Outsourcing In India- Emerging Trends, And Challenges

Article written by:

SHEEBA REHMAN
FACULTY-MANAGEMENT
IMS-Noid
ABSTRACT:

Outsourcing is nothing, but purchasing service from an outside vendor rather than using
internal resources.

The beginning of new millennium is witnessing info-tech revolution called IT enabled

services. They are business process and services delivered over networks or the Internet
to a wide range of business areas and verticals. The technology is used as a tool to
provide these services, of which most of the functions are human intensive. Due to the
human intensive nature these processes and services are outsourced in order to derive
cost and advantage without sacrificing quality and efficiency.

In recent years, businesses have outsourced their data centers, application management
activities and, finally, non-core, transactional processes to reduce costs and improve their
ability to focus on more strategic issues. Today, companies are recognizing that they need
to take advantage of low cost sourcing options wherever they may be in the world. Many
are flocking to foreign shores for high-quality, cost-effective outsourcing services. While
India is the reigning offshore capital for technology capabilities, any country with the
right conditions, including but not limited to a large population of skilled workers with
the requisite language skills, is a potential sourcing option.

Now, thanks in part to the economic benefits of offshore sourcing options, the field of
business process outsourcing (BPO) has emerged, allowing a company to outsource an
entire process or business function—such as Human Resources, Training, Call Centers
and Finance & Accounting—to a third-party service provider. Utilizing global sourcing,
companies can outsource many business processes for a fraction of the cost of running
the same functions in their home countries. In addition to cost savings, companies can
benefit from efficient, high-quality and repeatable processes that generate business
performance improvements.

India is a country, of which, the BPO is making waves in the Industrial landscape. It is
one of the most upcoming sectors after the IT boom. Now the country gradually turned
itself into a hub center of IT and ITES. However each and every country desires to
outsource from India. The BPO sector contributed in the overall growth of export,
employment generation, transport, catering, training, which in turn are generating
substantial tax revenue.

This article is presented to outline the trends, challenges, and opportunities in

outsourcing.
OUTSOURCING- RECENT TRENDS, AND OPPORTUNITIES.

OUTSOURCING: outsourcing is the delegation of tasks or jobs from internal

production to external entity (such as a subcontractor). Most recently, it has come to
mean to avoid of native staff to staff overseas, where expenses are markedly lower. This
is despite the fact that the majority of outsourcing that occurs today still occurs within
country boundaries, especially in North America. It has become a popular buzzword in
business and management in the 1990s.
 Where functions previously performed by an organization are supplied under
contract from a third party.
 The concept of taking internal company functions and paying an outside firm to
handle them. Outsourcing is done to save money, improve quality, or free
company resources for other activities. Outsourcing was first done in the data-
processing industry and has spread to areas, including tele messaging and call
centers.
 A Long term, results-oriented relationship with an external service provider for
activities traditionally performed within the company. Outsourcing usually
applies to a complete business process. It implies a degree of management control
and risk on the part of the provider.

Why are companies outsourcing?

One of the big advantages to outsourcing is flexibility- it can be a lot easier to cut
back on a vendor than an employee. (Think of how you would feel if you had to sell
an employee who is dependent on their job that you only need them half- time now).
Another advantage is that you don’t have to become an expert in every particular
area. You can depend on the outsourced company to be the expert.
Perhaps the most positive thing about outsourcing is its ability to save money. This
will, of course, depend on the size of your company and what specific tasks you
outsource, but in general, in terms of money saving. For example: my company
outsource the IT services (help desk, computer support and maintenance), and we pay
significantly less than we pay for a full time IT person to give us to the same level of
support. We also outsource our bookkeeping and office administration, with similar
savings. As we grow, we’ll continue to reevaluate these decisions- it may be that the
business case for the IT outsourcing remained good as we grow but that we might
eventually hire someone to offload other work from our current people and since we
would be paying them anyway, we could get them to the bookkeeping as well.
There are some definite advantages to outsourcing. Contract work is often cheaper-
especially if you opt for offshore development. You hire people only for specific
tasks. You can keep adjusting the size of your team to fit your current needs and
budget.
Outsourcing creates shareholder value by reducing commitments to fixed and
working capital. Secondly, outsourcing helps a company focuses on its core business,
creating a competitive advantage within its industry. Other advantages include
gaining access to best-of-class capital accelerating the benefits of re-engineering.
 When to outsource?

