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.

Vantage Point Consulting makes a foray into the U.S. outsourcing market

Vantage Point, an associate of HeiTech Padu Bhd and a certified SAP Services Partner, already has a long list of clients including Telekom Malaysia, Celcom, TMNet, PNB, Mimos, Jaring, Putrajaya Corp, Takaful Malaysia and Kota Kinabalu City Hall.

However, the company has tied up with U.S.-based EA CAP Inc to try and make the most of outsourcing opportunities in the U.S. Malaysian National News Agency Bernama.com reports:

Abdul Rahim [Vantage Point chief executive officer] said that as EA CAP was strategically located in the Western part of the U.S, Vantage Point would be able to penetrate the American business community as a whole.

Sustainability Issues in the Philippines BPO Industry

Experts are still not convinced over the long-term viability of the BPO industry. According to a recent study conducted by the Philippine Institute for Development Studies, the sustainability of this outsource industry is in doubt. Intermittent threats to physical security still continue to discourage BPO investors.

Industry experts in Philippines have pointed out to the country's high electricity rates that could deter the BPO companies from carrying out their operations. These BPO companies are mostly dependent on uninterrupted power supply for their computers, servers and other network equipments. As most of the BPO companies operate on twenty-four hours a day and seven days a week, it might be a concern for them. INQ7.net reports:

BPO encompasses several sub-sectors including contact centers, medical and legal transcription, animation, managed services and software development.

Samsung plans to invest $18.5 billion on outsourcing

Samsung has plans to expand its outsourcing to mainland China in a bid to take advantage of the opportunities that the region provides for companies. Samsung has budgeted $18.5  billion for outsourcing to China to reap the benefits of reduction in production costs. ChinaTechNews.com reports:

In order to enlarge its outsourcing on the Chinese mainland, Samsung has moved its international outsourcing center from Hong Kong to Shanghai and renamed it the China International Outsourcing Center.

Textiles Outsourced from India

Orient Craft will be responsible for supplying textile products worth between $1 and 1.5 million in its role as exclusive supplier for the Japanese buying house Sumukin Bussan Corporation (SBC). The exporter from India has signed an outsourcing agreement with SBC, which is a buying subsidiary of Kashiama, Japan, which licenses famous brands like Calvin Klein, DKNY, and Ralph Lauren.

Auto Manufacturers Outsource Too

Your car may have rolled off the assembly lines in Denver or Germany, but its safety systems, Bluetooth applications, headlamp infrared vision, and remote diagnostics services are just a few applications that are being developed in India. Yes, automobile manufacturers are among the latest to have jumped into the outsourcing fray. Indian organizations such as Wipro Technologies, Satyam Computer Systems, and Genpact are a few of those who take care of finance, accounts, payable analytics, supply chain management, and procurement tasks for auto manufacturers all over the world.

Philippines' English Lapse

Amidst all the talk of the Philippines catching up to India as the favorite outsourcing destination, there's a survey that reveals that English proficiency is on the decline in the country. A poll conducted by Social Weather Stations found that only 32 percent of the respondents said they spoke English, a significant drop from the 54 percent in 2000 and the 56 percent in 1993. While 65 percent said they understood the language, 14 percent admitted they were ignorant of even the basics of the language. The number of those who thought in English dropped to27 percent from 44 percent in 2000 and 42 percent in 1993. The survey, which was sponsored by the "Promoting English Proficiency Project", a program introduced by the American Chamber of Commerce of the Philippines and the Makati Business Club, polled 1,200 participants with a margin of error of 3 percent.

China Looks to India For Help

China is looking to India for guidance in getting a share of the software outsourcing pie. The country with the world's largest population already has all its fingers deep in the hardware outsourcing market, but is hoping to cash in on the software boom as well. The president of the India-China Software Association is banking on the China-India Friendship and Relationship Year to enhance cooperation between the two countries in the IT outsourcing industry. China is hoping to get a head start with the establishment of the Sino-India Software Research, Education and Training Center in the country. Only time will tell how much success this venture will bring the Chinese.

Freeborders to organize outsourcing seminar in New York

Freeborders will host "Outsourcing Strategies in China" seminar in New York on April 25th, 2006. The seminar will be a platform which will bring together leading analysts speaking about outsourcing with a focus on China.

The single day event will explore the advantages of outsourcing to China as opposed to India. The attendees will be given a comprehensive view through presentations and discussions as to how organizations can benefit from the huge talent pool in China. Freeborders provides industry expertise and is a leading provider of technology solutions. The San Francisco headquartered Freeborders has made a name for itself in the outsourcing arena through high quality services meeting global standards. TMCnet reports:

The event, entitled 'Outsourcing Strategies in China: Perceptions, Realities, and Best Practices', brings  together leading outsourcing analysts and practitioners to explore why North American and European companies are looking to China for IT outsourcing.

