, money and resources to manage offshore operations effectively. To worsen the situation, these companies also under invest in the ongoing governance and management of the service provider relationship. This means the company will have to establish a dedicated team of people, on both ends. This will help ensure compliance and adherence to optimum service levels.

Agreed labor and other costs are lower elsewhere. But this doesn’t mean a company can go slack. It needs to continually evaluate the labor situation and have a back up plan ready in case of any problem. One of the most important things you need to find out is if the decision to outsource will give you any monetary benefits. If your service levels and costs are already competitive, it doesn’t make sense to outsource it.

Finally, be more careful in your dealings with laid-off employees. They are often bitter, and could cause your company its goodwill if you don’t deal with them correctly. For instance, let your employees know they are valued. Help them stay current with training in new areas.

Outsourcing For Newborns

By Priya Jestin, Staff Writer

Now this one takes the cake. Honestly, I’ve heard of all kinds of outsourcing but expecting parents outsourcing the work of organizing every detail of their pregnancy is … well, a bit too much for me to digest. Well, it could be a sign of the times – people today are busier than ever before. So what does a workingwoman do when she’s expecting?

This means you don’t have to wade through books or check out the latest products for junior. For a steep fee of $7100, you can get everything organized from sourcing the best baby carrier to creating the baby's bedroom and arranging parent confidence classes. And once the baby arrives, you are assured of the best maternity nurse, a nannies shortlist, advise on feeding patterns and help with establishing routine.

Offshoring Manufacturing

Offshoring manufacturing for cost, like outsourcing in general, does not result in a net cost savings. This is mainly because of hidden overhead costs and because it inhibits, compromises, or thwarts 6 out of the 8 cost reduction strategies. Halfcostproducts.com reports:

When measured on a total cost basis, manufacturing offshore for sale in the U.S. rarely results in a net cost savings, considering differences in labor efficiency and all the costs of shipping, quality, inventory, communications, travel, training, transferring products, support, and complete sets of equipment needed for any manufacture.

Read more: OFFSHORE MANUFACTURING A TO SAVE COST@

Offshoring Manufacturing

Offshoring manufacturing for cost, like outsourcing in general, does not result in a net cost savings. This is mainly because of hidden overhead costs and because it inhibits, compromises, or thwarts 6 out of the 8 cost reduction strategies. Halfcostproducts.com reports:

When measured on a total cost basis, manufacturing offshore for sale in the U.S. rarely results in a net cost savings, considering differences in labor efficiency and all the costs of shipping, quality, inventory, communications, travel, training, transferring products, support, and complete sets of equipment needed for any manufacture.

Read more: OFFSHORE MANUFACTURING A TO SAVE COST@

Trouble in Wonderland

All’s not well at wonderland. At Walt Disney World, where employees are called “cast members,” almost 500 outside contractors recently have joined the show, putting outsourcing front and center in labor talks that opened this week. Signonsandiego.com reports:

On the outsourcing issue, Disney spokeswoman Kim Prunty said, “Recent initiatives have impacted fewer than 600 jobs, which represents approximately 1 percent of our work force of nearly 60,000 cast members,” Prunty said. “We will continue to look for ways to staff our resort in a smart and efficient way and, on occasion, we will work with appropriate external partners when it makes sense to do so.”

Read more: Outsourcing at heart of Disney World labor talks

Sin & Offshoring

Agreed that most organizations that outsource operations to offshore environments consistently save money by taking advantage of lower labor costs. However, what they don't realize is that most offshore initiatives could do much better at improving cost efficiency. Evidence suggests that poor planning, shoddy implementation and ineffective management are endemic to both captive and outsourced offshore projects.

These problems could result in lower profits or even losses. Usually, the failure is not due to lack of capabilities, experience or resources. The main reasons are simple human failings like laziness, greed, arrogance, etc. I know it seems a bit difficult to believe but to put it simply, good old-fashioned sin is to blame. Cio.com reports:

Don't be lazy. Don't "lift and shift" and settle for a short-term cost reduction without considering the long-term implications. Baseline performance before offshoring, and address performance issues before moving. At a minimum, develop a performance improvement plan for the offshored operation. Better still, re-engineer the operation before offshoring. Invest in building solid processes and an onshore management framework, and offshore, invest in training and orientation to make offshore staff part of the global organization and to create a sense of belonging.

