Europe inked 41 percent of the outsourcing contracts during the second quarter and offshore captive growth continued to surge during the period, according to the Everest Research Institute’s quarterly report on global outsourcing and offshoring activity.

According to the Institute’s newly released Market Vista: Q2 2008 report, there is a 3% increase in transactions over Q1 with 417 outsourcing contracts signed in the first quarter worth $2.6bn in annual revenues.

70% of the contracts were for IT Outsourcing (ITO) and 28% for Business Processing Outsourcing (BPO) engagements and the Philippines and China are becoming more popular due to skills shortages and inflation in India.

Europe, including the United Kingdom, has gained considerable momentum in outsourcing activity over previous few quarters, signing 41 percent of outsourcing transactions in Q2, up from 36% the quarter before.

Meanwhile Philippine software exports are expected to reach almost $1 billion by 2010, more than twice the $423 million earned in 2007, an industry association said Wednesday.
Cristina Coronel, president of the Philippine Software Industry Association (PSIA), said this was based on the robust annual growth of 30 percent the industry has been enjoying in recent years.

Software services account for nine percent of the total business processes outsourced to the Philippines, a far cry from call centers, which account for 74 percent.

One specific example of an American outsourcing company currently expanding  is Western Watts who wants to increase its call center seats to 600 by next year in Davao city in the Philippines as it takes advantage of the increasing number of clients abroad.

1. Grow the business by 25%++ – If this is your most tricky resolution, why not look outside the box at how outsourcing can give you a competitive advantage and capture market share. Many outsourcing companies can offer a free analysis as to how you can realize the full benefits of outsourcing.

2. Find higher qualified people within 15 days to meet tight deadlines – What an ideal dream that seems impossible but one of our business contacts who owns a BPO company and been involved in the outsourcing industry the past 20 years has been recruiting highly specialized, experienced and accredited people within 2 weeks.

3. Reduce costs by 30-40% to allow you to invest more back into your business – A fine idea! Ah, but wait a second, will reducing costs reduce quality! Practicing international standards such as ISO 9001:2000 and Six Sigma and operating on an open book policy that itemizes all your costs so you know exactly where each dollar you spend goes is an aspect you must consider also.

4. Find partners who show me a personal touch whilst not losing control – Well, if this tricky little one is your resolution, you are going to need the support of colleagues, friends and a boutique outsourcing company with Western and Asian management who customize your solution to your exact requirements and maintains hands on in day to day operations, speaking with you and each team members every day.

5. Create a work life balance and spend more time with family & friends – and what a better way to enjoy quality time with loved ones when you outsource your tasks that take your time focusing on the key activities that grow your business?

The most common 5 Myths of Globalization:

Myth 1: The only reason is for cost reduction.

Companies in the US have been utilizing countries in the Far East, SE Asia and Africa for manufacturing for over 2 decades. Similarly many organizations have set up sales and marketing offices in countries across the world to increase sales outside their home market. Since the early 90’s companies have started to also move the location where services are provided across the world it what has become a complex delivery system, often referred to as multi country delivery. Cost is a key driver for moving the delivery of certain functions to other countries but a recent survey by Booz Allen showed that a lack of available talent combined with increased speed to market are the two most rapidly growing are also important.

Myth 2: It always leads to job losses.

There has been a lot of publicity of job losses due to outsourcing. It is true some jobs have been lost, as was the case in the 80’s when manufacturing was moved to China but the US and UK economies adapted well and now have the lowest unemployment levels for many years.

The latest research shows that many outsourcing vendors are actually setting up onshore and working with their clients to actually win new business through strategic outsourcing hence adding headcount onshore.

Myth 3: It is for low level non-core tasks.

What started out as data entry and low level jobs has grown into both complex complete business process outsourcing and more lately knowledge process outsourcing which employ highly skilled people from engineers to qualified accountants and research analysts.

Myth 4: It is only for large organizations.

Over 80% of multinational organizations perform some type of outsourcing but what was started by the companies that had the expertise and capital is now available to the small and medium enterprises as the initial costs of outsourcing have decreased dramatically. Most significant is that small and medium sized businesses have more to gain from outsourcing as typically they complete in a more price sensitive market unlike multinationals who typically compete on brand name and innovation.

Myth 5: India is the only destination.

India is the market leader in outsourcing without question; but watch out. High attrition, spiraling costs and lack of available talent are allowing countries like the Philippines and China to complete the market. Overall India may remain the largest outsourcing destination but my prediction is that certain countries will compete in specific fields such as Call Centers and Finance and Accounting in the Philippines and most large outsourcing providers will require a multi-country strategy to succeed in the long term.

One of the major barriers holding back companies from outsourcing is the fear of losing control.

We cannot blame them as there are stories where outsourcing projects have failed resulting in missed deadlines and poor quality of services. The traditional reaction is things would have been OK if I had maintained control myself. This reminds us of the same problem we often encounter when people face delegating tasks for the first time and many of the reasons for this and solutions as similar..

Good news is that from our experience during many outsourcing relationships, clients actually feel they have better control after outsourcing than before, hence the fear can be overcome. We have defined 5 ways in which companies can confidently outsource without ever worrying of losing control over their businesses.

1. Define your objectives clearly, and adjust over time.
RFP and SLA – Any successful project starts with clearly defining the needed requirements.  You should provide your future partners as much information as you can.  The Service Level Agreement will guide them in proposing solutions for your project therefore the clearer the SLAs are the better solutions you will receive.  Describe how you anticipate the project to run.  Start by identifying the targets and the timeline.  There will always be a transition period and a learning curve at the start of the project therefore the SLAs should be realistic.  These can then be adjusted overtime.  It is also important to align the SLAs to the business’ goals.  This will ensure that the success of the project will enable your company to move closer to its goals.