Phillipines grabs a foothold in the outsourcing pie

A study sponsored by the trade department’s Board of Investments and the industry groups Business Process Association of the Philippines, and the Commission on Information, Communication and Technology estimated outsourcing revenues taking a quantum jump with 52 per cent growth in 2006. The study further projected that upto 1.2 million people would be employed in the sector showing a staggering growth from the 2,33,000 people as of now. Daily News and Analysis India reports:

While call centres are now at the forefront, other big business process outsourcing firms are expanding their operations beyond call centres in the English-speaking Southeast Asian country.

Philippines Edging Out India?

The Philippines is catching up with India as a favorite outsourcing destination due to performance issues and low cost solutions. But increasing pay packets in India are not the only reasons cited for shifting favor to the Philippines. Global corporations say that the Filipinos have a better customer service mindset and are more comfortable with Western culture, but the fact is that Indians are waking up to the hazards of working late night shifts, and are either demanding higher salaries or more perks as compensation or are quitting their jobs. Asia Pacific News reports:

This provides a window for the Philippines to prove itself as a worthy or even better option for companies looking to outsource operations offshore. This does not mean, however, that the Philippines has overtaken India and that the latter has somehow “gone bad,” according to Richard Mills, chairman of international management consulting firm Chalré Associates. “India proved to the world that offshore outsourcing was viable; the Philippines has a BPO opportunity today because of India.”

Philippines Looks to Japan for Outsourcing Operations

The Philippines is aiming to attract Japan’s attention as a potential target for its outsourced IT operations by participating in the 15th Software Development Expo & Conference (SODEC) to be held in Tokyo on 28-30 June 2006. The conference will provide a platform for the Philippines to showcase its assets in the field of software outsourcing. TMC Net reports:

Center for International Trade Expositions and Missions (CITEM) said that in a survey of overseas transactions in July 2004, the Philippines was one of the top 10 offshore destinations preferred by Japanese software companies. A dominant majority of Philippine-based software development service providers are subsidiaries of large Japanese companies such as Fujitsu, Canon, EPSON, and NEC.

Philippines is the Rising Star of Outsourcing

Philippines is taking advantage of it's strengths rather than looking at it's obvious economic problems to drive the outsourcing industry to greater heights. This 90 million nation is subject to a "not to be proud of" economic situation but it has a population where 95% speak English which is a natural advantage to grab a share of the US outsourcing market.

Further, the high literacy rate and a talented pool of IT professionals makes outsourcing one of the biggest earners for the nation. The cheap telecommunications infrastructure stands Philippines in good stead when it comes to playing a major role in the highly competitive outsourcing market. The Age Australia reports:

Outsourcing is another important earner for the Philippines. The US accounts for at least half the world's potential outsourcing and the Philippines, a former US colony, is well placed to benefit.

Corporate governance key to bagging BPO orders

While cost effectiveness is still a key consideration, BPO buyers are increasingly giving more importance to factors other than cost while deciding on BPO vendors. Corporate governance, for example, is high on the list of such non-cost deciding factors, according to IDC.
In its latest study of business process outsourcing trends in the Asia-Pacific excluding Japan market, IDC predicts moderate growth for BPO services in the region. There are several other interesting findings in the study.

Read more: Corporate Governance as a key factor for outsourcers in Asia

Satyam extends its wings into China

According to a report by OutSourcingWorld, Satyam Computer Sevices Ltd., headquartered in the city of Hyderabad in Inda, is extending base into the territory of Guangzhou in China. The company plans to recruit skilled workforce as well as serve the local market. Satyam envisages an increase in its employee strength significantly in China from the current 270.

India is looking at China due to the increasing costs of staffing in India and China offers a viable option to meet the requirements. Satyam is not alone in the race for a place in the Chinese market as biggies like TCS and Infosys are also in the fray. TCS entered China in the early 2000s and has its base in Shanghai, while Infosys has a presence in Beijing, Shanghai, and Hong Kong. According Satyam's director and senior vice president for Asia Pacific, Middle East, India and Africa, the software development center at Guangzhou will be moderately sized and meet the requirements of the market in southern China, while a more expansive software development center is being envisaged by Satyam in one of the second-tier cities of China.

Drug Discovery Outsourcing estimated to surpass $7 billion by 2009

Drug Discovery outsourcing is the place to be in when it comes to thriving business and pharma companies, both big and small, are getting ready to share the fruits of profits. A study by Kalorama Information, a division of MarketResearch.com on Outsourcing in Drug Discovery reveals significant gains in the growth of the market.

The study takes a re-look at the market with a bottom up approach and includes profiles of major players in the Drug Discovery Outsourcing market. It also takes into variables affecting the market which will play a significant role in determining the future trends of this market.
PR Leap reports:

The new study, Outsourcing in Drug Discovery, 2nd Edition, predicts that the swiftly growing market for outsourcing services, fueled in part by impressive advances in the Asian market, will increase at a rate of 15% from the current 2005 figure of $4.1 billion. In fact, upon discovering the benefits of outsourcing in Asia, many of the top pharma and U.S.-based contract research organizations (CROs) have opened their own operations there.

