The choice between outsourcing or operating a captive facility for call center services, non-voice customer services and back office processing, offers advantages for both approaches. Here we examine the advantages of outsourcing and two principal strategies for outsourcing. In an upcoming article, the advantages of establishing a captive facility will be detailed.
There are two principal strategies being pursued for outsourcing: strategic and market-driven outsourcing. Strategic outsourcing is addressed first because it does not lend itself to the establishment of captive offshore operations as easily as market-driven outsourcing.
Strategic Outsourcing
Strategic outsourcing aims to redirect an organization's resources to focus on its core competencies. Core competencies for some organizations consist largely of strategic planning, brand management and project management.
Strategic outsourcing enables organizations to quickly change course, enter new markets and access new technologies. Strategic outsourcing focuses on results. Market-driven outsourcing is often more process oriented, with greater attention paid to how results are achieved.
Strategic outsourcing often involves large projects or indefinite quantity contracts (ICQs), managed by a primary outsourcing service provider and supported by smaller specialty firms that serve as subcontractors. Administrative fees charged by a prime contractor for passing funds through to subcontractors often range from 25 percent to 35 percent. In comparison, brokers generally charge a 5 percent commission for placing outbound voice work and 10 percent for inbound customer service contracts.
Strategic outsourcing lends itself to process redesign and organizational transformation, but not to the relatively long-term, more capital-intensive tactic of establishing captive offshore facilities. Market-driven outsourcing, in contrast, can serve as a stepping stone to establishing a captive operation offshore.
Market driven outsourcing enables buyers to gain familiarity with a location before deciding whether to commit to setting up their own operations there. Familiarity is no guarantee that a captive operation will be successful, as Apple (Nasdaq: AAPL) demonstrated by pulling the plug on its captive operation in Bangalore on May 29.
Market-Driven Outsourcing
The key variables in market-driven outsourcing are the capabilities and prices of available service providers. The decision to outsource is often based on short-term cost savings from using qualified talent pools and cheaper infrastructure in offshore locations.
The direct costs and levels of effort required for project management of market-driven outsourcing projects are usually greater than for strategic outsourcing ones. Full support of project management activities in market-driven outsourcing projects lowers the risks and total costs of running these programs offshore.
Customer service outsourcing from the U.S. and Europe during the years 2000 through 2006 has often not been highly cost-sensitive for large projects, due in part to the administrative challenges that buyers face in undertaking their first major round of offshore outsourcing. In offshore outsourcing version 1.0, half a buyer's payments for offshore services are often applied to service providers' administrative expenses, profits and marketing costs.
In outsourcing version 2.0, large buyers of outsourcing services are increasingly seeking a multi-source approach that enables their outsourcing efforts to be more market driven. Buyers are building up internal capabilities for managing outsourcing projects executed by smaller, cheaper vendors. Whereas outsourcing 1.0 vendors present themselves as capable of handling anything and everything, the new generation of outsourcing 2.0 firms often need institution-building assistance before launching a program.
In outsourcing 1.0, service providers help buyers with institution building. In outsourcing 2.0, buyers are showing greater sophistication and a stronger interest in achieving better value for money. This makes it more likely that buyers will consider the cost effectiveness of establishing stand-alone operations overseas.
Characteristics of Captive Operations
Whereas outsourcing entails having a third party perform tasks, captive facilities are established by a parent company to perform its own tasks.
• Captive operations can be commercialized, as GE did in India by founding Gecis Global and spinning it off on Dec. 30, 2004. GE retained a 40 percent equity stake in Gecis, subsequently renamed "Genpact."
• Captive operations can utilize service level agreements (SLAs), metrics and reporting systems along the same lines as those used in commercial outsourcing arrangements. The best types of processes to initially send offshore are often those that are the easiest to measure. Once initial successes have been achieved and management systems stabilized, tasks that are unique or less suitable to intensive metrics analysis can be considered, such as research tasks, content generation projects and those associated with knowledge process outsourcing or KPO.
• Cost projections for captive facilities can borrow data from commercial outsourcing facilities. However, in-depth cost analysis at commercial facilities can be difficult in areas where IT and IT-enabled services (ITeS) businesses are given major tax breaks (primarily India). The difficulty emerges because of internal cross-subsidization. The expenses of tax-exempt business units may be inflated or paid by non-exempt units, thereby increasing the amount of income that can be declared tax free.
Reasons to Retain Outsourcing 1.0 Arrangements
Traditional wisdom has held that outsourcing a call center program for longer than three years is more expensive than running a captive operation. This equation does not hold up in India and Pakistan, where locally owned facilities are capable of maintaining lower operating costs and lower profit margins indefinitely. The equation is likely to hold true for Western-owned merchant facilities in India and large Indian-owned call center companies, which charge more than their mid-size domestic offshore counterparts.
There are good reasons for U.S. companies to select large, relatively expensive U.S. providers. The principal reason is the weak offshore project management capacities that large U.S. outsourcing clients are faced with internally. They may not be able to recruit and manage their own staff to build up the institutional capacity of an experienced big-name outsourcing outfit to accept and run a large program properly and quickly.
Customer service and some back-office operations can be so critical to a company's image and brand integrity that it is worth paying premium rates in order to minimize risks. The best choice for risk minimization is usually made by trusting an experienced market leader, despite the higher prices levied by the major firms. Higher prices pay off for many buyers because of both the reduced risks and the reduced level of effort it requires to provide such operations within a buyer's organization.
Large-scale disapproval of outsourcing or offshoring among the majority of a U.S. company's staff can translate into reduced capabilities to implement a project properly, whether or not it results in job losses. Reluctance of U.S. personnel to assist in an outsourcing process can range from open hostility to overt non-cooperation and intentional bungling of an outsourcing project. By bringing in an experienced outside team, an outsourcing client can lower the risks of project failure and help ensure a satisfactory result.
Advantages of Outsourcing
• Outsourcing requires little capital to establish. However, significant spending is needed for onsite training and monitoring -- even in simple programs.