 When you are too busy handling operations and are losing focus on your core
business.
 When you are facing a time, money and human resource crunch.
 When you have a mission-critical project that needs all your time and energy,
plus specialized skills, which aren’t readily available.
 When you have got to the first into the market to gain the edge.
As part of the outsourcing, many companies are debating when to outsource their
management support tools as well. This is a complex question the must consider the
competitive advantage which a tool may provide. The company must also account for
how ready the market is to support such a tool in an outsourcing model. The final
direction should not solely be question of cost saving, but must consider the benefits and
the strategic position of the company in the marketplace.
 When you need to smooth peaks, troughs and staff shortages. (Outsourcing peak
demand allows right sizing of information centers).
 When you need to have access to specialist skills and knowledge. (Local
international knowledge or specific industries saves information center time and
makes them more efficient).
 When you need to have access to specialize content. (Access to specialist
databases and content through specialist information consultancies).
 When you need to reduce content cost. (Some information consultancies have
economies of scale and buying power for content therefore access content at
lower cost).
 When you need to reduce research cost. (Some information consultancies have
lower resources costs due to use of students, overseas researchers, and telecom
staff or staff in low cost offices).
 When you need to reduce overheads. (By outsourcing staff count can be reduced
and expensive office space is released).
 When you need to undertake confidential research. (The use of an information
consultancy can provide anonymity).

Who is outsourcing?

 Customer care: includes database marketing, customer analytics,

telesales/telemarketing, inbound call centers, web sales and marketing and
administration.
 Finance: includes billing services, accounting transactions, tax consulting and
compliance, risk management, financial reporting, financial analysis etc.
 Human resources: includes benefits administration, education and training,
recruiting and staffing, pay roll services, hiring administration and transaction
processing.
 Payment services: credits/debit card services, cheque processing and
transaction processing.
 Administration: including tax processing, claim processing, asset
management, document management, transcription and translation.
  Content development: including engineering, design, network consultancy
and animation, biotech research.

There is a difference among outsourcing, offshoring, and near-shore outsourcing.

No commonly accepted definition of offshoring exists, and the term has been used
to include various international trade and foreign investment activities. Services
that U.S.A. based organizations purchase from abroad are considered imports.
They may also be linked to US firms’ investments overseas. In recent years,
services offshoring has been affiliated by factors, such as the Internet,
infrastructure growth in developing countries, and decreasing data transmission
costs. Organization’s decisions to offshore services are influenced by i) Potential
benefits such as the availability of cheaper skilled labor and access to foreign
markets and ii) by risks, such as geographical issues and infrastructure instability
in countries that supply the services.
Offshoring:
Offshoring of services generally refers to an organization’s purchase from other
countries of services that it previously produced or purchased domestically; such
as software programming or telephone call centers.
Nearshore outsourcing:
Near shore outsourcing, a form of offshoring is the term used to refer to the
practice of getting work done or services performed by people in neighboring
countries (e.g. Canada, Mexico) rather than in your own country.
Person-to-person outsourcing:
Coined by Alok Aggarwal, chairman of Evalueserve Inc, PPO means person-
to-person outsourcing. The US-based Aggarwal, who is the co-founder of the
global research and analytics services firm, says offshoring is now beginning to
go mainstream and is touching the upper class and working class alike.

According to Evalueserve, PPO services follow two business models:

1. The direct interaction model where the individual client signs a contract
directly with a vendor in a low-wage country, whose employees (tutors, admin
etc) work on a full-time or a part-time basis, or as sub-contractors.

2. The online marketplace model where the vendors providing PPO services
enroll in an online marketplace by paying a monthly subscription fee plus a
fixed percentage of the revenue if they win the project through this
marketplace. So, when an individual client posts requirements for a new
project to be conducted on the online marketplace, the marketplace
communicates these opportunities to the selected vendors and freelancers and
requests proposals to be delivered to the client.

Outsourcing- an HR perspective:

There is an increasing trend for outsourcing HR functions and this trend will continue.
Many software companies are tending to outsource HR activities in large numbers to
expert external consultants.
 The prime focus of HR outsourcing includes:

 Sourcing the right people from the best talent pool quickly and cost-
effectively.
 Picking a right mix of the competencies, experiences and behaviors from
this talented pool.
 Converting potential applicants to competent employees swiftly,
competitively, and equitably.
Outsourcing anything to everything is therefore, in HR is possible and that would
depend on the outsourcing needs.