Canadian investment in Asia is not for outsourcing services, but for the market needs, says report

A survey of 110 Canadian companies, conducted by the Asia Pacific Foundation, indicates that the concept of outsourcing to Asian service providers has not caught on as much in Canada as in the United States. The 110 companies that were surveyed have a presence in Asia, but the reason for their presence is to take advantage of the growing market in Asia, and not outsourcing opportunities there. This is evident in the fact that 68 percent of the respondents have invested in Asia to serve Asian needs, while only 12 percent aim to serve Canada through their investments in Asia.

The remaining respondents maintained that their products were for the global market. The Canadian presence in Asia is likely to increase in the future, according to the survey. China leads the Canadian presence in Asia. Theglobeandmail reports:

Over five years, a whopping 82 per cent of companies said they would put more money into the region, with more than half saying they would increase their investment "substantially." This is the most bullish investor sentiment recorded by the survey since it started seven years ago, the foundation said.

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.

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.

Anino Entertainment to provide outsourcing services

Initially confined to PC and mobile game development, Phillipines-based Anino Entertainment has now announced its decision to enter the outsourcing market. It will offer services such as end-to-end development on the PC, mobile phone, handheld device and game console platforms; virtual reality and product modeling; and 3D and 2D art production. INQ7.net reports:

The company’s expansion also goes beyond game development as it also starts to provide services in 3D CAD and architectural walkthroughs, full motion video and music production. One of the company’s early outsourcing projects is with Australian firm White Knight Games for the creation of “Timothy and Titus,” a PC adventure game set in the early Christian period in Rome.

Dubai: the new outsource zone

Dubai has launched efforts to attract some of the outsourcing work that is heading to countries with low labor costs like India and China. A part of United Arab Emirates, Dubai has emerged as a polyglot metropolis and it is positioning this as a point of interest for senior employees who don’t want to live in Mumbai or Bangalore.

Dubai Outsource Zone (DOZ) is the government agency/free trade zone responsible for the project. Dubai is offering advantages like streamlines bureaucratic processes; zero corporate income tax, personal income tax and sales tax; and the country is funneling a large amount of money into construction and diversifications plans. News.com reports:

India's a tough place to live. That's the pitch Dubai is using to woo companies to bring outsourcing work to the tiny island nation.

Nissan outsources non-core work to India

The US arm of Nissan Motor Company has begun outsourcing non-core work to India.  Although the move is likely to affect 150 jobs, Nissan expectrs that it will improve efficiency and effectiveness of its services. The Hindu Business Line reports:

Nissan is also keen to outsource infotech related jobs to India. The Nissan Chief Executive Officer, Mr Carlos Ghosn, was in India last year scouting for infotech companies to whom the automaker could outsource IT work. But Mr Standish did not say whether any progress has been made after the visit of Mr Ghosn.

Global IT Outsourcing Summit to promote China's outsourcing strength

The Global IT Outsourcing Summit in Shanghai has attracted leading companies like TCS, Bearing Point Great China, and emerging companies in China. The Summit is being organized by the Ministry of Commerce, Shanghai Municipal Informatization Commission, and the Shanghai Foreign Economic Relations and Trade Commission. The most significant outcome of the two-day summit is to provide a platform for the developing outsourcing industry in China, and open new partnerships. CRI Online reports:

The global IT outsourcing summit, first held in 2003, is regarded as a great effort of the Chinese government and its IT companies to promote their strengths and position China's outsourcing industry globally.

Yangtze Delta region emerging as a national software outsourcing center

The software industry in Shanghai and neighboring areas in eastern China are coming together to form a united front to share resources. The sixteen members of this alliance expect the move to confirm the Yangtze Delta region as a national software outsourcing center. Shanghai Daily reports:

Shanghai's software exports jumped a whopping 80 percent from 2003 to US$476 million last year, the trade commission said. The city has registered an annual growth rate of over 50 percent in software exports since 2002. Shanghai is now home to more than 120 software exporters compared with 80 companies in 2002, according to the commission.

100,000 square-foot lab practice and animal testing facility in Beijing

Beijing is soon going to have China's first lab practice and animal testing facility that matches US regulatory standards. This facility, spread over 100,000 square feet, is being developed by Fledgling Bridge Pharmaceutical Inc., a drug research organization. MSNBC reports:

It promises to provide western biopharmaceutical companies the benefits of the lower cost of research in China, while delivering the rigorous data quality needed to pass muster with the U.S. Food and Drug Administration and European regulators.

General Motors to outsource to China

The growing challenge from Japanese automobile companies is forcing General Motors (GM) to look towards the outsourcing option to cut costs in its US operations. According to news reports, GM is considering to outsource auto components amounting to US$80 billion to China. These components will be utilized in introducing a new pick-up truck that will be marketed in North America. Tech Whack reports:

The China Business News who quoted unidentified sources saying that the automaker’s North America unit will send a team of about 200 staff to China to supervise the production of its Chinese suppliers released the news. No timeframe for these outsourcing has been released. Until now, the Chinese suppliers only interacted with the localized branches of the company.

