China targeting outsourcing potential to boost economy

New Delhi, May 19 : China's Jiangsu Province is targetting outsourcing as potential area for economic growth in the next few years.

Zhang Weiguo, the deputy governor of the province, was quoted by The China Daily as saying that a national strategic blueprint to develop the outsourcing industry is being given due consideration by the authorities.



He said the blueprint aims to provide new and diversified modes of economic growth to keep up with global trends and achieve sustainable development.

China's economy has grown rapidly in the last 15 years, and service industry outsourcing has in recent years emerged as a new economic growth point, particularly in Shanghai, Tianjin, Dalian and Shenzhen.

"We have great advantages in technology and human resources to compete and have a big share in the outsourcing service market," Zhang was quoted, as saying.

One of the fastest developing and wealthy provinces in the country, Jiangsu boasts a large number of hi-tech enterprises and companies in information technology, software, electronic information and telecommunications.

Statistics show the province yielded revenue of 200 million dollars from outsourcing services in 2006. Apart from Nanjing, the provincial capital and one of a dozen State-designated outsourcing base cities, six cities - including Suzhou, Wuxi and Changzhou - were recently named provincial-level outsourcing base cities by the provincial department of foreign trade and economy.

Fifty companies out of 1,000 from these cities were chosen to be key outsourcing enterprises.

Get More from Outsourcing

Most of us fear outsourcing, and with reason: Our jobs are on the line. Still, most of us work for organizations that will engage in one or more outsourcing deals. Learning how to deal with the changes outsourcing brings can actually work in our favor. Here are some tips.

Work on the outsourcing relationship. Most companies put little time or effort into these relationships, which soon become little more than a battle over invoices, due dates and other contract-related issues.

It's critical to treat the relationship formally, assigning specific point personnel to handle it (even if at this point you have only a small internal office of the CIO). This is especially critical when most of the people on the "other side" are your own ex-colleagues. You might like the "feel good" factor of seeing your former colleagues continue to identify themselves as members of your team, but beware. I've seen some who still did that 18 years into an outsourcing relationship. The problem is that those people never made the transition to representing their new employer and thus were unable to bring its best thinking to bear on the client's interests.

Focus on the future. Most long-term sourcing transactions go through at least one major contract renegotiation midstream. There's nothing wrong with this—few of us are brilliant enough to anticipate 10 or more years of changing needs. But if you're going to go through a year's worth of renegotiation, why settle for a few minor tweaks in the pricing algorithm and not much more?

It's not enough to enter into renegotiations focused on what has changed about your company's IT needs since you engaged the sourcing firm. Focus on change itself, the inevitable byproduct of passing time. You'll see, for instance, that tying the sourcing partner's resources to the configuration just makes it difficult for the partner to make changes that could save power, servers and other underlying costs. You might also decide to build staff redeployment and retraining into the contract. You could pay a defined sum toward them each year while putting in safeguards that would protect you from paying for severance if the outsourcer must lay off some staffers because of a lack of work. Another idea for renegotiation: Pay the sourcer a bonus for cutting costs more than expected or consistently delivering quality results.

Commit yourself. When you outsource a business process, do it cleanly. I've seen outsourcing relationships in which a single transaction passed back and forth over the sourcing boundary five or six times. Commitment can only come with trust, but it's important to make up your mind that your objectives are indeed trust and commitment. And, make no mistake, a failure to commit shows up as a lack of success—on both sides of the table. Once you have established trust, you will be less concerned that you might be able to get something done a little cheaper through someone else, and you will become comfortable with not spelling out precisely how the partner should do everything. In other words, you will learn to treat the partner like the next department over.

By the end of 2008, more than US$120 billion in outsourcing deals will be up for renewal. Many clients are in deeply unhappy relationships, yet most will end up outsourcing again. Now is the time to hone your ability to form partnerships. You'll be mastering an in-demand skill.

BTO industry to be USD 680 billion by 2008-09

The market potential of the Business Transformation Outsourcing (BTO) industry is expected to be aroundUSD 680 billion by 2008-09 and grow at the rate of five per cent,according to a ASSOCHAM study.
The study said the percentage of BTO services in the outsourcing spectrum was expected to increase from 19 per cent in 2004 to 31 per cent by 2009.
While, West Bengal is considered as one of the favourite IT destinations in the country Kolkata is almost at one of the last rungs of the potential Business Transformation Outsourcing (BTO) ladder, it said.
The study entitled " Business Transformation Outsourcing (BTO):Third Generation Outsourcing," was conducted by Associated Chamber of Commerce and Industry of India recently.
However, cities like Bangalore and Gurgaon have ranked as the most favourite BTO destinations, followed by Delhi, Chennai and Mumbai.
Kolkata has been placed at the sixth position followed by Pune in the seventh rank.
However, the industry gains popularity it was poised to grow at 10 per cent per annum.
The study said as the BTO industry was a normal extension of the BPO industry.
However, the study also pointed out that those cities that were already a BPO hub were most likely to be placed in the top rungs of the ladder.
Availability of quality infrastructure, talent pool, geographic location, local climate and tax benefits available from the local government were the main factors which a BTO layer looks for while setting up its base in a city.

Now, outsourcing gets personal

NEW DELHI: It's the latest buzzword in outsourcing and soon it may touch your life personally. For outsourcing is fast transforming itself from being a multi-people oriented activity to an individual one.

And the new word for it is PPO or person-to-person outsourcing. Already, it's generating revenue worth $250 million annually worldwide, and by 2015, it's expected to be worth $2 billion.

Interestingly, in India, PPO generates revenue worth $65 million annually, but it's expected to touch $500 million by 2015. An eight-fold increase in nine years at a cumulative growth rate of 26%. Although still in its infancy in India, PPO will take another 3-4 years to establish here.