ASSESSING OUTSOURCING NEEDS:

Organizations that do outsource must make a proper assessment as to what HR functions

or activities to outsource and why? Organization has to systematically carry out
outsourcing needs assessment (ONA), in order to get effective results from HR
outsourcing activities.
Organization can assess outsourcing needs by answering some important questions such
as:
• What are the organizational objectives, goals, and strategies to become a leader?
• What HR functions are routine and voluminous in nature, for witch internal HR
personnel are rather expensive?
• What problems are encountered in smoothly carrying out HR activities internally?
• What are the costs and benefits of outsourcing an activity vis-à-vis carrying it out
internally?
• What are organizations internal deficiencies in carrying out some or more HR
functions to manage people effectively?

Through this assessment, it is evaluated that which HR systems and processes are
required, whether these systems and processes are available, and if yes, do they possess
adequate capabilities, and what will it cost, if hired. Therefore, it must be thoroughly
studied before outsourcing the activities.

HOW OUTSOURCING WORKS:

The process of outsourcing HR activities involves the following consecutive stages and
each stage has its unique function to start, run and finish the same to jump the next stage.
(I) Project Initiation: At the first stage the need for outsourcing HR activities
has been identified, specific area of HR activity that need to outsourced, and
proper plan and time duration of its completion has been set.
(II) Strategic consideration: After the successful completion of the first stage,
second stage is started where cost-benefit analysis is done to assess the risk
associate with each HR activity, which is considered for outsourcing.
(III) Vendor evaluation: At this stage, external service provider’s proposal is
analyzed to identify the gap between the HR requirement and the vendor
service responses.
 (IV) Corporate communication: Here, right message is delivered to the right
audience, at the right time across the entire organization and through sharing
expectations employees’ fear is reduced.
(V) Contract management: at the last stage, a contract on business principles of
flexibility and cooperative decision making is made that makes way for
realistic expectations of achieving cost service benefits. Another plan is also
made in order to review the relationship of on-going outsourcing plans.

THE CHALLENGES BEING FACED:

India is making progress by leap and bound on one hand, and on the other hand, there
are several important challenges are being faced by the industry. These challenges
are:

• Managing the high attrition rate of 30-to40%: - Sometimes the prospect of

earning could trigger the young employees to switch over to a rival firm.

• Offering high incomes: - To retain employees is a problem since this is a low

margin industry with billing rates varying between $6 per hour to $20 per hour
based on the nature of work.

• Mushrooming of small players: - Attractive growth rate of the BPO-ITES

industry has resulted in many reckless starts-ups. Several companies from
unrelated sectors without the required expertise entered the industry lured by the
healthy potential of the industry. These small companies are now finding difficult
to survive in this capital-intensive industry.

• Language problems: - Insufficient proficiency in English language is a major

hurdle for the country.

• Shortage of training programme: - Though educated youngsters are available

in plenty, training a large number of them in the needed skills for quick ramp up
of numbers is difficult due shortage of trainers.

• Night shifts: Because of night shifts the employees become impatient and even
angry, they also suffer from high stress level, fatigue and ill health.
• Outsourcing are countered by some Priorities for selecting an
other important challenges: Outsource partner
On a scale of 1 to 5
(Where 1 = extraneous
1.Selection of ideal outsourcing partner And 5 = vital)
o Price
o Expertise in a particular industry
o Integration capabilities
o Training and qualifications
o Overall customer service strategy
o Company information privacy
o Knowledge in latest technology
 Data collected from the sources: Reviews and Summaries of five articles on current
outsourcing trends with links to keepmedia.com
2. Dynamic challenges
o Management challenges
o Cultural/language communication risks
o Security risks
o Legal concerns
o Time zone challenges
o Knowledge transfer challenges
o Legal issues
3. Outsourcing in-house problems
o Sign up for projects without enough preparation
o Striking big deals for the wrong reasons
o Lack of legal and regulatory expertise
o Appropriate recruitment
o Shortage of technical expertise
o Up-front investment

US CONCERNS: There are some anti-outsourcing trend booming in US, but the US
Chamber of Commerce ("USCC") has evidently come out sturdily in favor of outsourcing
as it considers it good for the US economy and it has reportedly decided to fight
legislative moves against outsourcing of jobs to countries where jobs are being
outsourced:

OUTSOURCING TRENDS:

Outsourcing, going to be more and more of a mainstream phenomenon, is now a business

essential. The next wave in globalization is focused on the transplantation of entire IT
departments offshore. Recent trends suggest that the outsourcing market will continue to
grow. Contracts are awarded incessantly and study indicates that companies
are expanding the range of IT services they outsource.