First Phase of IBM Base in Wuhan is operational

IBM has completed the first phase of construction of its outsourcing base in the Chinese province of Wuhan. The second phase of the construction is budgeted at US$20 million for a software factory, and is expected to start at the end of this year. China Knowledge Press reports:

The first phase of the base is the software outsourcing management center for IBM’s international purchasing department, which is also IBM’s first software outsourcing center in China. At present, local companies such as Wuhan KM Soft and Wistron have received orders for software from the center.

Hitachi Ltd. to open software and engineering support centers in India

Japanese companies are moving to India for outsourcing services. An indication is Hitachi’s move to collaborate with Secunderabad-based IT business house Satyam and Indian-owned US company Intelligroup to open centers in the Indian cities of Bangalore and Hyderabad for services such as software development and systems maintenance.

Hitachi has plans to expand its current workforce of 200 to 1000 in two years' time. The Indian centers will focus on Japanese firms operating in the US and Europe, and will provide software and engineering support to clients. Indiadaily.com reports:

Hitachi aims to expand its outsourcing operations as a strategic step for its overseas business. The company hopes to boost revenue from foreign operations to 40 per cent of its information and communications business by 2007.

US auto manufacturers rate South Korea best outsourcing partner

South Korea has been voted as the leading outsourcing destination in the auto parts sector by the three automotive leaders in the US: GM, Ford, and Chrysler. In the auto parts sector, South Korea has been rated second after China.

The factors that work in favor of South Korea are quality service at a competitive price, market access to neighboring countries, a skilled workforce, and high productivity. According to the US-based auto manufacturers, 40 percent of Korean auto parts companies manufacture quality products as compared to only 5-10 percent of Chinese providers. kois.go.kr reports:

For the first nine months of this year, Korean shipments of auto parts to the U.S. stood at $1.46 billion, up 71.9 percent from the same period of last year. From 2002-2004, US imports of auto parts went up 20 percent and have been rising since.    

Sri Lanka gets a slice of the outsourcing pie at the World Outsourcing Forum

Geographically situated close to the hub of the world outsourcing activity, Sri Lanka is making efforts to attract outsourced business to its shores. The country was represented at the recently held World Outsourcing Forum in Dubai by the Information Communication Technology Agency (ICTA).

Sri Lanka's presence in the outsourcing market was further heightened by its position as an event partner at the forum. Private sector companies were able to participate in the event and attract business deals. Sri Lanka was also able to benefit from the World Wide Association discussion panel through its representative Suresh Bartlett, Programme/Operations Director of ICTA. Colombopage.com reports:

Agreement was reached on ways by which the outsourcing pie could be enlarged and expanded, and these were included as part of the Dubai declaration, to which Sri Lanka was a signatory. A steering committee with representatives from each country was established to follow up on the planned action items.

NEC may outsource manufacture for the Indian market to China or Malaysia

NEC, the Japanese company with a lifestyle and IT product line, is considering outsourcing its IT and communications products meant for the Indian market to either China or Malaysia. NEC has introduced a new line of desktops and laptops for the Indian market and has appointed Mumbai-based Enkay technologies to handle the distribution.

The production of these goods in India sometime in the future is not totally discounted by the company. However, the company feels that setting up a manufacturing unit in India is not economically viable at this point of time. CIOL.com reports:

Enkay has already been selling NEC's PABX's, digital key telephone systems, multimedia and call center solutions. “ If required we will appoint some other distributor. As company policy we don't enter into an exclusive arrangement with any partner in any country,” he said. 

Qantas may outsource 3,000 jobs to Asia in early 2006

In the light of an announcement by Australian airliner Qantas that it will be outsourcing nearly 3,000 jobs to Asia, a number of service providers in Asia are competing with each other to bag the deal, and are offering low prices to attract the company.

Qantas will reach a final decision in early 2006 on the outsourcing project. If it materializes, the contract will reorient operations of the company in Sydney, Melbourne, Brisbane, and Avalon, near Geelong in Victoria. WebIndia123.com reports:

About 1000 members of the airline's three major maintenance unions were told jobs would go offshore unless it received concessions from its workforce, and that the airline's performance was hindered by a lack of flexibility and old-fashioned work practices.

Outsourcing market in China to touch 29.43 billion by 2009, reports Analysis International

According to the most recent release from Analysis International, China's foremost Internet-based provider of business information and technology, the volume of China's outsourcing market will rise to 29.43 billion by 2009. This growth rate is largely due to the number of outsourced projects from the USA, Japan, and the European Union to low-cost destinations (including China).

According to the report, the world market value of outsourcing will touch 94.29 billion by 2009. The report also said that eastern China will grow more rapidly in comparison with northeast China. PRNewswire reports:

The comprehensive report also gives analysis and predictions on the market challenges and opportunities, location distribution and technical structure, developing trend, and competency evaluation of main providers (including foreign rivals), etc. Predictions and analysis on the China market development are especially provided with details.   

Government-appointed outsourcing companies responsible for foreign workers’ welfare

Following an earlier statement by Malaysian Home Affairs Minister Datuk Seri Azmi Khalid, where he mentioned that any employer seeking to hire less than 50 foreign workers would have to approach the outsourcing companies appointed by the government, Azmi has clarified that the outsourcing companies appointed by the government will be permitted to bring in 500 workers each.