2. Choose the right partner, not the wrong vendor
Majority of the companies that are currently outsourcing know that the cheaper the solution does not mean it is better.  It is true that outsourcing has helped companies reduce their costs but in looking for the right partner, cost benefit should not be the only basis.  List three of the most important benefits you are expecting to achieve from outsourcing and start ranking the vendors based from those.  The common expectations include improvement in speed and quality of service, decrease of administration cost, access to skilled workers, redirection of focus to core business as well as reduction of risk.

3. Start Small, then expand
After you have chosen the partner that can provide what you need, you shouldn’t rush and throw everything to your partner.  It is wise to start small.  This way, the impact of errors is not as critical and can be addressed faster.  This will also give you a better understanding of how your partner handles situations.  Once the process is smoothened and you are already satisfied with the delivered results, start ramping up the project to your desired size.  It is also good to have a project schedule in doing this.

4. Be Involved in the Hiring Process
Interviewing the applicants and being the one who will choose the people for your project would give you more control over the project.  This enables you to find the best people who fit your requirements not just their technical skills but their attitude as well.  In addition, this is a good way of developing your relationship with your possible offshore staff.  They would look at you as their employer and not just a customer of their onshore employer.  Having this perception gives you a lot of advantage.

5. Have Regular Performance Review Meetings
To help you and your partner improve the process faster, have regular performance review meetings.  Discuss the results of the SLA.  Address the targets that were not achieved and at the same time find ways to improve those that were achieved.  Conducting root cause analysis would be extremely helpful to minimize the likelihood of recurrence.

Though some have failed in using outsourcing as a strategic tool, it doesn’t mean that you will too.  Remember, the worth of any tool can be increased a hundredfold if used wisely.

If you are looking to outsource and requiring a partner who is a domain expert and also has proven experience in outsourcing to make certain that you quickly and seamlessly realize the benefits of outsourcing, one of the companies that we believe can help you with your outsourcing requirements without losing control is Infinit Outsourcing Inc. (Infinit-O), a leading bpo company providing back office outsourcing and knowledge process outsourcing (KPO) solutions in the financial services and healthcare sectors.

TRUE GLOBALIZATION

Companies are looking outside India for outsourcing more frequently now than before. High attrition, inflation, lack of qualified manpower and accent issues have forced many people to look at other countries. The Philippines seems to be the biggest winner with rapid growth in the sector and an influx of Indian based BPO’s setting up in the country.

This trend is continuing and up and coming countries such as Vietnam as well as China will also show rapid patterns of growth.

MOVING UP THE VALUE CHAIN
Functions previously thought of as impossible to outsource and now being outsourced with impressive results. Moving from the call center and basic accounting to sophisticated stock market analysis and bio sciences, the world is realizing that offshoring is more than just cost savings with large pools of skilled people, often with MBA’s and PhD’s, in low cost countries.

KPO will be the fastest growing sector as more and more companies understand that outsourcing is more than just cost savings but more of long term competitive advantage through skilled resources across the world.

BRING ON THE SMB’s
The size of outsourcing contracts is reducing whilst the number of contracts is increasing as medium sized companies are now outsourcing. In the more price sensitive world of SMB’s, they are realizing that it is not just large multinationals who can successfully outsource, but there are providers who focus on assisting SMB’s outsource as well.

This trend will continue and accelerate more rapidly. With the tightening of the world economy, more successful case studies and word of mouth offshoring will have to be a key strategic tool for SMB’s in the next 3-5 years.

More Than Cost Savings

July 18, 2008

Many people have asked  me what is the main driver for outsourcing and many people assume that it is just one – Cost savings.

The Lou Dobbs program portrayed outsourcing in this manner but from my daily interactions with people both currently outsourcing and looking to outsource, this is not entirely true.

The world of globalization has been driven for many years by labor arbitrage around the world. Just asking the question why are over 50% of US products made in China answers that. However even in manufacturing, a number of important factors also determine which country or countries are the best locations for the manufacturing.

In services the same is true. Typically cost savings is only one factor in the evaluation process. I advice clients to take a 3 step process:

1. List each process or activity that they are looking to outsource and prepare a list of the the key factors that for them are most important in determining whether to outsource, which country to outsource to and with which company.
2. Then a weighting must be assigned to each so the importance of each shall be determined.
3. Research the various options and determine the best solution for you

From my experience in outsourcing across over 15 countries over the last 6 years I have noticed 3 interesting trends:

1. The importance of cost varies dramatically depending on the task or process to be outsourced. Low level, non core, simple tasks have become a commodity whilst for high end, critical high end BPO and KPO activities cost is not the most important factor.
2. Cost is still important but over the last 3 years other factors are being more important as well. The main 3 other reasons are access to skilled labor, access to worlds best practice and security.
3. The failure rate of outsourcing contracts is highest when cost was the most important factor when determining the provider. Typically providers will cut corners to fit within the budget

Moving forward, I predict the trends above will continue and become even more pronounced as more and more inexperienced companies both look to outsource and provide outsourcing services.

One final though was a comment from a client I met recently. He said “Outsourcing is like buying a car, you can spend between US$5,000 and $250,000. What is right for me may not be right for you but if it breaks down a month after buying it, it is not right for either of us.”