RECENT TRENDS

• Offshore outsourcing is increasingly being accomplished as global sourcing or

global delivery.
• Cannibalization of work: Earlier work was outsourced to a supplier who stayed at
home, but today outsourcing is more prevalent.
• The growth of the captives, organizations owned and operated in a foreign
country by a parent firm. Here the offshore workforces are employees of the
parent company, not an outsourcing supplier.
• Outsourced e-commerce: Sending e-commerce out of house is an increasingly
popular choice for businesses.
Data collected from www.outsourcingtypesettings.com

The Global Market: To improve business performance outsourcing of business

processes and functional activities is one of the options available. Companies that employ
outsourcing are more financially stable than are those that do not.

• 35-55 percent savings in relevant costs for some global companies.

• 23 percent of IT services will be delivered from offshore centers by 2007,
compared with only 5 percent this year.
• According to International Data Corporation (IDC), global IT-enabled services
market will account for revenues of $1.2 trillion by 2006.

Globalization and de-regulation has changed the entire face of business and the
companies are about to receive the new business model, ‘outsourcing'. The new
atmosphere speeds up business processes, eliminating administration costs and improving
efficiency.

• Cost saving by 40-50%

• Reduce investment risk
• Get access to specialized skills
• Faster development and start up
• Overcome human resource crunch
• Ability to concentrate on core functions

Data collected from www.outsourcingtypesettings.com

GLOBAL OUTSOURCING

• Creates and expands new markets

• Effectively and efficiently promotes global citizenship
• Recognizes the benefits of a global economy
• Enhances technological creativity and diversity
• Makes good social, financial, and economic sense

TREND SETTING FACTORS

• Conservative companies to experiment with going offshore to withstand

competition.
• Broadening of the IT services offered by the experienced vendors.
• The launching of captive offshore centers by user companies for business process
outsourcing (BPO).
• Onshore IT technology and services vendors setting up shop in locations like
India and China to widen their services. The main three facets;
o Availability of aptly skilled resources
o Lower costs of manpower
o Ability to create better quality of work, more efficiently.

CONCLUSION:

The scope of outsourcing has expanded dramatically in recent years. So, too, have the
benefits of outsourcing—from simple IT cost reductions to dramatic improvements in
efficiency and productivity.

Many European and US companies have realized that they should focus on their main
business and outsource their Human Resource Department, accounting department etc.
Bingo! It is here exactly India fits in! Today US corporations have embraced BPO
wholeheartedly.

Companies are increasingly outsourcing business processes due to changing and

challenging business environment and technological and legislative changes. There is a
good opportunity for Indian BPO vendors around the world. BPO vendors will need to
have good domain knowledge, process know-how and competence with technological
solutions to cater to these Manage Care Companies.

As the evolution continues, several trends are emerging and building upon one another in
a way that will fundamentally alter the role of outsourcing’s contribution to improving
overall business performance. Will Communications & High Tech companies continue to
reap the greatest benefits from the emerging outsourcing models? Yes, but only if they
position themselves to take advantage of these important converging influences.
REFERENCES:

o “Performance Evaluation on BPO” by, Vijay Rastogi.

o “BPO-A Global Perspective” by,Jiun Choudhary
o “BPO Revolutionizes the job market” By, Dr.G.Ganesh
o Donald J. Rippert is the Chief Technology Officer of Accenture's
Communications & High Tech group.
o “Managing BPO”, by Dr. Ch. Ibohal meitei.
o “Outsourcing IT and ITES in the global scenario”, by Dr. S. Jagdish
Pandi.
o “Challenges for the Indian BPO Industry” by, Niharika Achyutuni.
o “BPO Status Report”, by S.Singh, Business World, 4th Aug, 03.
o “BPO”, by Das Gupta, Indian Management, sep, 03.
o “HR Outsourcing in India-Scenario and Trends”, by V.N. Srivastave and
Kaustab Ghosh.
o “HRD Planning workshop in Madhya Pradesh”, by Govt of India, 1996.

WEBSITES:

www.ebstrategy.com/outsourcing/trends

www.bpoindia.org

www.learndirect-business.co.uk

www.coil.com

www.viswionhealthsource.com

www.outsourcingsurvival.com

www.outsource2india.com

www.itmatchonline.com