In the event of the companies not being able to provide these workers with jobs, the companies would have to pay a minimum of RM400 per month to the workers. The government appointed companies are also required to deposit a bond with the government which would be surrendered if they did not abide by the law. Bernama.com reports:

He said 20 such companies had been appointed since August and they were responsible for the wages and welfare of the workers they brought into the country. Azmi said the system was in use in several other countries and had been approved by the Cabinet. The number of outsourcing companies would be increased in future, he added.

Dubai Outsource Zone set to be operational by early 2006

Dubai Outsource Zone (DOZ), a free zone dedicated to outsourcing, is expected to become operational early next year. In the lead-up to this date, DOZ has linked itself with IT-People, a staffing solutions company, to help sell the idea of DOZ. This is planned by aiding clients in building bases and by providing services such as recruitment, selection, and deployment. Over a period of ten years, DOZ is hoping to expand its services with one lakh skilled workers in the outsourcing industry, with 200-300 companies under its aegis.

Companies have already been attracted by the DOZ concept, and initially the targeted companies are from the US, India, the UK, and Germany. These BPO and KPO providers will service sectors such as finance and accounting, HR, transaction processing, IT, graphics, engineering, R&D and energy. The Economic Times reports:

The free zone will offer a 50-year tax holiday, 100% ownership, full repatriation of capital and profits, reduced real estate costs and no currency restrictions. To allow access to a multi-cultural and multi-lingual talent pool from the region, work permits will be processed in 48 hours, said Al Naqi. Also, the free zone promises to control the bane of the outsourcing industry — attrition.

Malaysian Government appoints Outsourcing agents

With outsourcing becoming an irreversible process, the Malaysian government has appointed 20 agents to look after the appointment of the recruitment of foreign workers. However, the companies employing the workers will be responsible for the pay and welfare of the workers.

Home Affairs Minister Datuk Seri Azmi Khalid mentioned that all the foreign workers would be provided with smart cards by the end of 2005. This move is likely to improve the management of the foreign workforce and ensure proper authentication. New Straits Times Online reports:

Companies intending to hire fewer than 50 foreign workers will have to use the services of outsourcing companies appointed by the Government. 

Japanese animation film producers Toei Animation to outsource to Philippines

Japanese animation films are becoming increasingly popular the world over. One of the most successful stories in Japanese animation art is the cartoon series Dragonball Z, created by Toei Animation Co., Ltd. in the 1990s. Toei Animation is now considering outsourcing more work to countries such as the Philippines in the light of increasing demand for its products Digimon and Mazinger Z. Toei Animation Philippines Inc., the firm's production arm in the Philippines, accounts for 150 of its 400 employees.

The production tasks are divided between Japan and the Philippines, with Japan handling art direction and key animation, while Philippines looks after coloring, background, and camera tasks. The company has another subsidiary in Hong Kong, which is devoted to selling broadcast shows and character toys in Asia. INQ7.net reports:

Of Toei’s more than 400 employees, about 150 or 38 percent are in the animation firm’s fully-owned subsidiary in the Philippines, the Toei Animation Philippines Inc. The firm has relied heavily on local distributors in Latin America, the United States, and Europe to market its animation works, said Keisuke. “Now  that we opened our offices in France and Los Angeles, we expect sales to pick up.”

ECTS offers outsourcing solution to the MENA region

The E-Commerce and Trade Services (ECTS), a joint undertaking between the Emirates Bank International and E-Commerce & Trade Services Ltd., is taking advantage of the forum at Gitex 2005 to promote its outsourcing offering. Gitex 2005 is providing the company with an opportunity to show its presence in the market as a service provider. The company offers a trade and financing solution that seeks to provide automation in in-sourced trade finance activities and encourages paperless work.

The benefits of the solution include low costs, efficiency and productivity for customers, and releasing of the resources of its clients to focus on other business processes. The company has already had a good response in the Middle East, and this will count in its attempts to serve the MENA region. MENAFN quotes Graham Clarke, General Manager, ECTS:

ECTSME places enormous emphasis on customer service and delivery and strives to build and maintain a strong relationship with its in-sourced partners. Trust and transparency are paramount when outsourcing to an external partner and ECTSME provides its customers with internet-based real-time access to their data, images of documents and management information reports.

Read More: ECTSME showcases trade finance outsourcing solution - UAE

Dubai Outsource Zone co-hosts first World Outsourcing Forum

The first World Outsourcing Forum was held in Dubai this week. The major points that were discussed at the forum included the tremendous opportunities that the outsourcing industry presented, and the major problems that were facing the industry as it takes advantage of the resurgent trend now evident in the market. The forum identified the major advantages of outsourcing activities as cutting down costs and work force, providing flexible solutions, and accessing professionalism.

