Outsourcing Times

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

China Will Lag Other Markets In 2007

As the year ends, it is time to take stock of the past year and find out what can be done to better business in the coming year. One thing outsourcing service providers must place higher priority on is staying cost competitive. They must also try to stay ahead of global trends in the sourcing market if they are to remain viable.

According to Ben Trowbridge, CEO of global advisory firm Alsbridge, US-based companies will accelerate their outsourcing strategies to stay competitive. The main reason for the increased traffic is the tightening U.S. labor supply in technology, accounting and other processes. And contrary to prevailing opinion, cost of labor in India will remain neutral when compared with wage inflation in the U.S. market. Sdcexec.com reports:

Contrary to prevailing opinion, China will still lag other markets, mainly India, as a destination for English-language-driven business process outsourcing (BPO) or shared service centers due to language, low national birthrate, intellectual property and other legal issues. The exception will be those companies who have a market strategy to sell into China market, which will override the former comments.

Read more: Predictions for 2007 Trends in the Outsourcing, Shared Services and Offshoring Market

Malaysia: Vehicular traffic in outsourcing

This is not the first time we are talking about outsourcing in Malaysia. In an older post titled “Malaysian Government appoints Outsourcing agents”, I mentioned the Malaysian government’s urge to stand strong in the Asian outsourcing market after India and China. The good sign is that the Malaysian government is taking the initiative in establishing the thread of outsourcing in the country.

For instance, look at the recent proposal of the government to outsource ambulance services to the private sector. At present, the ambulance fleet consists of 1000 vehicles, and this is likely to be expanded by another 800 in Ninth Malaysia Plan phase.

The move is to tackle the twin problems of a paucity of trained hands and the task of maintaining the vehicles. The success of the privatization move rides on the availability of appropriate rates that do not burden the government overmuch.

The Star has more details.

Pharma companies turn to Asia for drug discovery outsourcing

In an earlier post, I had mentioned the possibility of the pharma outsourcing market touching $53bn by 2010. Now let's focus on a particular aspect of this outsourcing space—the burgeoning drug discovery marketplace.

The availability of drug discovery services in Asian countries at a fraction of the cost prize operating in the West is propelling pharma companies towards India and China. There is also a growing perception that the quality of CROs and pharma firms in India and China is constantly setting new standards, and this works with the cost factor as a lethal combination against other competitive geo-polities.

The drug discovery requirement is growing at a phenomenal rate of 50% every five to seven years, and most of the business opportunities are coming Asia’s way; Eastern Europe is the only other aspiring playfield that enjoys an increasing patronage of pharma companies for their drug discovery services.

However, India and China are still to overcome hurdles such as IP protection, trust, honesty, and transparency. India enacted the Patent Protection Act in 2005 and conforms to the TRIPS agreement. It is only a matter of time before multinationals based overseas are satisfied that their intellectual property is safe in India; once that is achieved, there is no stopping Asia from bagging the lion's share of the drug discovery trade.

A new study by Kalorama Information has more on the growing drug discovery market.

Collaboration between Philippine and India-based outsourcing organizations: A marriage of convenience?

Even as Asian countries compete among themselves for a larger slice of the global outsourcing market, there is news that the Business Processing Association of the Philippines (BPAP) and India's National Association of Software and Service Companies (NASSCOM) have come to an understanding to collaborate in seven strategic areas.

The areas that have been identified are strategic communications, geographic risk mitigation, shared best practices and adherence to international standards, data security and privacy, workforce collaboration and cooperation, and infrastructure improvement.
The collaboration initiative comes after a detailed process of thrashing out the details so that the agreement is in the best interests of outsourcing vendors in either country.

An immediate outcome of the deal seems to be the interflow of Indian and Philippine companies. There is talk of four Indian firms planting roots in the Philippines, and the positive bells are certainly ringing for more such movements in the future.

INQ7 has more details on the collaboration accord.

The outsourcing controversy rears its head in Malaysia

In almost every country, human rights are a major concern, and the guardians of civil rights are ever ready to take to task any violation of individual rights. Look at the outsourcing scenario in Malaysia, for instance. No sooner had the Malaysian government announced its policy of using outsourcing companies to recruit Bangladeshi workers, two human rights organizations—Malaysia-based Tenaganita and the Philippines-based Migrant Forum Asia—were up in arms against the statement.

Both these organizations believe that the Malaysian policy will institutionalize and legalize human trafficking and bonded labor, charges that could prove too hot for the Malaysian government to handle.

But it is not only the policy that is under attack. Both Tenaganita and Migrant Forum Asia have also made scathing remarks against the outsourcing companies, labeling them as arrogant and exploitative enterprises that hold the workers to unjust contracts and treat them as bonded labor. It remains to be seen if the Malaysian government can work its way through this opposition and arrive at a consensus—an unlikely result in the present scenario where both parties are at loggerheads.

For more information on the impasse, click here.

Malaysia to Boost Shared Services and Outsourcing sector

The Malaysian government has identified the shared services and outsourcing industry as a new growth area and plans to give its attention on a priority basis. Malaysia is currently among the top three most competitive locations for offshore services. The country's infrastructure and administrative support with the availability of the necessary skill and competitive cost structure provided the momentum for strong growth in the shared services and outsourcing business.

Malaysian companies have generated huge revenue and provided an estimated high value-added employment for more than 10,000 people. The Malaysian government has decided to focus on capacity building and skill enhancement, which will improve infrastructure and other support facilities. You can have a look at the post titled "China to Promote Outsourcing Business" to know how China is promoting outsourcing business.

Japan expands software outsourcing to China

Japan's leading electronic manufacturers NEC and Hitachi have decided to go the outsourcing way for some of their production processes. NEC plans to entrust a Chinese firm with a monthly business that will increase by 33% this year, and go further up to 50% next year, while Hitachi will increase its monthly outsourcing by 300% next year. TMCnet reports:

With continuous economic progress, investment in the information system of Japan's financial institutions and manufacturing has been gaining swiftly. The Japanese companies have been facing increasingly more software development tasks, but that country is currently in dire need of software elites.

Asia-Pacific IT Outsourcing is Booming

According to a recent report, Asia-Pacific outsourcing spending is all set to cross the $10 billion mark this year. In this region, more emphasis is being given on IT outsourcing. Research firm IDC has estimated that $10.5 billion will be spent on IT outsourcing within the region in 2006. As the sector is booming on a high pace, it is expected to reach $16 billion in 2010. In the past decade, the Asia-Pacific outsourcing market has seen significant increase and it is surging further. Besides India and China, Philippines also joined the exclusive club of hot outsourcing destinations. Countries such as Singapore and Hong Kong are also attracting more outsourcing businesses.

According to CNet News -

According to the report, Singapore and Hong Kong--despite some market saturation--continue to offer opportunities in contract renewals and extensions, where companies look to migrate from support contracts to managed or outsourcing contracts.

Chemical Synthesis Outsourcing in China

Chemical synthesis services have become an important part of outsourcing business in China. This service area has developed rapidly compared to other areas of R&D outsourcing. This is largely due to the relative ease of quality control and the quantifiable cost advantages. China's companies and institutes are well known for technical skill in organic synthesis. Insiders estimate that the chemical outsourcing market will reach more than USD 2.5 billion by 2007. Genetic Engineering News has published an article on the Same Topic.

The relative maturity of this industry is evidenced by the focused and professional service providers, large market size, and the higher number of companies compared to biotech-related companies.