service level agreements (slas), and, above all, the willingness to be flexible as
business needs change.
The challenges of outsourcing become especially acute when the work is being done
in a different country (off shored), since that involves language, cultural and time
zone differences.
Decision-Making Process
Each outsourcing decision involves several steps and it is important to go through
them:
Step 1: Inventory of in-house resources.
Step 2: Assessment of in-house resources compared to services available in the
market place.
Step 3: Identification and evaluation of prospective bidders. This requires collection
of market intelligence, finding out other companies experiences with outsourcingetc.
Step 4: Competitive bidding procedure, including requestor proposals, evaluation of
bids according to selected criteria and clarification and comparisons of bids.
Step 5: Negotiations, including a letter of intent and usually a term sheet. The negotiations
have to be exhaustive.
Step 6: Signing the contract.
Step 7: Transition phase where the function from the clients facilities are transferred
to those of the vendor. This can be-and should be-a slow process and needs to be
handled with great precision.
body for the industry. It conducts surveys and conferences which help in the
dissemination of knowledge and research in the outsourcing industry. As per
NASSCOM, "While India's low-cost talent pool has helped its businesses grow,
global incumbents have also recognized India's inherent advantage and have mastered
this capability by off-shoring more work out of India." India's competitive advantage
lies in its ability to provide huge cost savings and thus enabling productivity gains.
THE 5 Ws OF OUTSOURCING:
Who should outsource?
Every company can reap big benefits through Outsourcing. Outsourcing can change
the way companies do business - through people, processes and technology. Whether
B2B or B2C, whether SMEs or large diversified companies or small home offices,
every company can leverage the power of outsourcing for business transformation.
Technology is the key to the competitive edge in the marketplace, and outsourcing
helps companies to leverage the latest and most sophisticated workflow technologies without capital investment - to optimize their business processes and get "more bang
for the buck." Outsourcing opens the door to a global talent pool of human resources
with the qualifications and skill sets to harness this technology effectively. The
internet along with workflow technology has streamlined the processing, transfer and
delivery of data so that large volumes of work can be quickly and efficiently
completed and delivered. Process maturity in the outsourcing arena has
revolutionized the way the world conducts business, and radically improved
business processes to make them faster, cheaper and better. Outsourcing has been
proven to reduce capital costs, increase efficiency, speed up time-to-market, reduce
labor costs, and enable core business focus. Outsourcing has actually helped
companies find newer and better ways to do things, thus adding value to their
products and services.
Why should a company Outsource?
Outsourcing gives:
The competitive edge - through sophisticated technology and people
Support to do tasks faster, better and cheaper
Operational efficiencies without capital investment
Leading-edge e-business infrastructural support and facilities
Management
Better performance
Lower cost
Security
Process maturity
What should a company Outsource?
Outsourcing is a technology-driven, process-centric service business. Business
process outsourcing (BPO) refers to definable, repeatable business processes that
involve scale and volume. Research and Analysis outsourcings are the higher end of
the BPO spectrum, involving advanced analytical skills, domain knowledge, expertise
and judgment.
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ADVANTAGES OF OUTSOURCING
Cost savings:
The lowering of the overall cost of the service to the business. This will involve
reducing the scope, defining quality levels, re-pricing, re-negotiation, cost restructuring.
Improve quality:
Achieve a step change in quality through contracting out the service with a new
Service Level Agreement.
Knowledge:
Access to intellectual property and wider experience and knowledge.
Contract:
Services will be provided to a legally binding contract with financial penalties and
legal redress.
Operational expertise:
Access to operational best practice that would be too difficult or time consuming to
develop in-house.
Staffing issues:
Access to a larger talent pool and a sustainable source of skills.
Time zone:
A sequential task can be done during normal day shift indifferent time zones - to
make it seamlessly available 24x7.Same/similar can be done on a longer term
between earth's hemispheres of summer/winter.
Increase in business:
Benefit of outsourcing is seeing a big increase in your profits, productivity, level of
quality, business value, business performance and much more.
DISADVANTAGES OF OUTSOURCING
Loss of control
Quality problems
Slow response time
Can't understand foreign accents
Slow resolution times
Can't produce desired results
Reduced sales
Irritated customers
Irritated employees, unions, people within community.
Bad publicity
TYPES OF OUTSOURCING
NEARSHORING
Nearshoring is one of the forms of outsourcing, where an organization outsourcers its
business processes to an outsourcing partner who provides cheaper services. The main
differentiator between offshore outsourcing and nearshore outsourcing is that the
outsourcing partner in near shore outsourcing is located geographically closer than the
outsourcing partner in offshore outsourcing. The term "Near shore" has been taken
from the fishing industry and now it is used widely in the world of outsourcing.
Advantages of Near shore Outsourcing
Closer proximity
Both the outsourcer and the vendor are in the same time zone
Better coordination and communication
Similar culture, mindset and language
Frequent visits to the outsourcing partner is possible
Greater efficiency
OFFSHORING
Offshoring simply means having the outsourced business functions done in another
country. Frequently, work is offshored in order to reduce labor
expenses. Other times, the reasons for offshoring are strategic - to enter new markets,
to tap talent currently unavailable domestically or to overcome regulations that
prevent specific activities domestically.