The event was co-hosted by the Dubai Outsource Zone (DOZ), which is set up by the Dubai Internet City. DOZ is the first free zone in the world to be focused on outsourcing, and serves as a base for outsourcing operations. It supplies services in the areas of finance, accounting, IT, payroll processing, engineering, R&D, and design. DOZ has already drawn companies from the US, Europe, and India. MENAFN.com reports:

The World Outsourcing Forum gathers experts and industry professionals to discuss, develop and implement structure within the industry associations every year. "Outsourcing has become a defining global strategy for many high-profile multinational businesses, but until now the industry has lacked an annual focal point to support these companies and the vendor companies that make up this industry," James Freeman, director of the World Outsourcing Forum, emphasized.

Read More: World Outsourcing Forum holds its first edition - UAE

Outsourcing growth in the Asia-Pacific region

Among the factors that have encouraged outsourcing in the Asia-Pacific region are cheap labor, low transport costs, and easy access to communications channels such as the Internet. Gartner Group estimates that the outsourcing figures in the Asia-Pacific region will grow to US$14.4 billion by 2007. The advantages of outsourcing can be crucial to the investing company in its market position against competitors. However, it is important to make the necessary investigations in any outsourcing deal to ensure that there is no disruption in the outsourcing process.

Allen Ma, president of BT in Asia Pacific, has derived a set of guidelines from personal experiences that can make outsourcing a success. India and China are the major players in this region, and increasing efficiency and competition is helping the outsourcing companies get better services. According to Ma, companies must however guard against complacency in the service provider's capabilities. A company planning to outsource must ensure that the service provider will be able to meet all requirements under the agreement. Chinadaily.com reports:

Looking forward, Ma sees tremendous growth in what he calls "knowledge-based outsourcing". His rationale is simple: greater communications and access to information is increasing the scope for outsourcing. Knowledge-based outsourcing, another level up from manufacturing or service-based outsourcing, might typically include writing of analysts' stock market reports from US or Hong Kong exchanges.

Read More: Outsourcing turns wheel of globalization

EU automotive companies see Chongqing as outsource destination

Speaking at the Asia-Interprise EU-China Automotive Industry Meeting along the Yangtze River in Chongqing, a European Union official confirmed that automotive companies in Europe are favoring Chongqing as a destination for outsourcing in the automotive sector. Partnerships are being forged with local companies, and the availability of cheap labor is creating an added advantage.

Chongqing is already the largest automotive base in West China, and is enjoying resurgence in the automotive market in the decade. In contrast, European companies have seen a slowing down in the automotive sector, and this has prompted a move towards this southwestern Chinese municipality. A recognition of the importance of Chongqing was the two-day seminar hosted here between September 21 and 22, which was attended by representatives of 100 European Union and Chinese automotive companies. English, People’s Daily Online reports:

Marisa Wyganowski, project officer of the delegation of the European Commission under EU, said Chongqing, with huge cheap labor force as well as the biggest base of automotive industry in west China, is becoming a popular destination for the outsourcing of European automotive companies.

Read More: Chongqing popular outsourcing destination for European automotive industry: EU official

ECTSME to tap GITEX 2005 to promote outsourcing capabilities

E-Commerce and Trade Services (Middle East) L.L.C. (ECTSME) is all set to use the platform of GITEX 2005 to increase the visibility of the company and promote itself as an outsource service provider in the sector of trade and finance operations in the MENA region. Participants at GITEX 2005 will include senior representatives of banks and financial institutions, and they will be provided with a demonstration of ECTSME's capabilities.

According to its E-commerce and trade services Director Naushad Kermali, the solution offered by his company is the first of its genre in the MENA region, and will provide scalable and customizable base for trade services by using state-of-the-art technologies. The solution seeks to automate insourced trade finance business processes in a paperless environment. The process will involve lower transactional costs, and permit the client to concentrate its own resources on other strategic areas. Strategiy.com reports:

ECTSME’s Dubai operations, equipped with state-of-art technology and a multi-bank platform, provides a fully integrated and customized solution that caters for all trade finance products. The organization’s experience in the Middle East holds it in excellent stead to serve the trade finance processing needs of the MENA region.

Read More: ECTSME to showcase benefits of outsourcing Trade Finance Options at Gitex

Freeborders Inc. leads tech work to China

The success of the outsourcing industry in India has led to a rise in costs in that country, and outsourcing companies are now moving more towards China as an alternative. Freeborders Inc., a San Francisco IT outsourcing company that has recorded high revenue since its foundation in the year 2000, is also attracting customers who are looking towards China. Among the clients of Freeborders is FTVVentures, also based in San Francisco.

FTVVentures is confident that Freeborders will be able to channel their work assignments to China. Freeborders is looking to utilize the cash inflow to further expand its technology center in Shenzen, China. In the near future, Freeborders is aiming to expand its workforce in China to 1,000 by September 2006. The expansion in China is mainly guided by the cost-effectiveness of the region. MSNBC.com reports:

Freeborders, which employs 90 in the United States and 400 in China, has raised more than $40 million in two rounds since its founding in 2000. The company generated revenue of $15 million to $20 million in 2004. Co-CEO John Cestar said he expects that to double next year. The company counts Coach, Quicksilver Software and Citigroup among its customers.

