Offshoring

1
Offshoring Nearshoring Scope, Scale and
Implications

• Dr. Pamela Abbott
• Centre for Innovation, Technology Organisation
• University College Dublin, Ireland

2
Agenda

• Outsourcing Offshoring Scale Scope
• Nearshoring Scale Scope
• Issues related to Offshoring
• Case Study in BPO

3
Outsourcing Trends

• Shore-ing
• Anyshore, Rightshore, Nearshore, Farshore,
  Onshore, Offshore
• Business Process Outsourcing (BPO)
• IT-enabled services
• Customer relationship management
• Outsourcing innovation
• Research development
• Intellectual Property issues
• Application Service Providers (ASPs)
• IT Infrastructure Service provided by 3rd Party
• Usually web-based

4
Offshoring is

• Shifting services work to lower wage countries
  mainly for wage arbitrage advantages, but also
  increasingly for providing flexibility, expertise
  and pursuing strategic competitive goals
• Two main models
• Outsourcing Model
• Work provided by external third party providers
• Insourcing Model
• Work provided by internal/company-owned providers
  (e.g. greenfield sites, captive centres)
• Work provided by contract workers (body-shopping)

5
Locating the work

• Work delivery models
• Offsite/Onsite mix
• Onshore/Offshore/Nearshore mix
• Global delivery models
• Trade-offs
• Synchronous vs. asynchronous communication
• Cost and quality resources
• Cost and time to travel
• Control and coordination
• Type of work

6
Perspectives on offshore Market

• lt3 global IT services spend (606 bn) globally
  outsourced services (Gartner 2004)
• Software exports, the mainstay of the industry,
  grossed US 12 billion in FY 2004-05, up from US
  9.2 billion in 2003-04 (NASSCOM, 2006)
• By 2008, globally outsourced services will be 50
  bn or 7 of total IT services spend (Gartner
  2004)
• The McKinsey Global Institute estimates 18.4
  billion in global IT work and 11.4 billion in
  business-process services have been shifted
  abroad so far -- just one-tenth of the potential
  offshore market (Businessweek 2005)
• Service providers have so far captured only 10
  of a US 300 billion opportunity. Over the next 5
  years the market will grow by an additional US
  80 billion. (McKinsey 2006)

7
The Landscape
NeoIT(2005) Figures as at 2004
8
Nearshoring is

• Working Definition
• sourcing service work to a foreign, lower-wage
  country that is relatively close in distance or
  time zone (or both). The customer expects to
  benefit from one or more of the following
  constructs of proximity geographic, temporal,
  cultural, linguistic, economic, political, or
  historical linkages. (Carmel Abbott, 2007)

9
Nearshore Characteristics
Carmel Abbott (2007)
10
Nearshore Geography
Client cluster in W. EUROPE
Client cluster in N. AMERICA
Client cluster in E. ASIA
Poland Hungary Czech RepSlovakia Croatia Serbia
Slovenia BulgariaRomania
EU13NoSwit
Ireland
Estonia Latvia Lithuania
Canada
Russia
USA
Armenia UkraineBelarus
Spain
Korea
Turkey Malta Cyprus
China
Japan
Morocco Algeria Tunisia Egypt
Mexico Guatemala El Salvador NicaraguaCosta
Rica Panama Honduras
Israel
Bahamas Jamaica Dom. Rep. Puerto Rico Barbados
Malaysia
Singapore
South Africa
Columbia Guyana Venezuela Peru Brazil Chile Urugua
y Argentina
Legend
Client location only (4)
Nearshore only (45)
Both Client Offshore/Nearshore destination (6)
Carmel Abbott (2007)
11
Major Issues Related to Offshoring

• Culture
• Language
• Business Ethic
• Relationship Management
• Time Distance
• Location transparency
• Follow-the sun production
• The shore thing
• Knowledge Transfer
• Tacit/Implicit vs. Codified/Explicit
• Work
• Shifting skills expertise
• Training needs