• Outsourcing contracts can include provisions for hiring out local staff in the event that a client decides to establish their own operation. Personal ties and the investments in training that a client makes during an outsourcing project are resources that can be retained once a commitment has been made to establish a captive facility.
• Outsourcing to a facility overseas shifts the risk for site selection, government permits, tax compliance, personnel recruiting, technology deployment and cost control. Establishing a captive facility brings those risks back in-house.
• Western firms in India are often overcharged for non-IT inputs in comparison with local businesses, and are also vulnerable to extortion attempts. The extent of overcharging is often keyed to perceptions of ability to pay. Corruption in India is not limited to the public sector or to Indian nationals, and is not an easy topic to discuss, except to say that outsourcing to a reputable vendor often removes these risks.
12/29/2006
Does Outsourcing Pose a Security Risk for Your Company?
n a recent survey of U.S. senior executives, 91% of respondents were 'somewhat' or 'very concerned' about data theft or misuse in outsourced operations. The survey also states that information security is one of the top three most important factors in selecting an outsourcing partner -- higher in ranking than either business stability or reputation. Furthermore, 85% of executives stated that they may be willing to pay an additional 10% - 15% for extra security.
With security issues being on the forefront of business leaders concerns, how can companies be sure that their outsourcing providers have the necessary safeguards in place?
Richard Yee, Chief Security Officer, API Outsourcing, discusses possible security risks in using a third-party provider in a recent article entitled "Does Outsourcing Pose a Security Risk for Your Company?" The article states key elements that should be included in any security policy based on established industry standards. It also identifies the type of external review used to obtain third-party verification regarding controls of a service organization. If your provider does not have this type of review, it provides steps that can be taken to evaluate the outsourcing provider's security policy.
Ultimately, the responsibility of security falls to the client. It's up to each company to complete the due diligence needed to ensure that their third-party provider meets their rigorous security requirements. Read this article to learn what steps your company can take to evaluate your providers' security policy to ensure that it meets your organization's standards.
About API Outsourcing
API Outsourcing, Inc. (API) is a leading Business Process Outsourcing (BPO) provider of state-of-the-art invoice automation solutions for mid-size to Fortune 1000 companies. API delivers solutions to transform clients' manual paper-dependent accounts payable, freight payment, billing, and document management processes into innovative automated processes. Clients benefit from the significant increase in process efficiency, profitability and financial control. API uses Six Sigma techniques to deliver high quality, consistent service. API's clients include Rayovac, EDS, Randstad North America, Affinity Plus Credit Union, G&K Services, AMN Healthcare, Jacobson Logistics Company and Lee Enterprises. Headquartered in St. Paul, MN, API manages over 280 million transactions annually.
With security issues being on the forefront of business leaders concerns, how can companies be sure that their outsourcing providers have the necessary safeguards in place?
Richard Yee, Chief Security Officer, API Outsourcing, discusses possible security risks in using a third-party provider in a recent article entitled "Does Outsourcing Pose a Security Risk for Your Company?" The article states key elements that should be included in any security policy based on established industry standards. It also identifies the type of external review used to obtain third-party verification regarding controls of a service organization. If your provider does not have this type of review, it provides steps that can be taken to evaluate the outsourcing provider's security policy.
Ultimately, the responsibility of security falls to the client. It's up to each company to complete the due diligence needed to ensure that their third-party provider meets their rigorous security requirements. Read this article to learn what steps your company can take to evaluate your providers' security policy to ensure that it meets your organization's standards.
About API Outsourcing
API Outsourcing, Inc. (API) is a leading Business Process Outsourcing (BPO) provider of state-of-the-art invoice automation solutions for mid-size to Fortune 1000 companies. API delivers solutions to transform clients' manual paper-dependent accounts payable, freight payment, billing, and document management processes into innovative automated processes. Clients benefit from the significant increase in process efficiency, profitability and financial control. API uses Six Sigma techniques to deliver high quality, consistent service. API's clients include Rayovac, EDS, Randstad North America, Affinity Plus Credit Union, G&K Services, AMN Healthcare, Jacobson Logistics Company and Lee Enterprises. Headquartered in St. Paul, MN, API manages over 280 million transactions annually.
Different models of Outsourcing
I was thinking earlier today that I have been talking about outsourcing but I have not covered what are the different models of outsourcing that are available to a business when its finally ready to grow. Lets talk about that today.
Basically, when you are thinking about outsourcing, you have two fundamental models i.e. Onsite Outsourcing and Offshore Outsourcing.
Onsite Outsourcing
In this model the design, development and testing teams are allocated on the clients location directly for a particular period of time. This model is particularly useful when:
1. You need access to very specialized skill
2. The nature of the project is very confidential
3. Support is needed on a constant basis
4. Requirements are not defined clearly or they change dynamically
Savings: Low
Offshore Outsourcing
In this model the entire SDLC is executed at suppliers premises which can be located in geographically different location (typically in lower cost countries). In this model the communication is carried out by digital channels such as Phone, Email, Messengers, Video Conferences etc i.e. physical meeting is occasional if at all present. This model is used when:
1. You want to “Follow the Sun“
2. Lower the costs significantly
3. Have adequately defined requirements
Savings: High
Apart from the above fundamental models of outsourcing, there are several hybrid models. They have been discussed below:
Model 1: Offsite Outsourcing
In this model the supplier is located not inside your location but
somewhere near it. This model allows physical interaction with the
supplier when required. This model is ideally suited when:
1. The project is of shorter duration
2. Your office does not have the excess capacity to accommodate the suppliers team
3. The requirements of the project does not change very frequently.
Savings: Low
Model 2: Hybrid Model of Outsourcing
This model offers you the best of both worlds by separating various steps in SDLC into different locations. This model is typically offered by suppliers who have onsite office as well as an offshore development centre. The client is supported locally by a coordinator who in turns interacts with an offshore project manager.
