Global Market for Outsourcing IT and IT Enabled Services

1
Global Market for Outsourcing IT and IT Enabled
Services
Article 20
Article 20

• By Shailendra C. Jain Palvia

Presented by Rachel Kha
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Objective

• To explore the global market for outsourcing IT
  and IT enabled services
• See the benefits to outsourcing
• Understand all functions that can be outsourced

3
Previous Work

• 1996-Lacity-1989 4 billion business
• 2001-Casale-2000 56 billion per year-IT
  Functions
• 2002-Vijayan-2005 made 160 billion in the US
• 2003-Hoffman-has reduced corporate IT expenses by
  20 to 50
• Global Insight-by 2008,
• IT off-shoring will account for roughly 125
  billion in additional US GDP annually
• 9 billion jump in US exports and a net increase
  of 317,000 jobs
• amount is expected to increase to 250 billion by
  2015

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Previous Work Continue

• 2003-Gartner Dataquest-estimated the global
  market for Business Process Outsourcing would
  reach
• 131 billion in 2004
• 131 billion in 2007
• Growing at a compounded annual growth rate of
  9.5
• 2005-Minevich-IDC estimated that the global BPO
  market was expected to grow to 1.2 trillion in
  2006 from 300 billion in 2004
• expect about 25 of US spending on application
  development, integration, and management services
  to go to offshore providers
• 2005-Gross-IT outsourcing by U.S. firms may
  itself create new IT related jobs here in the US

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Outsourcing Country Statistics

• 1. India (7.3/10)-(3.4/4 cost 1.6/3 envnt
  2.3/3 people)
• 2. Canada (6.2/10)
• 5. Philippines
• 7. Ireland
• 8. Australia
• 11. China
• Brazil
• Mexico
• Hungary
• Czech Republic
• Russia

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Breaking the Stereotype

• Is Outsourcing really BAD?

• Benefits
• Cost Savings of .58 for ever dollar spent on
  jobs in India
• American jobs outsourced to China have generated
  more demand for American products
• Created jobs in other sectors
• Reverse Outsourcing/ Backsourcing-foreign
  firms have outsource back to US
• IT outsourcing by US firms may itself create new
  IT related jobs here in the US

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No Independent Study Reported in this Paper

• Conceptual Paper
• It proposes a model but no tests or theories,
  thus no results
• Functions that can be Outsourced

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Areas of Work Outsourced

• Information Technology (IT)
• Accounting
• Human Resources
• Research and Development
• Customer Relationship Management and Call Centers
• Tax Preparation
• Radiology Analysis and Medical Tourism
• Film and Cartoon Production

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Information Technology

• First to be outsourced onshore/offshore
• IS Development, IS Maintenance, IS Operation
• Entire IT function
• All company computers and data centers
• PC maintenance and support
• Acquisition and maintenance of the IT
  infrastructure-hardware
• Systems software
• Telecommunications networks

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Accounting

• Expected to grow at a 9.6 compounded annual
  growth rate
• Top 47.6 billion in 2008
• Ex US accounting firm helped an Indian start-up
  firm

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Human Resources

• Benefits
• Saving money
• Focus on strategy and core business
• Improving compliance
• Improving accuracy
• Lack of experience in house
• Taking advantage of technological advances

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Human Resources Continue

• Other functions outsourced
• 401 (k) administration
• employee assistance/counseling
• retirement planning help
• pension administration
• temporary staffing
• background checks
• training and management development programs
• executive development and coaching
• health care benefits administration
• employee benefit administration
• Payroll
• risk management
• executive staffing
• employee relocation
• Human Resources Information Systems
  selection/training/implementation
• Recruitment
• executive compensation and incentive plans
• policy writing

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Research and Development

• Survey 2003
• 50 of RD groups in the auto, high-tech,
  aerospace and defense industries had no interest
  in outsourcing IT support
• 12 were outsourcing IT projects related to RD
• 4 said they do any outsourcing of this function
• Benefits
• Reduced costs
• Minimize business risks
• Hasten market entry of products
• Example from Author-India vendor

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Customer Relationship Management and Call Centers

• Benefits
• Client companies do not have to invest customer
  relationship management services and
  infrastructures with expensive in-house IT and
  service departments
• Lower costs
• Companies arent too certain about intrusting
  their customers to a third party
• Good companies
• Customer and client relationship should be
  seamless
• Vendor should not offer a one-size-fits-all
  packages
• It should reflect the profile of the customer,
  not the reverse

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Tax Preparation

• Spending on tax should increase by 9.3 per year
  over the next 5 years
• Benefits
• Cost reduction
• Improved turnaround time
• Increased productivity (returned in less than 48
  hrs.)
• Allows more time for CPA firms to offer more
  value-added services
• Tax outsourcing can serve as a catalyst for
  business transformation (enabling a firm to
  outsource other accounting functions, such as
  bookkeeping)
• Ethical concerns in regard to off shoring tax
  document
• Follow four rules in AICPA Code of Professional
  Conduct

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Radiology Analysis and Medical Tourism

• Benefits
• -Ease the shortage of radiologists and increasing
  work loads
• Technology now allows the internet transmission
  of crystal-clear radiological scans
• Now contracting nighthawks-radiologists from
  Israel, Australia or Switzerland where it is
  daytime
• Issues with credentialing, licensing, accuracy of
  the readings, liability, and public perception
• Strict requirements that all teleradiologist be
  US trained, licensed, and board certified

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Radiology Analysis and Medical Tourism Continue

• Issues USA has no jurisdiction outside its
  borders
• The hospital would be liable but the radiologist
  is under no obligation to come to US for trial
• Tourism increasing due to medical
  tourists-traveling to India, Thailand for
  affordable First World health care.
• McKinsey Co. estimated that Indias medical
  tourist industry could yield up to 2.2 billion
  in annual revenues by 2012
• Hospitals in India and Thailand are just as good
  if not better-ISO 9001 certified

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Film and Cartoon Production

• Jaddoworks.com
• Indian outsourcing hub for animation cartoons
• Indian animation industry is a 550 million
  industry
• expected to grow at 30 annually
• reach 15 billion by 2010
• Ex Sindbad Beyond the Veils of the Mists
• first full-length Indian animated 3D film using
  motion capture
• Film was finished in 18 months instead of the
  usual 2 years of more
• Only cost 14 million instead of 40 million

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Conclusion
Functions that are easy to outsource Information
Technology (IT) Accounting (expanding)India Human
Resources Tax Preparationstill ethical
concerns Radiology Analysis and Medical
Tourismstill liability issuesIndia and
Thailand Film and Cartoon ProductionIndia Hard
to Outsource Research and Developmentdealing
with extremely sensitive data--India Customer
Relationship Management and Call Centers

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Implications for Service Managers

• Many functions can be outsourced
• Choose based on type of job
• Ensure that all is considered before deciding to
  outsource
• Customer Service
• Standards
• Accents
• Quality
• Accuracy
• Legality, Jurisdiction
• Culture