12
Case Study BPO at CMC Limited
http//www.cmcltd.com/sbu/ites.htm
13
About CMC Ltd.

• A subsidiary of TATA Consultancy Services (TCS)
• IT Solutions Provider
• Hardware/Networking
• Systems Integration
• IT-enabled Services
• IT Education
• Demographics
• 18 offices including UK US
• 150 service locations
• 3500 employees worldwide
• Case Focus
• CMC ITES Business Unit
• Mumbai office

14
CMC IT-Enabled Services

• Various industry verticals serviced
• Processing of data using specialised IT tools
• Computerised tools can do up to 85 of a job, but
  human intervention needed to complete
• Processes subjected to quality control
• Workflow is automated
• Process is verifiable and auditable

15
Sample Projects

• Financial data analysis
• Extracting financial indicators from published
  reports
• Monitoring live feeds of stock exchange data
• Publishing
• Digitization and categorization of published
  material
• Attaching meta data to scanned documents
• Insurance
• Sorting documents according to procedures/business
  rules
• Consulting
• Specific projects aimed at providing solutions
  for client-specific problems
• Solutions require large time investment e.g. in
  document processing

16
Getting the Work Done

• Shift work
• Quality control
• Internal checks
• Client checks
• Skill sets
• Graduates with commerce degrees
• Foreign language specialisation
• CMCs language centres support e.g. French,
  Japanese, Korean, Chinese, English
• Financial Analysis
• Other specialist areas e.g. Medicine
• Rates of pay (ITES related work)
• BPO Rs. 8,000 to Rs. 10,000 per month
• Call centre work Rs. 10,000 to Rs. 15,000 per
  month
• Software engineer US 20,000 - 30,000 p.a.

17
Implications of BPO

• Work Implications
• Routine work shipped abroad
• Analysts concentrate on more value-added
  activities
• Wage differentials make economic sense
• Local rates competitive
• Social Political Implications
• Job losses in white collar work
• Political backlash against offshoring scare
  mongering or valid concern?
• Career paths unclear

18
References Links

• NeoIT http//www.neoit.com/
• Nasscom http//www.nasscom.in/Default.aspx?
• Outsourcing Institute http//www.outsourcing.com/
  
• Outsourcing/Offshoring Academics
• Erran Carmel (US) http//www.american.edu/academi
  c.depts/ksb/mogit/carmel/index.php
• Leslie Willcocks (UK) http//www.lse.ac.uk/people
  /l.p.willcocks_at_lse.ac.uk/
• Mary Lacity (US) http//www.umsl.edu/lacitym/
• CMC ITES links
• http//www.cmcltd.com/case_studies/ITES/Dataclassi
  fication.pdf
• http//www.cmcltd.com/case_studies/ITES/GIS.pdf
• http//www.cmcltd.com/case_studies/ITES/BNSF.pdf
• UCD Business School
• Centre for Innovation, Technology Organisation
  (CITO) http//mis.ucd.ie/cito
• Offshoring and Outsourcing Consultancy Companies
• http//www.gartner.com/Init
• http//www.idc.com/
• http//www.forrester.com/my/1,,1-0,FF.html

19
References Links

• Carmel E. and Abbott P. (2007) Why Nearshore
  means that distance matters. Communications of
  the ACM, vol. 50, iss. 10, pp. 40-46.
• Gartner (2004) Gartner on Outsourcing. ,
  G00125258, 6 December 2004. Gartner Inc.
• neoIT (2005) "Mapping offshore markets update
  2005". Offshore Insights Market Report Series,
  Vol. 3, No. 8

20
My Details

• Dr. Pamela Abbott
• Centre for Innovation, Technology Organisation
• The Quinn School of Business
• University College Dublin, Belfield, Dublin 4,
  Ireland
• Ph (353-1) 716 4735
• Fx (353-1) 716 4783
• Email Pamela.Abbott_at_ucd.ie
• Webpage http//mis.ucd.ie/staff/pabbott
• London Details
• Email Pamela.Abbott_at_brunel.ac.uk