ONSHORING
Onshore outsourcing (also called domestic outsourcing) is the obtaining of services
from someone outside a company but within the same country. The process of
engaging another company within your own country for BPO or ITO services
Advantages of off shoring and on shoring:
INFORMATION TECHNOLOGY
OUTSOURCING:
IT outsourcing occurs when an organization contracts a service provider to perform an
IT function instead of performing the function itself. The service provider could be a
third party or another division or subsidiary of a single corporate entity. Increasingly,
organizations are looking offshore for the means to minimize IT service costs and
related taxes. Many times, the outsourcing decision results in a transfer or sale of the
information processing assets and the people who performed the in-house function to
the service provider. Outsourcing is also a common option for start-up operations and
for organizations entering new business lines. Rather than devoting time, energy and
capital to the creation of IT processing services, organizations feel they can minimize
the start-up time required to enter new markets by contracting a third party to provide
those services immediately. IT outsourcing is an attractive option for many
organizations. IT outsourcing should be an integral part of an organizations overall
business strategy, involving senior executives and key IT staff. The rationale for
pursuing outsourcing options involves the strategic, financial and
technological benefits to be gained.
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Productivity Improvements
Access to expertise
Operational cost control
Cost savings
Improved accountability
Improved HR
Opportunity to focus on core business
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Outsourcing Destination
Ireland
16%
India
China
19%
India
70%
Eastern Europe
Russia
Phillippine
Philllipines
20%
China
Russia
22% Eastern Europe
43%
Ireland
Others
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competitive edge. The following are a list of reasons why companies outsource to
India.
1. Cost-effective services
The numerous reasons why global organizations outsource to India is because India
offers cost-effective services. Outsourcing to India can help you save more than half
of your operating costs! India has a large, educated, trained and technically skilled
manpower and this number only keeps growing every year. Unlike the west, where
technical talent is rare, India has a large pool of highly-skilled professionals. Having a
large technically skilled manpower has enabled India to provide cost-effective
services without compromising on quality. Outsourcing to India, can help you save on
your operating costs, while increasing your productivity, quality and efficiency.
2. High-quality services
India uses the latest in software, technology and infrastructure to provide global
customers with high-quality outsourcing solutions. India has proved that it is
technically superior when compared to othercountries that provide outsourcing
solutions. So, when you outsource your work to India, you can beassured that the best
technology and software would be used for your services. India has the largest
English-speaking audience after the U.S. India also has a highly educated manpower
that is talented, educated, experienced, technically-skilled and computer literate.
Outsource to India and be assured of high-quality services.
3. Time Zone Advantages
The time zone advantages between India and countries in the U.S and U.K has proved
to be another important factor why companies outsource to India. Organizations who
wish to provide their customer with 24x7x365 days customer support or helpdesk
services can outsource to India.
4. Indias stable government
India has celebrated more than 60 years of democracy and has one of the worlds
most stable governments. Building up the IT sector has been a top priority for the
Indian government. India has ministry of information technology that quickly
approves the implementation of IT projects and streamlines regulatory processes. The
Indian government has even released a bill termed as the IT act 2000 India has been
rated to have the most excellent investment potential in the coming years. The Indian
government has given complete support to the IT and ITES industry in India. With
ample support from the government, Indians have been able to build high-tech IT
parks which has the best in technology and infrastructure. The Indian government has
even permitted 100% foreign equity .Indias fast growing economy has been yet
another reason why companies are outsourcing to India.
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4. Remote Infrastructure Management Services India can offer management services for IT infrastructure, applications operations, IT
security and maintenance. This sector presents great potential through large-value
multi-year contracts
5. Accounting Services -We are in the initial stage where Payroll processing services
and some accounting is being done for large American companies. This trend will
continue and soon a full range of accounting and tax services will be provided by
Indian companies.
6. Outsourcing opportunities for India exist in other fields like Financial Research,
content development, medical writing: animation, film, publishing, web services;
Human Resource outsourcing: recruitment, training, Education, Nanotechnology and
many others.
CHALLENGES FOR INDIA:
1. Rising competition In the next ten years, China will replace India in its number 1 position in the
global ITES-BPO industry.
Rising costs and low efficiency in many cities like Bangalore will make
software outsourcing less attractive in future. The giants may show a drop in
earnings.
Indias terrible Infrastructure will continue to be a drag on the potential of
India giving other countries the competitive advantage.
Other competing countries providing low-cost outsourcing options will exert a
downward push on costs East Europe, Latin America, South Africa
2. Infrastructure Indias ability to develop infrastructure is far outpaced by neighboring China
Metro cities are getting saturated and costs are rising -- Tier II towns need to
develop infrastructure but Indias track record does not bode well for fast
development.
3. Human resources and training The demand-supply gap in India for knowledge workers is being felt now in
Bangalore but may peak India wide in 2015
The education system needs transformation to produce people with skill sets
that match industry needs.
