Outsourcing V/s Offshore Outsourcing

While Outsourcing stands for giving out a part or certain parts of your business operations to a regional or local distinct business entity, offshore outsourcing implies delegation of the selected business operations to an offshore location outside the country.

The two concepts share some advantages and differ on others. The common benefits of outsourcing and offshore outsourcing include doing away with the burden of mundane business operations that can be easily and skillfully handled at an off-site location, generally for a lesser budget. Outsourcing is a brilliant idea to relieve the business entity from vain exertion and instead pay better attention to ones specialized services areas or may be provide more agile customer care. Also, outsourcing excuses the enterprise from the substantial set up costs, viz. the cost of work space, manpower, stationery, systems and other miscellaneous expenses that would otherwise incur, if the jobs are not outsourced.

While local outsourcing manages just a couple, offshore outsourcing comes with a whole baggage of advantages. The highlights of offshore outsourcing remain the niche economies available at the offshore location, including exceptional professional talent for considerably lower costs. In fact, inspired by the dynamism of offshore outsourcing model in India, not less than 40% of the Fortune 500 companies are already taking advantage of it, including big names like MicroSoft, Motorola, Oracle, GE and Lucent.

Economies of scale is another citable advantage from Offshore outsourcing, as offshore destinations generally conduct themselves as specialized ventures that also take up similar jobs from other companies across the globe. As statistics has it, offshore outsourcing can bring down the costs for you from 50% to 30%, subject to onsite and offshore resources.

Offshore outsourcing also allows you to make a careful choice as regards the standard timeframe on offer, so as to render the effective working hours almost round the clock. For example, IST and EST are complimentary in nature with around nine and a half hour difference. This in turn, considerably shrinks delivery time for US-based companies translating into achievement of business targets well within budget and sped up job schedule.

Moreover, offshore outsourcing can span across wholesome backend business operations; the most prominent of all being IT and IT enabled services (ITES) with a whopping 28% of the entire share. As per reliable reports, majority of IT based outsourcing contracts are already moving to India, in spite of competitive rates offered by China and Russia. India offers wider talent and more purchasing power for US dollar, in turn saving billions of dollars for its US counterparts.

Where does China stand in BPO race?

ttrition of employees in other offshore locations like India, would be deeply disappointed by China's slowing offshore drive.

China's intension to be favorite alternative BPO hub for MNCs remains a distant dream as it is developing slower than expected.

Though the Chinese government came out with supportive ordinance to promote BPO in the country with huge level of visibility on the global arena, Chinas offshore market has not taken off as expected and it still seems a long way before it could claim to be of any potential alternative to India, as reported by technology research firm Forrester on Thursday.

Forresters Vice-President John McCarthy said "When China was looked upon as an alternative to offshore two years back, it was widely considered as a key contender to challenge India's dominance on offshore business. However, the latest finding reveals an opposite story, which says, "China has still more to prove,"

McCarthy, in 2002 had predicted that over three million BPO jobs in the US would go offshore, has also opinioned that firms with large bases in India should consider other geographies when addressing the risk mitigation issue. Countries like the Brazil, Mexico and Philippines as better alternatives than China in terms of skills, language and convenience.

Forrester in its finding clarifies that Chinas overall offshore resources has dropped and other countries are growing at a rapid pace. The need of the hour for the country is to refurbish its offshore efforts.

Instead of trying to compete in areas like application development and management, where India clearly dominates, China should encourage its local firms to focus on other areas like testing, data management and product development services.

Chinese firms also need to implement strict intellectual property controls... .

India being Bangalored by China

The dragon poses a clear danger to India’s outsourcing industry

A faint rumble may, on occasion, give forewarning of a continental shift of momentous significance. For BeyondCore, Inc. CEO Arijit Sengupta, an expert on eBusiness standards, it’s a surge in the volume of business enquiries in recent weeks from China, where his California-based technology company doesn’t yet have a presence. That alerted him to a shift of the tectonic plates of outsourcing from India to China.

Sengupta told DNA: "In recent weeks, I’ve received cold calls from Chinese BPOs who found BeyondCore over the Internet while looking for new technologies to reduce their operating costs and improve the the quality of their output. Over the past three years, I’ve never received a cold call from an Indian BPO!"

It’s not just about cold calls: hard facts too make the point forcefully that India, today’s undisputed leader in outsourcing services, is gradually being, well, Bangalored by China. The Global Outsourcing Report, which ranks countries based on their opportunities, costs, and risks in relation to IT offshoring, predicts that by 2015, China, currently placed second, will have taken over the No 1 spot from India.

From all accounts, companies looking to outsource critical services have already begun the Long March from India to China. Last year, faced with 15 per cent-a-year escalations in the cost of offshoring IT services to India, British Telecom took a giant stride over the Great Wall of China — and set foot in the outsourcing destination of the future.

And among mid-sized corporations in the US, there is virtually an avalanche of interest in relocating from India to China. Remi Vespa, a California-based veteran of the outsourcing industry, told DNA: "Over 50 per cent of my prospects — mostly mid-sized corporations — currently outsource to an Indian provider, and are considering changing."

In Vespa’s estimation, Indian leaders — like Infosys and TCS — are so far ahead of their Chinese counterparts that even 10 years from now, their standing won’t be seriously threatened.

"If we look at the top 10 companies in the outsourcing market in 10-15 years, I have no doubt that six or seven of them will still be Indian… But China as a whole will have taken over from India as the leading outsourcing destination."