Read More: Outsourcing firm picks up $20M for passage from India

Sipex and Silan-IC in manufacturing agreement

Sipex Corp. has recognized the emergence of China as a leading producer of analog products. This has led the company to close down its wafer manufacturing unit in the US and assign the work to Hangzhou Silan Integrated Circuit Co. Ltd. (Silan-IC), a company based near Shanghai in China.  The relationship between the two companies is still being built, with multiple agreements under negotiations.

An article published by Electronic Engineering Times on September 5 carries a statement from Ralph Schmitt,  CEO at Sipex. The statement discusses the steps taken for the transition in the manufacturing center, and the economic ramifications for the company's employees. In a separate statement, Fan Wei-Hong, general manager of Silan-IC, expressed the hope that his company would emerge stronger after the agreement with Sipex. Electronic Engineering Times spells out the relationship between the two companies:

Upon the execution of definitive agreements, Sipex will immediately begin transferring its current Bipolar and BiCMOS processes to Silan-IC, a transition expected to take between nine and 12 months, Sipex said. The company said it further expects to license certain products to enable Silan-IC to sell in the greater China marketplace. The two companies also expect to cooperate in product designs in the future.

Read More: Sipex to outsource manufacturing to China

Microsoft to Outsource 1,000 jobs a year to China?

The recent comments by Kai-Fu Lee, a former vice president at Microsoft who left to work for Google, have added fuel to the bitter relationship between Microsoft and Google. The Seattle Times reports a statement by Lee that Microsoft had plans to outsource 1,000 jobs a year to China. A Microsoft spokesperson emphasized that new jobs in China are not at the cost of jobs in Redmond. In recent years, Microsoft has stepped up its work in China, India, and other technology epicenters.

According to Microsoft, Lee's departure was precipitated by an interview with a Microsoft job candidate who revealed that he was talking to Google about opening its China lab. Lee has denied this, and also the allegation from Microsoft that he has revealed confidential information. The controversy is particularly significant in the light of the upcoming visit of China President Hu Jintao to Seattle and Microsoft. The Seattle Times reports:

It remains to be seen how the back and forth will affect the lawsuit. But the filings provide the deepest look at Microsoft's internal tensions since its antitrust trial in the late 1990s.

Read More: Microsoft plans to outsource more, says ex-worker

Indian Infosys Outsources to China!?!

In yet another indication that major Indian IT firms are moving up the outsourcing ladder, Infosys announced recently that it will begin establishing development centers in China.  The firm plans to invest US$65 million over five years and plans to add 6,000 engineers to its workforce.  The company plans to establish centers in Shanghai and Hangzou, where it will focus its efforts on IT services and software development.  This rather remarkable move indicates that the notion of an Indian/Chinese rivalry are fading from the minds of companies located in these countries, and instead companies are transitioning to percieve their former advesaries as partners.  This is especially true of Indian firms, who are seeing their life span grow ever shorter with increasingly higher wages and a still deficient infrastructure.  In an attempt, and likely quite a good one, to lengthen their profit horizon these companies are making the same transition that western firms have been making for years, finding cheap labor and going to it. CIO Today reports:

"It's a communist country, and that will come into play at some point," said Didio.  "It will be interesting to see how politics and business mix as these firms keep pourinig money into China."

Read More: Infosys Takes Outsourcing to China

Malaysia's Stake and Reliance Upon Outsourcing Increases

Malaysia is on a quest to transform itself into a high-value shared service and outsourcing powerhouse.  The industry was valued at US$647 billion two years ago and is expected to continue to grow at a rate of 8.8% annually.  That means that even if Malaysia can gain a small piece of the pie, it has the power to radically transform its economy.  Last year 40% of the jobs in the country's Multimedia Super Corridor (MSC) were related to shared services and outsourcing.  This year that number is expected to climb to 50% of total jobs.  The country hopes to capitalize on its relatively well established infrastructure, its low wages, and its political stability.  These characteristics propelled the country to its third place ranking last year as an outsourcing destination behind India and China.   The Star Online Reports:

"We are not short of knowledge workers.  We can find good knowledge workers in Malaysia," Kong said, adding that 85% of the employees hired by the majority of MSC-status companies are locals, although that is not a requirement.

Read More: Kong: We can compete

Sakata Inx Plans Testing and Manufacturing Hub in India

Sakata Inx Corporation, a major Japanese ink production company announced recently its plans for creating a major ink testing hub in India.  While the more complex ink development will still take place in the company's primary locale of Japan, it plans to outsource the more tedious and often very costly testing phase abroad.  In addition, the company has also recently announced that it plans to begin production at the same Indian hub radically cutting its production costs.  By cutting costs through the move, the company hopes to capture a greater percentage of markets in South-East Asia and Spain, the primary areas where the inks tested will end up.  Currently the company is training engineers at its headquarters in Japan to carry out the newly developed manufacturing plant.  SifyFinance Reports:

"This latest technology offset ink manufacturing plant is the first one to be set up outside Japan by Sakata and is a reflection of how sersiously the parent company is looking at India," he said.