In this model activities like requirement analysis, high level design, acceptance testing and deployment is done onsite where are development, detailed design and testing is done offshore.
Basically, when you are thinking about outsourcing, you have two fundamental models i.e. Onsite Outsourcing and Offshore Outsourcing.
Onsite Outsourcing
In this model the design, development and testing teams are allocated on the clients location directly for a particular period of time. This model is particularly useful when:
1. You need access to very specialized skill
2. The nature of the project is very confidential
3. Support is needed on a constant basis
4. Requirements are not defined clearly or they change dynamically
Savings: Low
Offshore Outsourcing
In this model the entire SDLC is executed at suppliers premises which can be located in geographically different location (typically in lower cost countries). In this model the communication is carried out by digital channels such as Phone, Email, Messengers, Video Conferences etc i.e. physical meeting is occasional if at all present. This model is used when:
1. You want to “Follow the Sun“
2. Lower the costs significantly
3. Have adequately defined requirements
Savings: High
Apart from the above fundamental models of outsourcing, there are several hybrid models. They have been discussed below:
Model 1: Offsite Outsourcing
In this model the supplier is located not inside your location but
somewhere near it. This model allows physical interaction with the
supplier when required. This model is ideally suited when:
1. The project is of shorter duration
2. Your office does not have the excess capacity to accommodate the suppliers team
3. The requirements of the project does not change very frequently.
Savings: Low
Model 2: Hybrid Model of Outsourcing
This model offers you the best of both worlds by separating various steps in SDLC into different locations. This model is typically offered by suppliers who have onsite office as well as an offshore development centre. The client is supported locally by a coordinator who in turns interacts with an offshore project manager.
In this model activities like requirement analysis, high level design, acceptance testing and deployment is done onsite where are development, detailed design and testing is done offshore.
The lessons China and India can learn from each other
It is widely acknowledged that India is the largest democracy and China is the largest communist country of the world. When compared to India, China has already emerged as the dominant global player. It is accounting for more than 50% of world’s import and export growth. It can be aptly named the workshop of the world. China’s success and status as an export powerhouse is built on its strengths of low costs and constant flow of capital, something India can learn from.
China’s membership in the World Trade Organisaton has opened its state dominated economy to imports and also increased exports; lower tariffs have made foreign goods more affordable for the Chinese, opening up huge, untapped markets. (India to learn!)
Contradictions abound in the world of modern political economies. We find China's communists busy extolling the advantages of foreign strategic partners investing in their state-owned enterprises with some stakes in management (India to learn!) According to the Financial Times of November 3, 2005, the Chinese Railways have an aggressive plan of modernization and are reportedly offering significant railway assets for sale to foreign investors. (India to learn!) To woo foreign investors, the Chinese are prepared to go to any extent. A case in point – when there was a problem with providing the required power connection to the unit set up by Sundaram group of India, the Chinese authorities profusely apologized and provided a power generator at their cost to facilitate the unit. (India to learn!)
China was the first to recognize the need to marry market capitalism with the framework of a socialist society. ‘It is glorious to be rich’ proclaimed Chinese leader Deng even as India was still struggling with pseudo-radical control measures, which constrained entrepreneurship with a permit licence raj. (India to learn!) It is perhaps pertinent to refer to the historical fact that China's communists have always been more pragmatic than their dogmatic Indian democratic peers. (India to learn!) Chinese acknowledgement, commitment, drive, and execution of infrastructure projects for overall development are well known. They decide today and virtually get it executed yesterday! (India to learn!)
Chinese prefer to think before speaking. They do not brag and are modest. They are aware that life is not easy. Younger generation Chinese managers perceive their role to be to hire competent workers, set objectives, and expect them to perform. They emphasize that strategy is important in business since they believe that there are lots of opportunities for achievement and growth. (India to learn!) The negotiation process used by the Chinese is dramatically different and they put greater emphasis on respect and friendship, saving face, and group goals. Long-term goals are more important to the Chinese than specific current objectives. (India to learn!)
The Chinese are very meticulous and they come prepared for the negotiation. Since Chinese prefer emotional restraint and saving face, aggressive or emotional attempts at persuasion in negotiations are likely to fail. Instead, the Chinese tendency to avoid open conflict will more likely result in negative strategies, such as discontinuing or withdrawing from negotiations. (India to learn!) The Chinese emphasis on social obligations underlies their strong orientation toward collective goals. Therefore, appeals to individual members of the Chinese negotiating team, rather than to benefit the group as a whole, will probably backfire. (India to learn!) The Chinese are among the toughest negotiators in the world. Patience, respect, and experience are necessary pre-requisites for anyone negotiating in China. For the best outcomes, older, well-qualified, and more experienced people are more acceptable to the Chinese in negotiations. (India to learn!)
Large trade surpluses, rapid export growth, significant FDI inflows, and huge reserve increases are not always signs of economic health. Foreign investments tend to be geared towards producing for the external markets and naturally cluster on the coast. Coastal cities have good transportation links to the world and poor linkages with the mainland. Thus these investments and the rapid export growth tend to widen the economic divide between the coastal cities and the mainland.
China’s economic expansion is increasingly unbalanced, with too much investment in already prosperous coastal regions and too little in the central regions. Therefore, tensions prevail internally with the policy that over-emphasizes foreign direct investment and exports. Comparatively, the Indian experience has been exhilarating. In addition to their major and metro cities, many second rank state capitals and other cities are catching up on the development ladder. (China to learn!)
In China, the export sector is booming; so is the real estate/housing sector. Many other and service sectors lag behind. The health of its banking system is far from satisfactory. The legacies of bad loans to the loss making state owned firms are enormous. The Indian performance in the banking sector has been exemplary. They cleaned up their books way back in the early 1990s. The Indian banking sector is presently robust and comparatively very strong. (Chinese to learn!)
The monetary policy followed in China is skewed. Internal distortions created by controlled prices for credit, fuel, and the State’s de facto monopoly on land use do simmer. The next stage of China’s development will need to focus on developing domestic consumption and not just exports and foreign direct investment. Indian domestic consumption for that matter is very strong and is still growing. (China to learn!)