What’s driving this exodus? China, says Vespa, has taken a "very smart road to catch up with India". The way it does it is by offering a whole package of incentives to attract industry leaders: allowing wholly owned foreign entities, creating over 500 science parks, offering tax breaks. In his reckoning, it is this that has led Google, Microsoft and Apple to shift their outsourcing focus from India to China.

China’s outsourcing ambitions are backed by a healthy dose of central planning. Under the 6th Five-Year Plan, China aims to build service outsourcing bases in 10 cities, encourage 100 multinationals to outsource services from China, and foster 1,000 large- and medium-sized service outsourcing enterprises.

Ironically, at about the same time that China is introducing significant tax incentives and other benefits to promote BPO, in India, policy initiatives have gone the other way — towards increasing taxes!

In addition, notes Sengupta, the Chinese BPO industry has a "secret weapon": labour efficiency. "A significant portion of the Chinese BPO industry serves domestic Chinese customers. They do not have labour-cost advantages relative to their customers and have to be very cost-efficient. If Chinese BPOs now start serving US customers and gain the additional advantage of the labour cost difference, they may turn out to be very credible competitors indeed."

On the other hand, notes Sengupta, Indian BPOs have enjoyed such a large labour cost difference relative to their customers that they have not had to be as cost-efficient. "With the exception of some leading BPOs, one theme I’ve noticed with many Indian BPOs is an attitude of ‘Why do I need the latest software or technology? Labour is cheap, so I’ll have 20 people write similar software internally or just allocate 10 people to do the task that I could have automated with the appropriate technology.’ I characterise this as ‘throwing people at the problem’. Is it surprising that most of the key problems that the Indian BPOs face relate directly to labour: churn, salary growth, and training costs?"

Of course, the flip side of this argument, according to Sengupta, is that if Indian BPOs start focussing on efficiency and technology adoption, they may become even more competitive.

Vespa points to a deeper problem that companies outsourcing their work to Indian service providers face today. "Apart from the top Indian players, the thousands of smaller companies have a very bad reputation. They have a high attrition rate: you work with a company, and six months later, it’s gone — or its key staff have left to start their own company and want your contract!" He believes it’s important for India’s outsourcing industry to "introduce some order" in this particular market segment of small-to mid-sized outsourcing providers.

Sengupta too believes that the Indian BPO is at a defining moment. "Clayton Christensen, the author of Innovator’s Dilemma, describes how the integrated steel companies in North America were rapidly disrupted and eventually driven out of business by steel mini-mills.

Likewise, the British used to dominate the motorcycle industry, but the Japanese disrupted them very quickly. In both cases, the incumbents were initially overconfident about their strengths relative to the disruptors until it was too late. I fear that the same is happening today as regards Indian attitudes to Chinese BPOs.

If India wakes up to this threat, I believe it can compete effectively. If it does not, then eventually it will cede its leadership in the global service market and whether that happens in five years or ten, it will be catastrophic for the Indian economy."

New Delhi, May 24: China's push to become an alternate offshoring hub for MNCs tackling soaring wages and high attrition rate in India remains a distant dream as its market is developing slower than expected, a study says.

Despite massive government support and huge visibility on the global arena, China's offshore market has not taken off as expected and still has a long way to become a potential alternative to India, technology research firm Forrester said in a report released today.

Multinational firms, considering China as a "quick-fix" solution to deal with rising costs and high attrition in other offshore locations like India, would be sorely disappointed by the country's slowing offshore momentum, the report said.

"When we first looked at china's offshore and it services Global Delivery Model (GDM) nearly two years ago, the country was widely viewed as the key challenger to India for offshore supremacy. However, the market has not taken off as expected," Forrester's vice-president John Mccarthy said.

He said while Japanese firms were more aware about China's potential, those from the US and Europe have been slow to respond. "In fact, China's percentage of GDM resources for top services firm like accenture has dropped, while India and the Philippines have seen far greater investment," he said.

Mccarthy, who had predicted in 2002 that over three million BPO jobs in the US would go offshore, added that firms with large bases in India should consider other geographies when addressing the risk mitigation issue.

Even countries like the Philippines, Mexico and Brazil could prove to be better alternatives than China for diversifying offshore exposure in terms of skills, language and convenience, he added.

Forrester also said like India, China also faces similar problems of attrition, increasing wages and lack of experienced manages and technical leads. In addition, the appreciation of the Yuan against the dollar was hurting margins of companies outsourcing their work to China, it said.

"The consensus among interviewees was that China still has not overcome clients' concern about limited English skills, attrition and weak intellectual property protection. One executive went so far as to say that China had to be 20 per cent cheaper than India to be viable," the study said.

Noting that china's percentage of overall offshore resources has dropped and other countries were growing at a faster pace, Forrester said the country needs to refocus its offshore efforts.

Instead of trying to compete in areas like application development and management, where India dominates, China should encourage local firms to focus on other areas like testing, data management and product development services.

For other countries vying for the lucrative offshoring pie, Forrester suggested economic development agencies in Thailand, Malaysia, Egypt and Morocco that they need to do more than just re-labelling the pool of engineering graduates as being ready to export their services.

"Their education programmes ought to focus on advanced skills like project management and advanced architecture skills, while at the same time, respective governments should invest significant funds to market the country as an alternative to the offshore incumbent - India," Mccarthy said.

Bureau Report