Posts Tagged ‘offshore’

Why Indian IT firms want to shift outsourcing projects from offshore to onshore model

June 15th, 2015

With the advent of automation at the heart of India’s $146-billion information technology industry, the sector’s biggest customers are starting to rethink their strategy around outsourcing and debating whether to shift some outsourcing projects onshore – a development that has the potential to make the offshoring versus onshoring debate irrelevant. Outsourcing15

With automation having the potential of reducing costs by as much as 80% in commoditised service lines such as computer infrastructure management, customers of Indian IT are starting to initiate conversations around whether they can move more projects to onsite locations, without significantly disrupting the traditional offshoring labour arbitrage model of Indian IT in the near term.

“When you have the potential to automate certain projects, what difference does it make whether that project is onshore or offshore? It makes that debate irrelevant,” said a chief information officer of a European bank that outsources projects to one of India’s top three software firms. He requested anonymity as these discussions are private and confidential. The development, if it kicks off consistently, will signal a considerable shift for Indian IT firms such as TCSBSE -0.17 % and Infosys, which have for years thrived on the offshoring model where they built large campuses to house thousands of engineers to help bring down the cost of software development and maintenance.

“After more than a decade of achieving value through the offshore labour arbitrage model, one would think that mature organisations that have built GICs or captives, or organisations with extensive use of third-party outsourcing providers, would be at peace with the model. We expected them to move to a model of arbitrage plus automation,” said Peter Bendor-Samuel, CEO of outsourcing advisory Everest Group, in a blog post last week. “But the level of peace and comfort with offshore arbitrage is much less than we expected, and companies are expressing their desire to use robotics automation to repatriate their work,” he added.

The emergence of robotics automation, as has been widely reported, has the potential to disrupt the traditional “pyramid model” of Indian IT. Recognising the need to gain an edge in the battle for automation, the sector’s top companies such as TCS, US-based Cognizant and InfosysBSE 0.70 % are investing heavily on building tools and platforms that can afford large-scale cost benefits to demanding customers who are tightening technology-spending budgets with each passing year.

For instance, Infosys’ new automation platform has the potential to generate productivity improvements of about 40-50%, Infosys’ head of platforms Abdul Razack said in an interview last week. Similarly others like IPSoft’s cognitive computing system Amelia has the potential to perform routine, commoditised tasks at a fraction of the cost and time it takes a human engineer.

The fact that the cost of automating software services has come down rapidly over the years is also playing its part in this debate. “Previously, about 10-15 years ago, the cost of automation was much much higher – now that those costs have come down, you can afford to keep more projects onshore,” said Sid Pai, Asia-Pacific head at outsourcing advisory firm ISG.

To be sure, this does not mean that customers will move work away from third-party vendors such as TCS and Infosys. What is likely to happen is what is commonly referred to as “rebadging” — the process where third-party vendors take over the assets of a customer and replace personnel with their own staff, experts say.


Philippines BPO ‘Coping Well’ with Wage Hikes

April 3rd, 2015

The Philippines is a popular destination for offshore BPO. However, experts have suggested that recent wage hikes in the BPO sector could make the country a less cost-effective outsourcing option.Outsourcing21

Roman Romulo, a district representative from the city of Pasig, said ‘we do not see the P15-increase in the daily minimum wage [for private sector workers in Metro Manila] influencing the decision of BPO players to either step up, or slow down hiring.

‘Fair wage increases will not diminish the country’s global competitiveness. If we look at India and our other competitors in the BPO space, their wages are rising faster than ours.’

In a recent study conducted by real estate consultant Cushman & Wakefield, the Philippines was named as the second most appealing destination for offshore BPO, closely following Vietnam. In terms of actual market size, India remains the world’s largest BPO destination.


Tips on addressing the risks of offshore outsourcing

December 29th, 2014

When a company decides on an offshore outsourcing strategy, due diligence and risk assessment are a normal part of the process. But systematic attention to the cross-cultural dimensions of risk assessment is still rare.Outsourcing28

Identifying and addressing this kind of “soft” risk factor tends to be neglected in favour of the more easily identified “hard” financial and legal factors. Yet repeated research shows that cultural mismatch and failure of cultural integration lead to poor strategic alignment, communication failures, and problems in execution.

Three distinct cross-cultural risk factors can have a critical impact on the success of an offshore outsourcing relationship. The first is commonly recognized, the second tends to receive lip service and the third tends to be unseen or avoided.

Risk Factor 1: Corporate culture differences

What is the degree of “fit” between the client’s corporate culture and the vendor’s? How close are their vision and values? Is one bureaucratic, the other entrepreneurial? What is their respective risk tolerance? Are decisions top-down or based on consensus? How different are their operational processes? Their control systems? Their reward structures? Their corporate policies? How do they hire, develop and evaluate employees? What are their behavioral norms and expectations?

Lack of alignment in key dimensions of corporate culture can present serious obstacles to smooth interactions, with bottom-line impacts for both organizations.

