STRATEGY ONLINE


Offshore Outsourcing May Be In Your Company’s Future
By Michael Brians
Norelli & Company

Reduced operating costs combined with sustained high quality is the secret to survival in today’s highly competitive global economy, and for a growing number of companies, both large and medium-sized, achieving this goal may mean outsourcing information technology (IT) and customer service functions to developing nations, such as India.

Numerous companies in India have the technical resources, focus on quality and work ethic to get the job done. While outsourcing offshore has historically been limited to manufacturing, this situation is changing rapidly as a result of a commitment by developing nations to invest in their people’s skills and to go after work from American companies through excellent representation through U.S.-based diplomatic corps and marketing organizations.

In addition to the traditional IT outsourcing arrangements, business process outsourcing (BPO) is a trend in its early stages and includes such areas as database marketing, accounting, HR administration, tax processing, desktop publishing and illustrations, training development, medical transcription services as well as other functions deemed as “non-core”.

Before your jump on the next outsourcing boat to Mumbai, however, you need to consider two things – does outsourcing make sense for your organization and if you do outsource what are the implications for your company.

Does Outsourcing Make Sense For You?
The first step along the outsourcing path should be close consultation with your management team. You will need their assistance in identifying areas that could be outsourced and their support in managing the process. Here are a few key points to consider:

  • Best candidates for outsourcing – The best tasks for outsourcing are those that are routine and well documented. The term “well documented” cannot be overemphasized because with your outsource partner nearly 10 hours away, you must rest assured that they can perform the task correctly and consistently.
  • Strategic processes – Before making the decision to outsource, you must consider whether the process you are sending half way round the world is strategic to your competitive advantage. When you share technology with an outsource partner, there is no guarantee that your secrets will be entirely safe. If sharing technology with a competitor would be your undoing, then the task you have identified may not be a good one for outsourcing.
  • Run the numbers – There is no substitute for solid spreadsheet analysis of costs and benefits. The major pitfalls that most companies run into are underestimating the costs involved in establishing and managing an outsourcing partner relationship in India and overestimating the initial cost savings from reduced labor rates.
  • Plan offshore travel – While Indian companies have excellent representation in the U.S. and can provide much of the information you need on outsourcing partners, there is no substitute for a trip to India for a first-hand look at processes, facilities and people. If you are not willing to make this trip and complete your due diligence, then under no circumstance should you proceed with outsourcing. There is no substitute for kicking the tires.
  • Short term versus long-term benefits – Short term versus long-term benefits – Most companies are surprised to learn that costs saving benefits from outsourcing are not immediate. In fact, you may not see a positive return until 12 to 18 months into the program. Tempering upper management’s expectations will go with the territory, so, if you are not into it for the long-term, outsourcing is probably not the right strategy for you.

What Are The Implications From Outsourcing?
While you are completing your analysis concerning the outsourcing of information technology, call center or customer care functions, you must also consider essential implications of this decision on your organization.

  • Impact on people and their jobs – A decision to outsource work from your company has obvious implications on your people and their job security. In an ideal world, you would outsource routine, repetitive tasks and develop your people in the U.S. for higher skilled, strategic positions. But, in the real world, outsourcing may lead to layoffs and your management team must develop a separate plan to deal with the legal, financial and emotional implications within your organization of people losing their jobs to an outside partner.
  • Managing the relationship – If you outsource work to India, you must set up processes within your organization to manage the relationship, including quality assurance. Depending on the work that is outsourced, you may be required to designate a member or members of your team to oversee these relationships on a full-time basis, including regular trips to India to review the work and meet with your partners face-to-face.
  • Smaller projects more attractive to smaller companies – The size of the work that you outsource will depend on detailed cost benefit analysis. During recent months there appears to be a trend of smaller companies and smaller projects turning to outsourcing as work has been harder to come by in a slowed global economy.

While India is on the top of most lists for outsourcing of IT and call centers, you should also consider Canada as an alternative. Government subsidy programs along with currency exchange advantages in Canada can provide cost savings for U.S. companies of 20 to 30 percent, and Canada offers obvious geographic and cultural advantages.

To outsource or not to outsource? It’s an issue on a growing number of corporate agendas today. For many companies, there simply is no choice when all of your major competitors are moving tasks offshore and eating your lunch with lower costs. But, before you make the leap, do your research, run the numbers and check them twice. Move forward only when you have full knowledge of rewards and risks that lurk off of our Atlantic and Pacific shores.

Michael Brians is Vice President with Norelli & Company, a business strategy development firm based in Charlotte, North Carolina. Brians has more then 17 years experience in international business operations, including the creation and management of global outsourcing relationships. He can be reached at (704) 376-5484 or mbrians@norelli.com.


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