OUTSOURCING

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OUTSOURCING
Di Hou Faye Jude Ozgur Aksoy Saifur Rehman Shilpi
Goel Sue
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What is Outsourcing ?
Outsourcing is a function of HRM (Human Resources
Management). As a resort of human resource
planning, managers sometimes decide to outsource
to fill some of their human resource needs.
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Definition of Outsourcing

• 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 telemessaging and call centers.

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Outsourcing is not
Outsourcing and/or out-tasking involve
transferring a significant amount of management
control to the supplier. Buying products from
another entity is not outsourcing or out-tasking,
but merely a vendor relationship.
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The Rise of Outsourcing
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Types of Outsourcing Work

• Data analysis
• Research process
• IT operations
• Engineering design
• Medicare
• Legal support services
• Art, animation, editorial and DTP work
• Software development
• Environmental services

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Outsourcing Countries
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Outsourced Countries
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OFFSHORING
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What is Offshoring ?

• Offshoring is defined as the movement of a
  business process done at a local company to a
  foreign country, regardless of whether the work
  done in the foreign country is still performed by
  the local company or a third-party
• Offshoring is similar to outsourcing when
  companies hire overseas subcontractors, but
  differs when companies transfer work to the same
  company in another country.

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Production Offshoring

• Production offshoring are established products
  which involves relocation of physical
  manufacturing processes to a lower-cost
  destination.
• Product design, and the research and development
  process that leads to new products, is relatively
  difficult to offshore.

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Service Offshoring

• The growth of services offshoring is linked to
  the availability of large amounts of reliable and
  affordable communication infrastructure following
  the telecom and internet expansion of the late
  1990s.
• India first benefited from the offshoring trend
  as it had a large pool of English speaking and
  technically proficient manpower
• As a result of the offshoring boom, India has
  seen double-digit wage growth for much of the
  2000s.

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Transfer of Intellectual Property
Offshoring is often enabled by the transfer of
valuable information to the offshore site. Such
information and training enables the remote
workers to produce results of comparable value
previously produced by internal employees.
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The favored countries in offshoring outsourcing
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The favored countries in offshoring outsourcing
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The favored countries in offshoring outsourcing -
India

• Why
• Large English-speaking scientific and high
  education institutions
• specialist computer institutes
• Low costs of software talent
• Most software companies with ISO 9000
  certification in the world
• A stable political environment and pro-IT
  government
• An average 12-hour time zone difference b/w India
  and US

• Influence
• Almost half the Fortune 500 companies use Indian
  Software services
• The software giant position of the new Millennium
• Vendors rated India as their number one choice
  for outsourcing
• Time zone can provide a virtual 24-hour office to
  a clients in the US

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The favored countries in offshoring outsourcing -
South Africa

• Influence
• Fiber-optic telephone link with Europe along both
  east and west coast of Africa
• Dialogue UKs investment has expanded its client
  list
• Generated income of US56-billion in 2003
• Other global centres
• German airline
• Active Contact Solutions
• Swiss-based outfit Mindpearl

• Why
• World-class service levels of call center staff
• Time-zone compatibility with Europe
• High rates of fluency in English
• A (still) favorable exchange rate
• An advanced telecommunications industry
• Culture fit b/w SA and UK
• Special attention from government

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The favored countries in offshoring outsourcing
-- China

• Why
• 90 percent of IT services work locally in 2003
• Zero duty
• Standards development on core IT technologies
• Tougher penalties for intellectual property
  rights
• Acquisition of well-know brands to grow and
  expand
• The growing IT talent and Sea Turtle

• Influence
• More choices at price points
• More low cost goods and services
• IT services revenue projected to AU8.9 billions
  in 2006, a compound annual growth rate of 19.6
  percent and nearly 42 percent a year since 1997

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Benefits of Outsourcing
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Benefits of Outsourcing

• Control fixed costs
• - simplify management responsibility
• - focus on main business
• Increase Efficiency and Effectiveness
• - lower the cost
• - simplify process of management
• Reduce variable costs
• - keep headcount down

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Benefits of Outsourcing

• Speed to market
• - getting new initiative up and running
  quicker
• Increased focus on Core competency
• - client acquisition
• - processing the work
• - client retention
• Reduce the Risk

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Risks of Outsourcing
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Risks of Outsourcing

• Strategic Risk
• Loss of Control
• The third partys own benefit.
• Lack of knowledgeable staff in some functions.
• Brand Damage
• A unsuitable supplier cause the damage of the
  brand loyalty and image.
• Operating Risk
• Staff resistance.
• Lower morale, lower productivity
• Process Risk
• Poorly integrated processes
• Provider misleading the managers

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Risks of Outsourcing

• Financial Risk
• Unexpected Cost
• Lack of consideration and knowledge
• Exchange Risk
• Queasy international financial market
• Environment Risk
• Natural Risks
• Natural disaster
• Lack property insurance
• Political Risks
• Political environment change e.g. expropriation
• Carefully consider the possible risks before the
  decision

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Offshore Outsourcing Why Russia
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Offshore Outsourcing Why Russia?

• Technological Expertise
• - Application Development
• Embedded Systems Development
• Tremendous Talent Pool
• - 2.3 million science students
• 3rd in number of Scientists Engineers per
  Capita
• Thriving IT Marketplace
• - 300 Software companies, 2.5 billion market
  size
• - IT sector expanding 22 annually

• Cultural Geographical Proximity
• - More westernized compared to Asian countries
• - Negligible time differences
• Low Wages
• - USD 18,000 per annum, low-priced compared to
  India

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Russias Outsourcing Failure

• Poor Economic Incentives
• - Underdeveloped infrastructure
• Massive Indian Labor Pool
• - Inefficient Labor market
• Language Barrier
• - Russian dominates English

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Conclusion