Outsourcing Times

Outsourcing Is Healthy & Good: Study

By Priya Jestin, Staff Writer

Those who felt that there was a chance the outsourcing industry would die out, may not be too happy with this recent survey by KPMG. According to the study Strategic Evolution, outsourcing is increasing and almost all the organizations that are involved in this practice want to maintain their sourcing level. And quite a few of them even want to increase the sourcing levels. This survey which collated responses from nearly 700 organizations from 32 countries proves that the only path open to this industry goes forward.

Contrary to the belief in certain quarters that outsourcing is creating new problems, most respondents believed that service providers made positive contributions to the success of their organizations. Oh, and it was not only services that had improved. The financial baseline of most firms was also showing an improvement and as they became more lean and mean, their competitiveness increased. Too much good news for a day. What do you say?

Let’s Shore It Up

By Priya Jestin, Staff Writer

There is a lot of technical lingo associated with the outsourcing industry. While most of us are familiar with these terms, I’ve noticed that there is no consistency in how these terms are interpreted. Here are a list of the most common terms in the industry, and their most widely accepted definitions.

• Offshoring: It is sometimes used interchangeably with outsourcing. While this may not be totally wrong, offshoring essentially involves relocating a business process including production/ manufacturing to another country – usually a low-cost alternative. Alternately, it could also mean an organization using the services of another firm that may be located in another country.
• Outsourcing: In outsourcing, a particular internal function of the company is assigned to an outside supplier. For instance call centers in the BPO industry are an outsoured function. Firms outsource to save money, improve quality, and also free their resources for other activities.
• Homeshoring: As the name suggests, if a company decides to transfer some of its work from offices to home-based employees, it is called homeshoring. Homeshoring, which is a good combination of outsourcing and telecommuting only requires that the employee have appropriate telephone and internet facilities to work from home.
• Inshoring: Sometimes, offshoring companies set up offices in the US or Europe. This is done to attract customers who may not have the resources or may not be amenable to offshoring
• Nearshoring: China, India and the Phillipines may still be the destinations of choice for many firms. But increasing number of firms want to get their work done in countries nearer home. For instance, they’d rather prefer getting work done in Canada, or East European countries like Poland, Russia and Rumania.

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.

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.

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

My Two-Bit Prediction For The Industry

By Priya Jestin, Staff Writer

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

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

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

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

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

Financial Health As A Determinant For Outsourcing

How financially healthy is your company? The reason for this question is that all companies are driven by their return to shareholders or owners. If the results are not as strong as they should be, it is time to thoroughly examine the cost structure. This is more than a financial analysis; it is a strategic and organizational exercise as well. Manufacturing.net reports:

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

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

‘Lack Of Skilled US Workers Is Main Cause For Outsourcing’

Azim Premji chairman of Wipro Technologies doesn’t agree with the general belief that outsourcing is stealing high-paying American tech jobs. According to Premji, the United States should be more worried about what is taught in its classrooms -- or, rather, what isn't. Crmbuyer.com reports:

In fact, there is a shortage of information technology engineers in the United States, said Premji, who in four decades has led Wipro from a US$2 million cooking-oil processing company to a $2.4 billion global technology player. In its most recent quarter, the Bangalore-based company reported $765 million in revenue, a 41 percent increase from a year earlier, with profits of $152 million, a 48 percent jump.

Read more: Wipro Chairman: Outsourcing Due to US Skilled Worker Shortage

India Still Preferred Outsourcing Destination

According to the Global City Competitiveness 2006 report released by offshore advisory firm NeoIT recently, the National Capital Region of Delhi is the best city in the world for offshoring or outsourcing business. Indian metros like Bangalore, Hyderabad, Mumbai and Pune occupied top seven positions followed by Ho Chi Minh City, Manila, Shanghai and Moscow. Financialexpress.com reports:

While Delhi with a score of 100 points topped the competitive index, Polish cities of Krakow and Warsaw ranked the lowest with scores of 70.6 and 71.1, respectively. Blasting myths of a Chinese threat to Indian BPO supremacy, the survey ranked only three Chinese cities of Dalian, Shanghai and Guangzhou as attractive for offshoring compared to seven Indian cities.

Read more: NCR, the best city for outsourcing in the world

Surprising trends in Outsourcing

-- By Priya Venkatesh, Staff Writer

Are you aware of the current trend in outsourcing? Do you know the current scenario with respect to the number subcontracting deals this year? IDC has come up with an interesting report on Outsourcing very recently.

The study by IDC proclaims that the core changes in the trend in outsourcing include the huge number of competitors who have entered into the outsourcing market this year! It also reports that the TCV (Total Contract Value) of the top 100 deals have drastically reduced to $67.9 billion from last year’s 70.1 billion.

Crmbuyer articulates that the number of business deals have plunged dramatically while desktop subcontracting have shown an enormous growth. With the lump sum deals weaning and With the clients’ demands on the rise, the service providers strive hard to cater to the rising demands of the customers!

Read one of my previous post on 'Indian IT stocks creep incredible heights amidst tight competition' to know the trends of Indian IT stocks this year!