So what's PPO? It consists of those services that are offshored by individual entrepreneurs who are trying to bootstrap their new organisation as efficiently as possible. With technology advances and the growth of the Net, small offices, home businesses and freelancers can utilise PPO services and generate business.

The new trend has been captured by Alok Aggarwal, chairman, Evalueserve, a global research and analysis firm, in his latest paper, 'Person-to-Person Offshoring - Offshoring of Services Reaches Small Businesses and Homes'. Aggarwal says it's simply a different level in offshoring and not the 'next level' or 'previous level.' "This trend shows that because of lower phone tariffs and internet costs, even freelancers can get on the offshoring bandwagon and make money."

Currently, PPO includes services like online tutoring, website development, graphic designing, software development, writing and translation services, accounting and tax preparation services, architectural services, etc. A paper by Alok Aggarwal, chairman, Evalueserve, a global research and analysis firm, predicts as the trend catches up, more and more consumers will be able to offshore jobs at fairly low cost and deliver on time.

At the moment, there are around five lakh vendors and freelancers from various low-cost countries in the PPO space. Out of these, approximately 30% are from India.

India is also facing competition from traditional outsourcing countries such as Philippines, Russia, Ukraine, Romania, China, Vietnam, even Thailand and Sri Lanka. But we have an edge over others. "The reasons are the same — good English-speaking and analytical skills, etc," says Aggarwal.

As of now, PPO is being done under two business models worldwide. First, direct interaction model where the individual client signs a contract directly with the vendor, who in turn either hires people on a full-or part-time basis or sub-contracts the job.

Although payments can be made through cheques or wire transfers, as the cost of the project is fairly low, clients usually pay through credit cards.

The second is the online marketplace model. Here, vendors enrol in an online marketplace by paying a monthly subscription fee, plus a fixed percentage of the revenue if they win the project. When an individual posts requirements for a new project in the online marketplace, that's communicated to the selected vendor/freelancer.

The client then awards the work to the appropriate person. Aggarwal estimates that currently, there are over 90 online market places.

"Unlike manufacturing, where large companies like Wal-Mart or Target could import from low-wage countries like China or India, inexpensive internet and phone call costs have created a level playing field where even the common man can take advantage of low-cost, white-collar labour around the world," he says. A sign of people power.

Knowledge process outsourcing will be a growth story: experts

Published: Friday, 18 May, 2007, 01:17 PM Doha Time

CHENNAI: In an office in the southern port city of Chennai, analysts pore over stock market data for a London-based fund company, searching for investment opportunities.
Some 1,900km away in Gurgaon, on the outskirts of Delhi, lawyers have taken over research and patent filing for several Western technology and healthcare companies.
These are examples of knowledge process outsourcing (KPO), a new fad across India, where companies are trying to move up the value chain and away from call centres staffed by young people tutored in American accents.
As well as examining financial data and drafting patents, firms in India are managing payrolls and accounts for Western companies, carrying out market research and doing a host of other high-value tasks.
The knowledge process market in India is worth $2.5bn to $3bn a year, and is likely to grow to $10bn to $12bn by 2012, said Ashish Gupta, chief operating officer of Evalueserve, a knowledge process firm with about 1,500 employees in India, China and Chile.
Driving this boom are huge cost savings for Western companies and bigger fees for Indian companies than they can earn from running call centres. Although salaries in India are rising, they are way below Western wages.
Patent research can be done in India at $50 to $80 an hour, compared with $150 to $350 in the US, said R Sivadas, chief executive of Scope e-Knowledge Centre Pvt Ltd in Chennai, which has clients in publishing, healthcare, and engineering.
Average billing rates in the knowledge process sector are 40 to 50% higher than those in the call centres, said Sivadas, whose company employs 485 people, 95% of them engineers and medical doctors.
“We have just touched the tip of the iceberg. In the next six to eight years, KPO is definitely going to be a growth story,” said Sivadas, whose firm will raise staff to 680 by March 2008.
Another such firm is Sundaram Finance Ltd, which set up a back-office subsidiary six years ago to provide research services to local financial firms and now has 23 clients from Britain, Australia, Singapore and the Middle East who have outsourced jobs like market and data research.
In January, India’s Hinduja TMT Ltd and British-based business consulting and outsourcing firm Centric Consulting Ltd entered into a joint venture with law firm Fox Mandal Little to provide legal outsourcing service.
Indian software majors Infosys Technologies Ltd and Wipro Ltd are also vying for a bigger share of the KPO business.
Infosys made $147.52mn in profit from all business process outsourcing in its most recent fiscal year, 8% of it from these high-value, knowledge tasks.
“I expect knowledge services to continue to grow much faster,” said Amitabh Chaudhry, chief executive and managing director of Infosys’ business process unit. “That’s a very important area for us both from the opportunity perspective and from continuing to push the envelope to improve per capita productivity.”
Wipro’s business process outsourcing unit aims to double the revenue from knowledge services to 40% by 2009.
The growth in knowledge process outsourcing has come on the back of India’s pool of English-speaking talent and its lower wages, but there is a looming shortage in graduates in business management, engineering, financial research, law, accounting and medicine.
“There are two issues in terms of manpower — in quantity, there is no problem, but in terms of quality there is definitely an issue,” Sivadas said.
India produces about half a million technically trained graduates, 300,000 post-graduates and doctoral candidates and 20,000 lawyers every year, but many are unsuitable for direct employment in the industry.
“A lot of time, money and effort are spent in finding right candidates. It’s not as easy as the numbers make it out to be. In this business, you just can’t pick people off the street,” Sivadas said. – Reuters