Though a formidable economic power in its own right, China has pegged its currency to U.S. Dollar. India follows a market determined exchange rate management policy. Going by the crises so far, the Indian approach is better than the Chinese. (Chinese to learn!)
A very clear message is emerging – indiscriminate support of exports and foreign capital influx will also create economic problems. It could be conceivable that in the long run the Chinese will be less welcoming to foreign direct investment. They will learn to change the present policies. (Chinese to learn!)
Well, we have devoted more space to China and the Chinese. And, yes, they are the leaders of the world as of now. As far as India is concerned, they will have to learn first and foremost to lessen the following frictions, such as the cost and availability of power and other utilities in time and in adequate measure, cost of borrowing, red tape, corruption, heavy taxes, expensive and slow transport, and inflexible labor markets. It is indeed pathetic to observe that in the prevailing business climate India is just above Afghanistan in the entire Asia (World Bank study).
China is presently the workshop of the world (muscle power!). India is leading investments into insourcing (brain power!). Both may have to learn and implement the facilitating factors that provide the competitive advantage to each other in these respective domains. Indians are far ahead of the Chinese in their language proficiency and conduct of business in English. The Indian education system – primary, secondary, and tertiary – may be facilitating this. (Chinese to learn!) The Indian judiciary system provides a level playing field for all, and almost all international laws, convention, and practices are respected and scrupulously followed. Chinese notoriety in the infringement of intellectual property right is well known. In their interest, Chinese will have to set this right at the earliest. (Chinese to learn!)
Politically, Indian politicians will have to take sabbaticals in China to learn the art of modern business acumen to gain superior competitive advantage, and through this, overall economic development, as there is undoubtedly a great deal of ideological difference and distance between the traditional communists in power in China and their Indian comrades wielding power through coalition government. (India to learn!)
It may be easier to list out the lessons for India and China but it may be difficult to learn as they are basically derived from their respective cultural traits. Chinese cannot practice and learn better than Indians, their lessons. And Indians too the Chinese lessons. I am not trying to be pessimistic. But that may well turn out to be a reality.
China’s membership in the World Trade Organisaton has opened its state dominated economy to imports and also increased exports; lower tariffs have made foreign goods more affordable for the Chinese, opening up huge, untapped markets. (India to learn!)
Contradictions abound in the world of modern political economies. We find China's communists busy extolling the advantages of foreign strategic partners investing in their state-owned enterprises with some stakes in management (India to learn!) According to the Financial Times of November 3, 2005, the Chinese Railways have an aggressive plan of modernization and are reportedly offering significant railway assets for sale to foreign investors. (India to learn!) To woo foreign investors, the Chinese are prepared to go to any extent. A case in point – when there was a problem with providing the required power connection to the unit set up by Sundaram group of India, the Chinese authorities profusely apologized and provided a power generator at their cost to facilitate the unit. (India to learn!)
China was the first to recognize the need to marry market capitalism with the framework of a socialist society. ‘It is glorious to be rich’ proclaimed Chinese leader Deng even as India was still struggling with pseudo-radical control measures, which constrained entrepreneurship with a permit licence raj. (India to learn!) It is perhaps pertinent to refer to the historical fact that China's communists have always been more pragmatic than their dogmatic Indian democratic peers. (India to learn!) Chinese acknowledgement, commitment, drive, and execution of infrastructure projects for overall development are well known. They decide today and virtually get it executed yesterday! (India to learn!)
Chinese prefer to think before speaking. They do not brag and are modest. They are aware that life is not easy. Younger generation Chinese managers perceive their role to be to hire competent workers, set objectives, and expect them to perform. They emphasize that strategy is important in business since they believe that there are lots of opportunities for achievement and growth. (India to learn!) The negotiation process used by the Chinese is dramatically different and they put greater emphasis on respect and friendship, saving face, and group goals. Long-term goals are more important to the Chinese than specific current objectives. (India to learn!)
The Chinese are very meticulous and they come prepared for the negotiation. Since Chinese prefer emotional restraint and saving face, aggressive or emotional attempts at persuasion in negotiations are likely to fail. Instead, the Chinese tendency to avoid open conflict will more likely result in negative strategies, such as discontinuing or withdrawing from negotiations. (India to learn!) The Chinese emphasis on social obligations underlies their strong orientation toward collective goals. Therefore, appeals to individual members of the Chinese negotiating team, rather than to benefit the group as a whole, will probably backfire. (India to learn!) The Chinese are among the toughest negotiators in the world. Patience, respect, and experience are necessary pre-requisites for anyone negotiating in China. For the best outcomes, older, well-qualified, and more experienced people are more acceptable to the Chinese in negotiations. (India to learn!)
Large trade surpluses, rapid export growth, significant FDI inflows, and huge reserve increases are not always signs of economic health. Foreign investments tend to be geared towards producing for the external markets and naturally cluster on the coast. Coastal cities have good transportation links to the world and poor linkages with the mainland. Thus these investments and the rapid export growth tend to widen the economic divide between the coastal cities and the mainland.
China’s economic expansion is increasingly unbalanced, with too much investment in already prosperous coastal regions and too little in the central regions. Therefore, tensions prevail internally with the policy that over-emphasizes foreign direct investment and exports. Comparatively, the Indian experience has been exhilarating. In addition to their major and metro cities, many second rank state capitals and other cities are catching up on the development ladder. (China to learn!)
In China, the export sector is booming; so is the real estate/housing sector. Many other and service sectors lag behind. The health of its banking system is far from satisfactory. The legacies of bad loans to the loss making state owned firms are enormous. The Indian performance in the banking sector has been exemplary. They cleaned up their books way back in the early 1990s. The Indian banking sector is presently robust and comparatively very strong. (Chinese to learn!)
