Recent research reports reveal that the
worldwide spending on IT services hit $569bn in 2003, up 6.2
per cent from 2002. IT services range from hardware support
contracts to systems integration work to outsourcing. Offshore
Outsourcing as a concept has gained tremendous momentum in
businesses today. By definition, offshore outsourcing is the
process in which the functions of an organization are
performed by a foreign division or by a subsidiary of the
parent company.
Enterprises outsource several activities to
external agents. For example, many small business owners
outsource their back-office tasks like accounting, finances
and human resources. Some smaller firms hire outsourcers to do
tech support, Web hosting and software design. Thousands of
independent contractors perform such tasks for small
businesses. Outsourcing helps firms to completely focus on
their core mission, which is to increase sales and can offload
more routine tasks such as check processing, bookkeeping and
running a computer network.
However, several bodies do point out that
sending work overseas will reduce domestic employment, which
is quiet contrary to actual facts. Directing IT operations and
especially IT development over to external providers can
positively contribute to business expansions as it allows
organizations to concentrate more upon business and save on
staff, equipment, training and maintenance
Into the new IT age, more and more
companies are joining the outsourcing bandwagon. Corporations
that have not started to outsource continue to weigh the
benefits and the disadvantages of outsourcing, while others
choose to be a lot more careful and contract out activities on
a limited basis.
When do you need Outsourcing?
Many organizations worldwide are
considering outsourcing not only for its cost-effective
benefits but also to sustain a competitive level of
performance. The problem of having to recruit, train and
retain expensive staff with the requisite skill-set can be
dealt with as specialists outsource providers offer
cost-effective man power with the required key skills.
With in-house technology or machinery and
equipment becoming outdated and upgrading costs proving to be
prohibitive, outsourcing comes as the easiest solution out.
The capital that would have been otherwise employed can be
diverted elsewhere in the business and fetch better rates of
returns.
The rate of change and improvement in core
activities necessitates a more radical approach if the company
is to remain competitive.
Offshore operations can provide a
tremendous benefits, including:
• Technical Competence:
Several offshore IT professionals provide their technical
expertise for all your technical needs.
• Quality: IT professionals abroad ensure that projects
meet deadlines along with meeting highest quality and
technical standards, set by quality bodies.
• Costs: Outsourcing substantially cuts down
operational costs by nearly 40 percent, according to Martyn
Hart, chairman of the National Outsourcing Association. When
outsourcing is carried to third world countries, such as the
Philippines and India, businesses can expect to save up to 40
percent.
• Start-up time: it is usually much easier and faster
to start up a project offshore than in-house. Besides,
offshore companies can take projects at any stage.
• Protection: all intellectual property rights will
belong to the original company.
• Outsourcing offers a more flexible service, allowing
the clients to concentrate on their core businesses and
enhance their position in the marketplace.
• Outsourcing provides a competitive edge. You could
outsource to the best in the world, up the value of your
product, and lower the cost.
There are also quiet a few criterions for a
job to be offshore-able. The work needs to be very well
documented and should have high information content.
Tele-workable jobs, jobs that can be easily set-up, repetitive
jobs are the other essential criterions for work to be
outsourced. However, tasks such as direct customer interaction
have to be dealt with in-house.
The options available
Large companies such as America Online
(AOL), Intel, and Phillips, among others have resorted to
outsourcing many activities like research, product
development, logistics, human relations, accounting and legal
work. These companies usually maintain an offshore facility
with a staff of 1,000 employees or more and are able to
shoulder the relative cost of an outsourcing venture in their
business model.
There has been an explosion in the number
of specialist outsourcing providers in the past one-decade.
Organizations now set up services to handle clients'
outsourced needs across a huge portfolio. Such organizations
provide expert competence to help enterprises manage perceived
immediate risks.
Companies that have zeroed upon outsourcing
activities need to choose between the various models of
outsourcing. The process of outsourcing a complete business
process or product, including peripheral support, strikes one
first. This strategy is rarely found in organizations
outsourcing complete processes such as HR, marketing or
purchasing.
Partial outsourcing, the other popular
outsourcing model is employed due to lack of capability or if
it is not cost-effective. Many organizations in the financial
services sector do not intend to outsource customer call
centers because of the risk it generates for their brand.
Perils of the deal
There may be several obstacles as well.
Cultural differences, inadequate project management and
communication problems are among the most common. However,
cultural differences and management problems can be overcome
by keeping a tight control over a project from the site.
Offshore houses can even adopt the standards and procedures of
the customer's company.
Communication may not be a problem anymore,
electronic communication and, if really necessary, on-site
support can solve it. It no longer matters whether the
development staff is located the other side of the town or the
other side of the world. Offshore companies are aware of these
problems and they do their best to eliminate them,
co-operating with the customers.
The outcome
The primary issues companies should think
about when they relocate services offshore are their expertise
in managing remote locations; the caliber and skill sets of
the labor force; the cost of labor; language skills; telecom
bandwidth, cost, and reliability; infrastructure; political
stability; enforceability of intellectual property rights and
business contracts; and the general maturity of the business
environment.
Experts predict that by the year 2008
offshore outsourcing would be the only means not only to
combat manpower-crunch but would also create a whole array of
new-age jobs for businesses worldwide.
Sunny Gupta is President of Web Design
Studio, a web site design & development services company based
in Raleigh, NC. Gupta is also head of Maintec, a strategic
offshore solutions provider. He can be reached at
Email Sunny or 919.424.3877.