"This unit will cater to both our domestic and export demands of the offset inks," he said, adding most of the exports will go to Sakata's subsidiaries in the South-East Asian region and Spain.

Read More: Ink major to make India outsourcing hub

Outsourcing to Become Philippines Top Earning Industry

The outsourcing industry will overcome telecommunications to become the Philippines top earning industry within the next five years, according to a recent study by BNP Paribas.  The study indicates that outsourcing will contribute 6.5 percent of the Philippines GDP by 2010, a growth driven by the largely untapped pool of english speaking college graduates within the country. While the Philippines will not displace India as the primary outsourcing provider for American companies, it is singling itself out as the leader in some more specific niches.  Manila Bulletin Online Reports:

The Philippines is becoming the choice site of Americans for voice-enabled services with India cornering the non-voice demand. 

'The Philippines has already emerged as an alternative site to India, particularly in the call center segment mainly because American clients are forcing service providers to set up back-up operations elsewhere as a safety measure," said BNP Paribas.

Read More: Outsourcing to overtake telecoms as top moneymaker in five years

Indonesian Outsourcing Growth Looks Bleak

Quite predictably, civil unrest in Indonesia has hindered the region from developing as a major player in global outsourcing. A recent report by Accenture indicates, however, that the window for significant expansion in outsourcing for the region may be closing quicker than expected. Indonesian officials had hoped that with the re-establishment of civil order foreign investors would flock to take advantage of the regions low wages and educated citizenry. The maturing of the Chinese and Indian outsourcing markets, however, have taught large companies a few lessons about outsourcing, namely that a successful long-term strategy requires more educated workers per capita than Indonesia has. While some officials claim that companies will return, others fear that the offshoring ship may have passed them by. Yahoo Finance Reports:

Indonesia's relatively small pool of university graduates capable of performing outsourcing tasks, such as systems application development and maintenance, is another disadvantage the county suffers in comparison with China and India.

"We started in China in 2003 with only a hundred people and in two years we've scaled up to thousands (of employees), likewise in India," Nurtanio said. "(But) if you look at the educational system in Indonesia, the capacity to produce the required number of good quality university graduates...is relatively smaller."

Read More: INTERVIEW: Indonesia’s Outsourcing Outlook Dim

Malasia Must Move into Niche Outsourcing Markets

A recent report by KPMG global has argued that if Malasia is to gain outsourcing market share from more established players like China and India, it must concentrate on a few niche markets.  Egidio Zarralla, KPMG global partner, has made the case that because competition for western companies is already so high, Malasia might be better served by specializing in secondary-offshoring. The Star Online Reports:

He [Zarralla] said that since the Philippines was already focusing on the US market, Malaysia should consider outsourcing to countries such as India and China. It would be an opportunity for Malaysia because while India has an advantage in terms of its huge workforce and knowledge base, it is getting expensive for companies to outsource to India, he said. 

Read More: Malaysia must find its niche in outsourcing space

Report Lists Singapore as 4th Most Attractive for Outsourcing

A recent report by the Economist Intelligence Unit has produced some rather surprising results in its most recent survey of outsourcing.  With the highest concentration of outsourcing projects per million people, Singapore is the global per capita leader in outsourcing.  The study, which ranked 60 economies in nine catagories, found that Singapore was the fourth-most attractive outsourcing location.  Big News Network.com Reports:

In absolute terms, Singapore's total of 95 offshoring projects puts it in sixth place globally, said EIU. These projects include call centres, shared service facilities, infotech services, and regional headquarters related functions.

Read More: Singapore is top location for outsourcing   

India Still Dominates China in IT Services

Backed by spectacular economic growth, many speculators predicted that it would simply be a number of months before China's IT services industry would match that of India's.  A recent study by McKinsey, however, revealed that China is still many years behind its Indian Rival.  Rediff.com reports:

Only six of China's 30 largest software companies are certified at level five or four of the capability-maturity model, by contrast, all of the top 30 Indian software companies have achieved these rankings. "But shortcomings in the structure of China's IT industry prevent it from taking full advantage of an increasing English speaking graduate force. Although revenues from IT services are on the rise, they are barely half of India's $12.7 billion a year. Growth is driven by domestic demand-most customers are small and midsize Chinese enterprises that want their software customised to their own needs," McKinsey said.

Read More: IT services: India far ahead of China

Malaysia Emerging as Offshoring Contender

While India and China are the top two destinations for outsourcing, Malaysia currently ranks third and is continuing to rise not only in terms of both outsourced jobs and shared services like marketing and IT. Malaysia may be a popular choice in the future because it is more politically stable than both China and India. This is according to a recent study by AT Kearney.

From ZDNet:

Still, Malaysia's well-developed infrastructure, attractive business environment and strong government support makes it a "rising alternative to India and China," said Ooi Joon Leong, managing director of AT Kearney's Malaysia unit.

"The government's positioning of Malaysia as a hub for services and technology innovation has resulted in a number of multinationals locating some of its global or regional operations