Outsourcing as division of labour

UP until now, the Indian populace has looked upon outsourcing just as one of the bastions of the export driven IT enabled service industry. The centres set up in the new urban conglomerations, that is, to service the ever expanding needs of the US and European consumer over a phone line to India. Unfortunately, that would be both a naïve and dated opinion. Neither outsourcing nor off-shoring, delivering service from lower cost centers, are a new phenomenon. Both have existed ever since people wanted to delegate activities they chose not to do themselves and latterly when they knew other nations could do it cheaper still. Adam Smith’s The Wealth of Nations in 1776 talked about the import of cheaper food produce from other nations. Being a passionate proponent of free trade, he felt this was for the greater good for both nations. It is surprisingly that this debate continues over 230 years later!

We began to outsource from the day we chose to stop hunting our own food or growing our own crops. How many urban Indians have grown their own vegetables, picked them and eaten them? Try it—somehow the food tastes better! So the concept of outsourcing is simple but the application is vast. One relies either on other people because they are trained experts or have lower costs or both. This, of course, extends to companies looking to service their ever increasing legions of customers, who in turn expect service as a norm. The issue is of how far one can reasonably extend that.

Service providers have been servicing companies for years, whether they were called vendors or suppliers is irrelevant. Assorted functions of sourcing, design, production and customer contact have sat outside companies as they focused on their core competency. This does give rise to 'virtual' companies that provide nothing more than the brand, with all functions being delivered by other providers. There is nothing wrong with this, if the arrangement maximises customer value and comfort. The US customer need not know that the motor car he/she drives is just an assembly of components from around ancillary service providers, that the design was undertaken by immerging engineering services firms in India, that the marketing was handled by a European concern, and so on. If the feel at the wheel is fine, that’s all that matters —driving the American dream. The same applies to any product and service. Ultimately, what a consumer is looking for is a level of brand comfort, even engagement (say, of one's finer faculties), backed by an assurance of quality and value for money. How the product/service companies put this together is increasingly not the consumer's concern, so long as the brand—in the sense of a consumer interface rather than just logo —remains trustworthy.

If a company or individual wants to get the best out of a finely honed skillset, you need a partner to make up the balance. The deal has to be economically viable and the quality good. The two are not mutually exclusive. Yet, just as a cheap tailor will give you an ill-fitting shirt, very cheap suppliers can be of poor quality. Diligence is required to hit the right cost-quality balance, since identifying quality providers is never easy. Having advisors to help in this process in not just convenient, but critical. The worst a company could do is to throw the work activity ‘over the wall’ and hope blindly for the best. It doesn't work, and the fault is not of outsourcing, but of the selection process.

What connects the raw product to the end customer is fairly uniform around the world, so why not manage that part of the chain from India?
So what is the extension of this sort of wide-ranging outsourcing that is visible in India? Airline companies that lease the plane, the staff and the technology, too? That sounds far-fetched, but it occurs here as it does elsewhere. So, I think it is time to move away from viewing this just as a call center-driven activity but as a phenomenon much broader. Activities which support the local business are becoming critical to underpin the successes being seen in industries like retail, pharmaceutical as well as energy. These are also leading to the development of skillsets which can further be enhanced to global markets. The dynamics, for example, in the retail logistics supply chain. What connects the raw product to the end customer is fairly uniform all over the world, so why not manage that from India? It coud well be done. Likewise, in several other sectors. The needs of midmarket businesses in this country in engineering services and healthcare services, as well as education, all touch similar areas of common ground with their counterparts elsewhere.

As end users, there are elements which we don't really care about, as we will view the service of our own providers and act accordingly. There are elements that count which are about our behaviour and acceptance of help. I used to be forever frustrated when some of my senior Indian team members would spend hours preparing simple presentations, rather than recruit help and focus on the area of their core skills. I say, be clever, use your potential. However, retain sufficient control, especially over quality.

All said, outsourcing is good. There exist services in the US that convey break-up messages on behalf of feckless individuals, but this, really, is going a little too far. In itself, outsourcing is about forging mutually beneficial relationships that last, and the concept is known to make for positive outcomes.

—Dan Sandhu sits on a number of Indian company boards in the outsourcing, media and retails sectors. These are his personal views.