The monetary policy followed in China is skewed. Internal distortions created by controlled prices for credit, fuel, and the State’s de facto monopoly on land use do simmer. The next stage of China’s development will need to focus on developing domestic consumption and not just exports and foreign direct investment. Indian domestic consumption for that matter is very strong and is still growing. (China to learn!)
Though a formidable economic power in its own right, China has pegged its currency to U.S. Dollar. India follows a market determined exchange rate management policy. Going by the crises so far, the Indian approach is better than the Chinese. (Chinese to learn!)
A very clear message is emerging – indiscriminate support of exports and foreign capital influx will also create economic problems. It could be conceivable that in the long run the Chinese will be less welcoming to foreign direct investment. They will learn to change the present policies. (Chinese to learn!)
Well, we have devoted more space to China and the Chinese. And, yes, they are the leaders of the world as of now. As far as India is concerned, they will have to learn first and foremost to lessen the following frictions, such as the cost and availability of power and other utilities in time and in adequate measure, cost of borrowing, red tape, corruption, heavy taxes, expensive and slow transport, and inflexible labor markets. It is indeed pathetic to observe that in the prevailing business climate India is just above Afghanistan in the entire Asia (World Bank study).
China is presently the workshop of the world (muscle power!). India is leading investments into insourcing (brain power!). Both may have to learn and implement the facilitating factors that provide the competitive advantage to each other in these respective domains. Indians are far ahead of the Chinese in their language proficiency and conduct of business in English. The Indian education system – primary, secondary, and tertiary – may be facilitating this. (Chinese to learn!) The Indian judiciary system provides a level playing field for all, and almost all international laws, convention, and practices are respected and scrupulously followed. Chinese notoriety in the infringement of intellectual property right is well known. In their interest, Chinese will have to set this right at the earliest. (Chinese to learn!)
Politically, Indian politicians will have to take sabbaticals in China to learn the art of modern business acumen to gain superior competitive advantage, and through this, overall economic development, as there is undoubtedly a great deal of ideological difference and distance between the traditional communists in power in China and their Indian comrades wielding power through coalition government. (India to learn!)
It may be easier to list out the lessons for India and China but it may be difficult to learn as they are basically derived from their respective cultural traits. Chinese cannot practice and learn better than Indians, their lessons. And Indians too the Chinese lessons. I am not trying to be pessimistic. But that may well turn out to be a reality.
India vs. China: where to invest?
India's bragging rights were inconceivable just a few years ago. As recently as June, 2003, The Economist magazine ran a cover story “India v China: a tiger, falling behind a dragon.” In that article, the magazine indicated that in 1980, India's GDP was greater than China's and its per capita income was some 60% higher. Yet by 2003 the situation had reversed, as China's economy soared ahead of India’s and its per capita income was around 50% higher. But in recent years India's economy is rising again and the tiger is making a run at the dragon.
Investor confidence
The sudden interest in India has boosted the country's self-confidence. Grant Thornton, a leading international audit and consulting firm, carried out a survey of business confidence of more than 7000 owners of medium-sized businesses from 30 countries. Surprisingly, India was ranked first, ahead of the G8 economies, China, and Europe's ‘Celtic tiger,’ Ireland. India lags China in the hard infrastructure of roads, airports, and real estate, but it leads in the soft infrastructure of democratic institutions, free press, and an independent judiciary. What other factors favor India?
Banking and finance
India's long experiences with free market enable it to gain significant expertise in lending and raising capital. This is not the case with China, where until recently banks were in business to funnel loans to woeful state-run enterprises. There were no incentives for these loans to be repaid, and now banks are crippled with an estimatedU.S.$213 billion of non-performing loans. In contrast, India's major banks are thriving and ICICI Bank, India's second largest, is considered as one of the best run banks in Asia. More than 6,000 firms are listed on the Bombay Stock Exchange, far outnumbering the number in China and even most major global markets. Furthermore, investors in China's two main mainland stock markets, Shanghai and Shenzhen, have experienced poor returns over the past decade as overpriced stocks flooded the markets. In contrast, Bombay's stock market has been booming.
Business relationships
Trust is certainly an important component of any business relationship. However, one aspect of the Chinese culture that is disturbing is the existence of networks of business and social relationships among various parties who are expected to exchange favors regularly and voluntarily, called guanxi. Although it is wrong to interpret this practice as bribery, since these exchanges need not involve money, they can be used to shut out those that do not fit into an approved Chinese social circle. Guanxi, when combined with the corruption that permeates the Chinese economy, could make the creation of a truly competitive economy difficult, if not impossible, to achieve. For India, these social networks and corruption are less of a problem. To be sure, dishonesty still exists in government service, but high level corruption is being vigorously rooted out by a free press, something that is absent in China.
Perhaps the greatest strength of a free market economy is its openness to doing business with anyone who has the qualifications and desire to do a job, regardless of ethnic or social backgrounds. The United States is highly attractive to so many immigrants who have been shut out of opportunities in their own homelands because of its openness. Guanxi combined with the uncertain new laws defining private property and business contracts in a still-Communist China should be a source of concern for investors.
Demography
Perhaps the most positive aspect of India's future is its demography: India is a very young country, while China, because of its one-child policy, is rapidly aging. According to the U.N. demographic Commission, by the middle of this century the most densely populated age group in India will be those aged between the ages of 40 and 50, while in China it will be those aged between 55 and 65. This means that China will soon start to suffer the same problems that Japan, Western Europe, and the United States are experiencing, or about to experience: an excessive number of retirees relative to the working population.
The young have the flexibility to adapt, absorb, conceptualize, and innovate. This is the key ingredient of technological and economic progress. China has a large supply of new workers for private enterprises, but these workers are leaving state-owned enterprises and are older and not as adaptable as the young labor market in India. The late management guru, Peter Drucker, said that demography is the "future that happened." Population trends are not easily reversible, and here the advantage goes to India.
India or China?