Risk Factor 2: Differences in national or regional cultures

The globalization revolution is in its infancy, while national and regional cultures are longstanding. Cultural conditioning is deep. Despite surface similarities in the globally interconnected world, the underlying attitudes, thought patterns, assumptions and expectations of different cultures vary widely. Do people tend to be individually autonomous or group-oriented? Egalitarian or hierarchical? Situational or absolutist in their ethics and conduct? What is their perspective on time? On relationships? Do they tend towards candour or diplomacy and face-saving? Do they focus on results or process?

In overt and subtle ways, these deep elements of national and regional culture influence every area of business relationships, systems, processes and work interactions across cultural boundaries. If you don’t understand these differences, your risk mitigation approach won’t develop strategies to avoid potential pitfalls and harness opportunities for synergy.

Risk Factor 3: Cross-cultural competencies of key players

In any offshore outsourcing relationship, a wide range of players is involved at both ends: executives, corporate managers, project leaders, members of multinational (often virtual) teams. Some work from their domestic base of operations, others travel or go on expatriate assignments to their partner’s location. All are involved in the challenge of achieving business objectives and performing seamlessly in a culturally diverse global environment.

In addition to the technical, managerial, leadership and interpersonal skills required for their jobs, the people occupying these roles need to have cross-cultural competence if they are to be successful and not put their company at risk. This includes both knowledge about other cultures and the ability to adapt to cultural differences. A due diligence process that doesn’t address the cross-cultural competency of the people who will implement the outsourcing relationship misses a crucial risk factor.

Best Practice: Cross-cultural due diligence rather than “retrofitting”

As offshore outsourcing matures, the neglect of “soft” risk factors shows some sign of receding, at least with some of the leading-edge global organizations setting the next generation of best practices.

“More attention is being paid to the cultural alignment between client and offshore vendor as part of the due diligence process in the offshore space,” says Srinivas Tatavarthy, former Vice President for Offshoring Implementation Risk at Wachovia. “The need has become greater for up-front cross-cultural due diligence rather than ‘retrofitting’ the relationship after having experienced the effect of the cultural differences.”

But how do you carry out cross-cultural due diligence? How do you predict the potential impact of cross-cultural factors and make plans for mitigation? A robust cross-cultural due diligence process should do the following:

Build the cross-cultural dimension into the due diligence model as an integral part of the process, using professional cross-cultural expertise as needed rather than relying on impressions and anecdotal knowledge.

For all three factors (corporate culture, national and regional culture impacts, and key player cross-cultural competency, use both quantitative methods (surveys, audits and psychometric assessments) and qualitative methods (in-person interviews and on-site observations).

Develop risk assessment and risk mitigation strategies to address all three cross-cultural risk factors, recognizing that while they may intersect, they are independent variables, each requiring its own analysis and solution.


UK public sector shunning offshore IT

December 19th, 2014

The UK outsourcing market has enjoyed a big boost from the public sector in 2014, with contracts big and small remaining in this country.Outsourcing24

Market watcher ISG reports, in a research note from its north Europe president, John Keppel, that “the UK public sector has continued its outsourcing journey”, with spending levels reaching nearly double the amount laid out in the commercial sphere.

Spending has been driven upwards by large big-ticket deals. But there has also been a surge in mid-market government business, which has come “as a result of the complexity of the services rquired and a lack of appetite for utilising cheaper, offshore resources”, Keppel believes.

IT outsourcing (ITO) has seen a “resurgence” across EMEA s a whole in 2014, he states, with the number of contracts inked in Q3 rising 16 per cent annually. However, business process outsourcing has seen a “pronounced decline” in activity.

“BPO ACV grew steadily through the global downturn as companies looked to save costs across the organisation, but as the economic outlook has brightened, BPO values have fallen,” said Keppel. “In general, EMEA has not been quick to adopt large HR, F&A and other BPO towers, but the growth of cloud and other new technologies could see a wider take up of business-process-as-a-service in the next couple of years.”

There has been a notable proliferation of outsourcing deals in Spain, Italy, and France in 2014, with the latter seeing annual contract value (ACV) increase by 250 per cent year on year. Southern Europe as a whole has posted its highest-ever ACV total. The more mature UK market, meanwhile, has “broadly remained stable”.

ISG foresees continued growth for the EMEA outsourcing market, particularly as firms grow more confident in the health of the economy.

“The challenge for buyers will be to understand how they can get the most value from their outsourcing efforts, and to understand the real business impact,” concludes Keppel. “We believe that this will start to gain momentum next year.”


Ausgrid to offshore IT jobs

October 22nd, 2014

Publicly owned electricity distribution business Ausgrid is proposing to send 37 IT jobs offshore as unions step up a campaign to protect their workers’  job security.Outsourcing34
The United Services Union said Ausgrid management believes it can save $8.5 million a year by outsourcing the jobs to an overseas company.
The company has flagged the loss of jobs and the use of an overseas contractor to provide IT services.

A spokesman for Ausgrid said it is reviewing the delivery of services in its Information and Communications Technology division as part of a “business-wide restructure to reduce non-essential operating costs”.