Read more: A Sinner's Guide to Offshoring

Insurers Cut Costs By Outsourcing

By Priya Jestin, Staff Writer

While most of us may still deride the outsourcing phenomenon, fact is we cannot do without it any longer. The main reasons most firms have taken to outsourcing is that it allows them to focus on their core strengths. In an insurance firm, most of the services including human resources, billing and transactional processing, are important but not necessary in the proper functioning of the core competencies.

So what can a business do to ensure that it focuses on its core competencies without having to trouble itself over the peripheral activities? It can use a business process outsourcing (BPO) provider. This not only reduces costs but also allows a business to grow as the enterprise can now focus on its core business.

Since this is extremely sound business advice, it’s not surprising to note that insurers have taken to outsourcing like fish to water. Research shows that the use of IT outsourcing and BPO is slowly growing.

Outsourcing The Buyer

2007 will probably be the year procurement outsourcing grew out of the shadows and became a big part of the outsourcing industry. As of now, China is the favored destination for offshoring. Supplymanagement.co.uk reports:

Analysts at the Everest Research Institute say that outsourcing the procurement function of a company could provide five times the savings usually gained from outsourcing other departments. With an incentive like this, it isn't surprising that more buyers and suppliers are attempting to get into the market…Yet cost savings are not the only motivation. Buyers and those further up the corporate hierarchy are pointing to improved efficiency, smarter strategic sourcing and the enhanced compliance that outsourcing brings.

Read more: Buyer, outsource thyself

Phenomenal Growth in Global Market for Hosting Services: Report

Research and Markets, a market research resource, recently announced that it would add Infrastructure Outsourcing and Managed Services to their offering. The firm says outsourcing enterprise infrastructure can refocus a business on its core competencies while reducing costs. Topshots.com reports:

With a forecast of $39.4 billion in 2006, the global market for hosting services represents the largest opportunity for IT services providers within the broader managed and outsourced infrastructure services market. For more information you can visit the website.

Read more: Global Market for Hosting Services Represents Large Opportunity

Near Shoring To Become Norm in ‘07

By Priya Jestin, Staff Writer

Luxoft, one of Russia’s leading providers of IT outsourcing development and services to companies like IBM, Dell, Deutsche Bank, T-Mobile and others, recently issued its predictions for the IT outsourcing industry in 2007. According to Luxoft, no one approach – in-house, on-site, ODCs or captive models – will be on top in 2007. Each company will access its available global resource and skill pool and choose a variety of outsourcing and in-house combinations to reach its desired business and technical goals. Outsourcing, say Luxoft officials, will become as commonplace as Six Sigma.

This bit of news should bring a lot of cheer. It is expected that in 2007, all forms of security will make it on to the shortlist for any successful outsourcing engagement – system, physical, staff and disaster recovery. Clients will increasingly demand excellence on this front. Also, companies will increasingly look to near shore development solutions to round out its outsourcing portfolio. In 2007 there will be increasing demand for outsourcing resources in Europe, Eastern Europe and Canada but this phenomenon will be seen with resources around the globe.

Public Outcry Against IU Outsourcing Decision

By Priya Jestin, Staff Writer

The idea of outsourcing doesn’t seem to have gone down well with legislators in Indiana. Three state lawmakers recently urged Indiana University administrators not to outsource some school operations, as they felt that the move would harm the region's economy.

Democratic Reps. Matt Pierce and Peggy Welch, of Bloomington, and Sen. Vi Simpson, D-Ellettsville, are joining a growing tribe of dissenters in Monroe County and Bloomington in voicing opposition to the proposal. Their contention is that outsourcing will suppress wage and benefit growth in the region.

So what is it that is irritating residents of these counties? University administrators are considering plans to hire private companies for operations such as campus bookstores, food services and printing services. This proposal is sure to affect jobs at all IU campuses. Wonder if all this is the proverbial storm in the teacup.

Outsourced Burgers

The next time the lady at the drive-through burger joint asks you if you’d like fries with your burgers, you’d probably need to pinch yourself to realize that the lady is probably miles away. What’s happening? Outsourcing! Boston.com reports:

Already, Wendy's says the call center is paying off. Drive-through sales jumped 12 percent at the six stores that installed multiple drive-through lanes that are connected to a call center, according to Kevin Fritton , executive vice president of 256 Operating Associates , which runs the call center and 14 Wendy's restaurants in New Hampshire and Vermont. The call-center employees, who earn about $8.50 an hour, are trained to urge customers to add items to their order and are timed on how long each call takes.