With all these points favoring India, the answer to the question, "where should your money go?" may seem like a forgone conclusion: India seems to have the best prospects for investors. As far as the future for investors is concerned, we should bear in mind that there are two issues that an investor needs to take into consideration when deciding where to invest. Firstly, you must size up the prospects of the firm, the sector, or the country. On this point, India scores some high marks. Secondly, you must evaluate the price that you are paying for these prospects. India's investment climate looks ripe for growth, but the markets have recognized this and have pushed stock prices upward. The Sensex 30, India's best-known stock market index and analogous to Dow-Jones Industrial Index, was around the 3300 mark in December 2002 and has now broken through the 10,000 barrier.
A question of value
The price-to-earnings ratio on this index has reached 21, while Chinese stocks on the Hong Kong Stock Exchange are selling for only 15 times earnings, which denotes that India is roaring!
Investor confidence
The sudden interest in India has boosted the country's self-confidence. Grant Thornton, a leading international audit and consulting firm, carried out a survey of business confidence of more than 7000 owners of medium-sized businesses from 30 countries. Surprisingly, India was ranked first, ahead of the G8 economies, China, and Europe's ‘Celtic tiger,’ Ireland. India lags China in the hard infrastructure of roads, airports, and real estate, but it leads in the soft infrastructure of democratic institutions, free press, and an independent judiciary. What other factors favor India?
Banking and finance
India's long experiences with free market enable it to gain significant expertise in lending and raising capital. This is not the case with China, where until recently banks were in business to funnel loans to woeful state-run enterprises. There were no incentives for these loans to be repaid, and now banks are crippled with an estimatedU.S.$213 billion of non-performing loans. In contrast, India's major banks are thriving and ICICI Bank, India's second largest, is considered as one of the best run banks in Asia. More than 6,000 firms are listed on the Bombay Stock Exchange, far outnumbering the number in China and even most major global markets. Furthermore, investors in China's two main mainland stock markets, Shanghai and Shenzhen, have experienced poor returns over the past decade as overpriced stocks flooded the markets. In contrast, Bombay's stock market has been booming.
Business relationships
Trust is certainly an important component of any business relationship. However, one aspect of the Chinese culture that is disturbing is the existence of networks of business and social relationships among various parties who are expected to exchange favors regularly and voluntarily, called guanxi. Although it is wrong to interpret this practice as bribery, since these exchanges need not involve money, they can be used to shut out those that do not fit into an approved Chinese social circle. Guanxi, when combined with the corruption that permeates the Chinese economy, could make the creation of a truly competitive economy difficult, if not impossible, to achieve. For India, these social networks and corruption are less of a problem. To be sure, dishonesty still exists in government service, but high level corruption is being vigorously rooted out by a free press, something that is absent in China.
Perhaps the greatest strength of a free market economy is its openness to doing business with anyone who has the qualifications and desire to do a job, regardless of ethnic or social backgrounds. The United States is highly attractive to so many immigrants who have been shut out of opportunities in their own homelands because of its openness. Guanxi combined with the uncertain new laws defining private property and business contracts in a still-Communist China should be a source of concern for investors.
Demography
Perhaps the most positive aspect of India's future is its demography: India is a very young country, while China, because of its one-child policy, is rapidly aging. According to the U.N. demographic Commission, by the middle of this century the most densely populated age group in India will be those aged between the ages of 40 and 50, while in China it will be those aged between 55 and 65. This means that China will soon start to suffer the same problems that Japan, Western Europe, and the United States are experiencing, or about to experience: an excessive number of retirees relative to the working population.
The young have the flexibility to adapt, absorb, conceptualize, and innovate. This is the key ingredient of technological and economic progress. China has a large supply of new workers for private enterprises, but these workers are leaving state-owned enterprises and are older and not as adaptable as the young labor market in India. The late management guru, Peter Drucker, said that demography is the "future that happened." Population trends are not easily reversible, and here the advantage goes to India.
India or China?
With all these points favoring India, the answer to the question, "where should your money go?" may seem like a forgone conclusion: India seems to have the best prospects for investors. As far as the future for investors is concerned, we should bear in mind that there are two issues that an investor needs to take into consideration when deciding where to invest. Firstly, you must size up the prospects of the firm, the sector, or the country. On this point, India scores some high marks. Secondly, you must evaluate the price that you are paying for these prospects. India's investment climate looks ripe for growth, but the markets have recognized this and have pushed stock prices upward. The Sensex 30, India's best-known stock market index and analogous to Dow-Jones Industrial Index, was around the 3300 mark in December 2002 and has now broken through the 10,000 barrier.
A question of value
The price-to-earnings ratio on this index has reached 21, while Chinese stocks on the Hong Kong Stock Exchange are selling for only 15 times earnings, which denotes that India is roaring!
India vs. China: where to invest?
India's bragging rights were inconceivable just a few years ago. As recently as June, 2003, The Economist magazine ran a cover story “India v China: a tiger, falling behind a dragon.” In that article, the magazine indicated that in 1980, India's GDP was greater than China's and its per capita income was some 60% higher. Yet by 2003 the situation had reversed, as China's economy soared ahead of India’s and its per capita income was around 50% higher. But in recent years India's economy is rising again and the tiger is making a run at the dragon.
Investor confidence
The sudden interest in India has boosted the country's self-confidence. Grant Thornton, a leading international audit and consulting firm, carried out a survey of business confidence of more than 7000 owners of medium-sized businesses from 30 countries. Surprisingly, India was ranked first, ahead of the G8 economies, China, and Europe's ‘Celtic tiger,’ Ireland. India lags China in the hard infrastructure of roads, airports, and real estate, but it leads in the soft infrastructure of democratic institutions, free press, and an independent judiciary. What other factors favor India?