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SWOT ANALYSIS
Strength
Weaknesses Recent months have seen a rise in the level of attrition rates among
outsourcing
The cost of telecom and network infrastructure is much higher
Local infrastructure
Political influence
Opportunities To work closely with associations like Nasscom to portray India as the most
favoured IT destination in the world
India can be branded as a quality outsourcing destination
$69 billion ITES business and
$97.5 billion IT (consulting, software solutions) market in near future
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P.E.S.T ANALYSIS
Political Factors
Counter-trade Agreement to Benefit Indian Companies like Wipro, Tata
Consultancy Services (TCS), Infosys Technologies Ltd etc
Increase in Globalization, Liberalization and Privatization
Liberalizing the rules and trade barriers levied on Foreign Software
Companies
Economical Factors
The fourth largest economy in the world (measured in terms of purchasing
power parity)
Has the second largest group of software developers after the U.S
.Lists 6,600 companies on the Bombay Stock Exchange;
The IT industry as a whole represents 2.87% of GDP
Social Factors
Comparative advantage of English speaking & technically educated graduates
Indian engineers settled abroad are returning back to India to add to the skill
set available in India
Sends more students to the U.S. colleges than any other country in the world.
In 2007, over 84,000 Indian students enrolled in the U.S.
Technological Factors
Moving up the Outsourcing Value-chain
100 of the Fortune 500 have R & D facilities in India
One of six countries that launches its own satellites- One of only three
countries that makes its own super computers
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SOCIO-CULTURAL ENVIRONMENT
Though many qualified Indians continue to migrate, there are enough qualified people
in India, which leads to a high level of entrepreneurship and availability of managerial
talent. Industry and service sectors show high growth rates, benefiting the outsourcing
industry, serving both domestic and international demand. High value-adding,
intellectual work starts to come to India. Indian outsourcing companies dominate the
global competitive scenario as access to capital becomes easier. Many qualified
Indians continue to migrate, but there's enough quality manpower in India, leading to
a high level of entrepreneurship, as well as the availability of managerial talent for the
outsourcing industry. If we talk about Indian society, then definitely one can notice
and observe the change brought by the outsourcing services and institutions. Being
worlds second most populated country, human resources are a boon by itself, in India
.Outsourcing can be both beneficial as well as harmful to the society. This industry,
which booms in metro cities, has caught hold of what can be called as the jugular
vein. Its role is somewhat restricted to the developed cities only and can be least
found in the villages and remote areas of India. Outsourcing industry has improved
Indian economy primarily by employing large number of people and building and
maintenance of infrastructure. It is because of the outsourced projects that people at
large in India get opportunities to know and work in multinational corporations.BPO
companies also provide ample opportunities for women and as such help them in their
liberation and liberalization. There is a good percentage of women workforce
employed in the outsourcing companies in the cities. The role of women has
consistently changed and they can better take care of their finance and their career.
Meanwhile we are also losing on several cultural and traditional benefits. The
outsourcing companies and projects emphasize on the foreign cultural values, the
place from which the original project has been outsourced. The holidays, the work
culture, day-to-day dealings and more tend to lay greater importance on the social
norms that are not part of our system, our community. We are slowly adapting to the
change, accepting the dominant culture and yielding to such values, which neither we
have assigned, nor have they come from our own social domain. Outsourcing based
on call centers comes with a package of cultural and value systems associated with
western culture.
As Indian BPO serve mainly customers from western countries, their employees are
provided with opportunities and training in understanding the culture, accent, and
customs existing in the outsourcing receiving countries.
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CONCLUSION
Indias emergence as a globally competitive supplier of software and services
has attracted worldwide attention. It is shown that the software and service
sector not only contributes significantly to GDP but also emerges as a major
source of employment generation in the country.
India provides a range of services, including programming, conversions,
testing, debugging, installing and maintaining .This led to concerns that the
Indian software industry despite its apparent successes has returned to the
production pattern of the 1960s.
Foreign tie-ups, foreign brand names and access to the latest imported
technology were once again the most important considerations and most socalled Indian computer companies actually just produce software for
integration with imported hardware
India is exporting inexpensive lines of code and importing expensive foreign
software whilst trapped at the low end of the division of labour
Competitive strength is based on low wages rather than productive dynamism
A growing number of MNCs followed the pioneers in setting up offshore
development centers in India in the 1990s
In 1990 onsite sourcing constituted 90% of revenue in thes software sector.
This figure had fallen to 38.9% in 2002/03
In contrast off shoring increased from 5% in 1990/91 to 57.9%2002/03
32 Indian firms received the prestigious SEI-CMM certification by the late
1990s
In 2001 about 40% of Indias software exports came from Bangalore.
As the industry has expanded in terms of employment, revenue per employer
has been increasing, from $6198.5 in 1993/94 to$15,600 in 1998/99.
Outsourcing for India is a boon because it has strengthened the Indian
economy, but there are some societal issues related with outsourcing which
can make it a bane.
Outsourcing being o boon or a bane, the decision lies with how we look at it
and how it is channelized in our society.
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WEBLIOGRAPHY
http://en.wikipedia.org/wiki/Outsourcing
http://business.mapsofindia.com/india-company/outsourcing.html
http://www.therichest.com/business/top-10-outsourcing-companies-in-india/
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