Read more: Miles away, 'I'll have a burger'

Homecoming

Imagine virtual contact centers that tap high-caliber workers with industry expertise, and connect them through a network of home-based agents across the US. This idea could revolutionize the way businesses interact with customers. Only thing is, it is no longer an idea; it’s a reality. Businessweek.com reports:

Several factors have contributed to the homeshoring trend and will continue to fuel growth in the coming years. Among them are technological advances that make it easy to set up and monitor home-based agents. Consider the increased availability of high-speed Internet connections, as well as innovations in Voice over Internet Protocol (VoIP) technology, which can add a host of features to calling plans, while reducing the price of telecommunications.

Read more: Bringing the Workforce Home

Home Calling

While we are fretting and worrying about the outsourcing phenomenon we may have failed to realize that the trend is changing. Nowadays, increasing number of companies are choosing to keep their call centers in house rather than send them elsewhere. Banks in particular have decided that the customer care that happens in the call center is too important to trust to a third party. Yes, it does end up costing more to work from home, but there are obvious benefits to home shoring.

For example, U.S. Bancorp is one company bucking the call center outsourcing trend, despite the obvious financial benefits of sending work offshore. According to Celent, companies spend $6.85 per call to serve a customer compared with $4.95 for e-mail and 50 cents by Internet. Banks on average spend more than $5,000 to hire and train one agent. In the U.S., such workers generally make at least $10.50 an hour, 90 percent more than their counterparts in India. Itbusinessedge.com reports:

Yet U.S. Bancorp has poured $20 million into its five call centers across the U.S. over the past two years and employs 1,400 agents, who handle some 73,000 calls a day. At least one analyst interviewed here says it's a smart strategy because of the importance of the call center in retaining bank customers.

Read more: Bank Bucks Call Center Outsourcing Trend

Now, Outsourced Lawyers

By Priya Jestin, Staff Writer

How would you fee if all the jobs at General Motors suddenly moved to China? Chances are you wouldn’t think twice about it. Why? Because for quite a few years now, it’s been the Chinese, Taiwanese and others who’ve been at the helm of the manufacturing industry. Moreover, the manufacturing industry isn’t as paying as say the software or banking industries.

But if major corporations began to work with lawyers in India, you’d definitely have a big problem. That would be a breach of security and well, how can we trust these guys with important information? Well, if you didn’t already know, the practice has been on for some time now. Corporations like Oracle, Cisco and General Electric are some of the big names that have begun trimming their legal costs.

According to a recent report by Crisil Research and Information Service, the legal offshoring industry is expected to grow to $4.7 billion by 2012 in India alone. Of course, it’s the cost advantage. Who’d want to pay an American lawyer $200 or more an hour when you can get an Indian lawyer for anything between $50 and $70 an hour? If you want to go even cheaper, you could get an Indian lawyer working as a temp. It would cost $20 an hour or less, which when compared to $70 an hour for a temp in America, works out to the Indian’s favor.

Until quite recently, lawyers were immune to the offshoring phenomenon and didn’t have to worry about losing their jobs. This was mainly because their work was steeped in arcane U.S. law. It also often dealt with sensitive information companies feared could fall into the wrong hands. But that reluctance is fading now.

Is The Indian Tiger On Its Last Roar?

By Priya Jestin, Staff Writer

Yes, India is THE place today. But for how long? Lured by the bench strength of India's technology shops, financial firms such as Goldman Sachs, ING and Fidelity are eyeing new areas of interest in offshoring.

The industry’s value is expected to hit $64 billion by 2012. All this sounds like extremely positive news. But there is one area that India needs to improve without delay – its infrastructure. I know what you are probably thinking. Why do international clients need to know how India’s sweat shops run as long as they deliver results?

Well, the quality of the output depends to a great deal on how the work gets done. Crumbling electrical, water and transportation infrastructures, uneven quality of roads, poor communication links and erratic electricity supplies – is India really prepared to accommodate the next wave of outsourcing? Poor infrastructure may well be a limiting factor for the growth of outsourcing in India.

And then there is the more important issue of personnel checks. Background checks of personnel are almost non-existent. Since the country doesn’t really have a central criminal database, background checks must be done in person – something that may not be possible with every employee.

So the issue of security becomes an all-important one. Yet, it will not be fair to say that India is down in the dumps. Of course it is not because if it were, there wouldn’t be more and more companies queuing up to get their work outsourced to India.

Private organizations in India like NASSCOM are reacting to anc trying to change the way things work. For instance, NASSCOM is spinning off a self-regulatory organization, independent of the trade group, to police firms in the IT and BPO industries.