Banking and finance
India's long experiences with free market enable it to gain significant expertise in lending and raising capital. This is not the case with China, where until recently banks were in business to funnel loans to woeful state-run enterprises. There were no incentives for these loans to be repaid, and now banks are crippled with an estimatedU.S.$213 billion of non-performing loans. In contrast, India's major banks are thriving and ICICI Bank, India's second largest, is considered as one of the best run banks in Asia. More than 6,000 firms are listed on the Bombay Stock Exchange, far outnumbering the number in China and even most major global markets. Furthermore, investors in China's two main mainland stock markets, Shanghai and Shenzhen, have experienced poor returns over the past decade as overpriced stocks flooded the markets. In contrast, Bombay's stock market has been booming.
Business relationships
Trust is certainly an important component of any business relationship. However, one aspect of the Chinese culture that is disturbing is the existence of networks of business and social relationships among various parties who are expected to exchange favors regularly and voluntarily, called guanxi. Although it is wrong to interpret this practice as bribery, since these exchanges need not involve money, they can be used to shut out those that do not fit into an approved Chinese social circle. Guanxi, when combined with the corruption that permeates the Chinese economy, could make the creation of a truly competitive economy difficult, if not impossible, to achieve. For India, these social networks and corruption are less of a problem. To be sure, dishonesty still exists in government service, but high level corruption is being vigorously rooted out by a free press, something that is absent in China.
Perhaps the greatest strength of a free market economy is its openness to doing business with anyone who has the qualifications and desire to do a job, regardless of ethnic or social backgrounds. The United States is highly attractive to so many immigrants who have been shut out of opportunities in their own homelands because of its openness. Guanxi combined with the uncertain new laws defining private property and business contracts in a still-Communist China should be a source of concern for investors.
Demography
Perhaps the most positive aspect of India's future is its demography: India is a very young country, while China, because of its one-child policy, is rapidly aging. According to the U.N. demographic Commission, by the middle of this century the most densely populated age group in India will be those aged between the ages of 40 and 50, while in China it will be those aged between 55 and 65. This means that China will soon start to suffer the same problems that Japan, Western Europe, and the United States are experiencing, or about to experience: an excessive number of retirees relative to the working population.
The young have the flexibility to adapt, absorb, conceptualize, and innovate. This is the key ingredient of technological and economic progress. China has a large supply of new workers for private enterprises, but these workers are leaving state-owned enterprises and are older and not as adaptable as the young labor market in India. The late management guru, Peter Drucker, said that demography is the "future that happened." Population trends are not easily reversible, and here the advantage goes to India.
India or China?
With all these points favoring India, the answer to the question, "where should your money go?" may seem like a forgone conclusion: India seems to have the best prospects for investors. As far as the future for investors is concerned, we should bear in mind that there are two issues that an investor needs to take into consideration when deciding where to invest. Firstly, you must size up the prospects of the firm, the sector, or the country. On this point, India scores some high marks. Secondly, you must evaluate the price that you are paying for these prospects. India's investment climate looks ripe for growth, but the markets have recognized this and have pushed stock prices upward. The Sensex 30, India's best-known stock market index and analogous to Dow-Jones Industrial Index, was around the 3300 mark in December 2002 and has now broken through the 10,000 barrier.
A question of value
The price-to-earnings ratio on this index has reached 21, while Chinese stocks on the Hong Kong Stock Exchange are selling for only 15 times earnings, which denotes that India is roaring!
Investor confidence
The sudden interest in India has boosted the country's self-confidence. Grant Thornton, a leading international audit and consulting firm, carried out a survey of business confidence of more than 7000 owners of medium-sized businesses from 30 countries. Surprisingly, India was ranked first, ahead of the G8 economies, China, and Europe's ‘Celtic tiger,’ Ireland. India lags China in the hard infrastructure of roads, airports, and real estate, but it leads in the soft infrastructure of democratic institutions, free press, and an independent judiciary. What other factors favor India?
Banking and finance
India's long experiences with free market enable it to gain significant expertise in lending and raising capital. This is not the case with China, where until recently banks were in business to funnel loans to woeful state-run enterprises. There were no incentives for these loans to be repaid, and now banks are crippled with an estimatedU.S.$213 billion of non-performing loans. In contrast, India's major banks are thriving and ICICI Bank, India's second largest, is considered as one of the best run banks in Asia. More than 6,000 firms are listed on the Bombay Stock Exchange, far outnumbering the number in China and even most major global markets. Furthermore, investors in China's two main mainland stock markets, Shanghai and Shenzhen, have experienced poor returns over the past decade as overpriced stocks flooded the markets. In contrast, Bombay's stock market has been booming.
Business relationships
Trust is certainly an important component of any business relationship. However, one aspect of the Chinese culture that is disturbing is the existence of networks of business and social relationships among various parties who are expected to exchange favors regularly and voluntarily, called guanxi. Although it is wrong to interpret this practice as bribery, since these exchanges need not involve money, they can be used to shut out those that do not fit into an approved Chinese social circle. Guanxi, when combined with the corruption that permeates the Chinese economy, could make the creation of a truly competitive economy difficult, if not impossible, to achieve. For India, these social networks and corruption are less of a problem. To be sure, dishonesty still exists in government service, but high level corruption is being vigorously rooted out by a free press, something that is absent in China.
Perhaps the greatest strength of a free market economy is its openness to doing business with anyone who has the qualifications and desire to do a job, regardless of ethnic or social backgrounds. The United States is highly attractive to so many immigrants who have been shut out of opportunities in their own homelands because of its openness. Guanxi combined with the uncertain new laws defining private property and business contracts in a still-Communist China should be a source of concern for investors.
Demography
Perhaps the most positive aspect of India's future is its demography: India is a very young country, while China, because of its one-child policy, is rapidly aging. According to the U.N. demographic Commission, by the middle of this century the most densely populated age group in India will be those aged between the ages of 40 and 50, while in China it will be those aged between 55 and 65. This means that China will soon start to suffer the same problems that Japan, Western Europe, and the United States are experiencing, or about to experience: an excessive number of retirees relative to the working population.
The young have the flexibility to adapt, absorb, conceptualize, and innovate. This is the key ingredient of technological and economic progress. China has a large supply of new workers for private enterprises, but these workers are leaving state-owned enterprises and are older and not as adaptable as the young labor market in India. The late management guru, Peter Drucker, said that demography is the "future that happened." Population trends are not easily reversible, and here the advantage goes to India.
India or China?
With all these points favoring India, the answer to the question, "where should your money go?" may seem like a forgone conclusion: India seems to have the best prospects for investors. As far as the future for investors is concerned, we should bear in mind that there are two issues that an investor needs to take into consideration when deciding where to invest. Firstly, you must size up the prospects of the firm, the sector, or the country. On this point, India scores some high marks. Secondly, you must evaluate the price that you are paying for these prospects. India's investment climate looks ripe for growth, but the markets have recognized this and have pushed stock prices upward. The Sensex 30, India's best-known stock market index and analogous to Dow-Jones Industrial Index, was around the 3300 mark in December 2002 and has now broken through the 10,000 barrier.
A question of value
The price-to-earnings ratio on this index has reached 21, while Chinese stocks on the Hong Kong Stock Exchange are selling for only 15 times earnings, which denotes that India is roaring!
History of Offshore Software Outsourcing
The history of offshore software outsourcing India is one of the phenomenal growths in a very short duration. The idea of offshore outsourcing and software development has its roots with the competitive edge in the respective industry. During some previous years the meaning of the term Offshore Software Outsourcing has undergone with lots of changes. With starting from the front, the shifting of manufacturing unit to those countries providing significant cheap labor at the era of Industrial Revolution, has taken outsourcing with a new meaning at present world. In today’s world Information Technology has become the backbone of International Businesses.
Offshore Software Outsourcing is the process by which any company hands over part of the work to another organization, and making it responsible for the design and implementation of the enterprise business procedure under obligations of strict guidelines regarding requirements & specifications from the Offshore Outsourcing companies.
One can say that the Business Process Outsourcing is advantageous for both the service buyer and outsourcing service provider, as it help in enabling the offshore outsourcing service buyer to reduce the development costs and increase quality for functional / non core areas with more utilization of the expertise and competencies at maximum length. And now one could see the real advantage for the service organizations from India as the time of maturity, prosper of building core capabilities with certain possibilities by the Offshore Software Outsourcing firms.
Since from the time of globalization in India, exactly from the year 1990 government of India has started programs’ regarding economic reform committed towards liberalization and privatization. Till the starting period of year 1994 Indian telecom sector was under direct control of government and the ownership of units were provided to states with full enjoyment of a monopoly in real market. Further in the year 1999, the New Telecom Policy brought some changes by introduction of Intellectual Property telephony that helped to end monopoly of the state government on international callings. This reduced the heralded of the golden era for the Information Technology Outsourcing, Software Development Outsourcing industry with ushered in a large amount of inbound/outbound call centers & data processing centers.
One year on: BPO security still a concern
It has been just over a year since the murder of Prathibha Srikant Murthy - the Bangalore-based call centre employee who got into a taxi driven by a man she thought had been sent by the company in which she worked.
The crime called into question security measures at call centres, where night shifts and late night pick-ups and drops are common.
While many call centres continue to have strict security, there are others who are still not overtly concerned with the security of employees.
Security guidelines
Within hours of Pratibha Srikant Murthy's murder coming to light in December 2005, BPOs announced immediate changes.
There would be no first pick up or last drop for a female employee and a male colleague or a security guard would always be with her in the vehicle.
Twenty-four hour hotline numbers were started along with background checks of drivers. One year on, Prathibha's employer, HP, says it is still following these guidelines and other BPO majors also say security is still a priority.
"We are paranoid about security and frankly it was a rude wake up call for a large part of the industry. Indirectly we employ more than 1400 drivers, we cover more than 156 000 kilometres - the commute we do on a daily basis. Each one of them go through a police verification. We issue identity cards and reward drivers based on their behaviour," said Romi Malhotra, MD, DELL International Services.
Safety of workers
But while some companies may be taking the issue seriously, security is clearly not a universal concern.
"There is no security provided, I am the last drop. I have to beg the male employees to accompany me to my house. There is no security guard in the van. I have got myself a pepper spray," said an IT Firm employee.
The police say BPOs themselves need to take more responsibility.
"We have been trying our level best to give security and protection and also to brief them about the efforts they have to make from their side," said N Achyuth Rao, Police Commissioner, Bangalore.
The safety of workers in any industry is of vital importance but this perhaps is an industry young and organised enough to actually ensure the safety of its workers.
The crime called into question security measures at call centres, where night shifts and late night pick-ups and drops are common.
While many call centres continue to have strict security, there are others who are still not overtly concerned with the security of employees.
Security guidelines
Within hours of Pratibha Srikant Murthy's murder coming to light in December 2005, BPOs announced immediate changes.
There would be no first pick up or last drop for a female employee and a male colleague or a security guard would always be with her in the vehicle.
Twenty-four hour hotline numbers were started along with background checks of drivers. One year on, Prathibha's employer, HP, says it is still following these guidelines and other BPO majors also say security is still a priority.
"We are paranoid about security and frankly it was a rude wake up call for a large part of the industry. Indirectly we employ more than 1400 drivers, we cover more than 156 000 kilometres - the commute we do on a daily basis. Each one of them go through a police verification. We issue identity cards and reward drivers based on their behaviour," said Romi Malhotra, MD, DELL International Services.
Safety of workers
But while some companies may be taking the issue seriously, security is clearly not a universal concern.
"There is no security provided, I am the last drop. I have to beg the male employees to accompany me to my house. There is no security guard in the van. I have got myself a pepper spray," said an IT Firm employee.
The police say BPOs themselves need to take more responsibility.
"We have been trying our level best to give security and protection and also to brief them about the efforts they have to make from their side," said N Achyuth Rao, Police Commissioner, Bangalore.
The safety of workers in any industry is of vital importance but this perhaps is an industry young and organised enough to actually ensure the safety of its workers.
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