“This includes 37 roles in the area of development and technical support,” the spokesman said. “The review includes discussion with unions and staff about the merits of these roles being outsourced to the external market. Ausgrid would expect any external provider to maintain a local presence.

“It’s not unusual for an organisation to test the external market to benchmark the efficient cost of delivering services.”

Ausgrid employs more than 270 staff in its Information and Communications Technology division. This includes labour hire and senior contract roles.

The spokesman said it is important for Ausgrid to “reduce costs in a responsible way so we can keep electricity prices as low as possible for our customers, helping to keep average price increases over the next five years to below CPI”.

“We also remain steadfast in our commitment to no forced redundancies,” he said.

The development comes as negotiations begin for a new enterprise agreement for Ausgrid.

Unions are fighting for the inclusion of job protection clauses that would prevent the offshoring of jobs, restrict the outsourcing of work, and protect staff from forced redundancies.

USU energy manager Scott McNamara said an internal review had found $2 million could be saved while retaining the services within the company, and $3.5 million could be saved by outsourcing the services to an Australian company.

“Ausgrid employees are deeply concerned by the potential loss of jobs and outsourcing of essential support services,” Mr McNamara said.

“For the sake of a few million dollars, Ausgrid management want to send the jobs of 37 loyal staff.

“Not only will they lose the experience and skills of these loyal staff, but service standards will likely drop as work is carried out by external companies in other parts of the world.”

Mr McNamara said the move would not help consumers.

“Networks NSW is driving cost cutting across the business, fattening up the network businesses for NSW Premier Mike Baird’s power privatisation,” he said.

“If electricity network companies are already looking to cut jobs and send positions overseas, it’s no wonder that staff fear massive job cuts from privatisation, which is what happened in Victoria when an overseas buyer took control of the electricity network.”


BPO sector celebrates reduction in illegal activity

October 17th, 2014

A year ago, lotto scamming activities threatened to flat-line the business processing outsourcing (BPO) sector. Today, with a clampdown on the illegal activity, bolstered by the relevant legislation, there is now next to no reports of the illegal activities and the industry is thriving.Outsourcing31

“I would say a year or so ago that was the number one issue affecting not only the sector but more broadly and certainly in the last couple of months I have not heard that as a major issue anymore,” Julian Robinson, the state minister in the Ministry of Science, Technology, Mining and Energy, told the Jamaica Observer West.

Robinson attributed the reduction of complaints to Government’s introduction of legislation to battle the illegal sweepstakes, which not only posed a threat to the existence of BPO industry but has resulted in a spate of killings across western Jamaica.

In the past, scammers would get data from within some of the BPO companies. They then used that data to target their victims, mostly elderly United States residents. As the activity flourished local companies were at risk of losing their contracts from overseas entities.

BPO services target offshore or near-shore back-office operations such as accounting, human resource management and customer service (call-centre facilities).

Meanwhile, President of the Business Processing Industry Association of Jamaica (BPIAJ), Yoni Epstein confirmed that reports of scamming activities within the sector has fallen.

“The reality of it is it is on the decline. We have not heard of any instances, and to me more importantly, I haven’t heard any instances locally as the clients and prospective clients are asking about it less and less,” Epstein told the Observer West.

Both Epstein and Robinson were speaking to the Observer West following the historical signing of a deal between Columbus Communications and the BPIAJ to establish an incubator within the Montego Bay Freezone, which is expected to trigger growth, enhance market access and create new jobs.

The incubator, which is slated to be fully operational by December, will fast-track entry of new players into the business process outsourcing sector as well as facilitate short-term expansion for current investors.

The telecommunications firm — which trades as Flow and has been vigourously marketing its business brand Columbus Business Solutions (CBS) — will install, as part of its workstation solutions, screens and a combination of physical and so-called soft phones.

Columbus, which offers telephony, Internet and cable services, has ramped up its infrastructure to capitalise on businesses’ appetite for one-stop-shop, holistic technology solutions. “The partnership recognises the importance of the Business Process Industry to Jamaica’s national development and is intended to provide a solution that fast tracks new entrants to the local market, a problem that has often been cited by the Government and Industry players alike” said Sean Latty, head of the communications giant.

The BPO sector is a fast-growing industry which local economists and Government officials see as having great potential for growth, as business confidence rises and investment opportunities emerge.

Currently, there are approximately 40 BPO companies in operations, accounting for approximately 14,000 jobs in Jamaica, according to Epstein.

“We believe that this is a small portion of what the industry is capable of and the partnership with CBS will ease one of the challenges that has stifled the sector’s growth,” Epstein said. Epstein’s point is supported by JAMPRO, the government’s trade and investment promotion agency, that has indicated the sector could create 15,000 new jobs over the next five years.

“The BPO sector represents the fastest growing growth sector in the economy right now and we commend Flow as a private sector partner for coming on board and supporting this initiative,” he added.

As Jamaica seeks to improve its rankings in global competitiveness and the ease-of-doing-business indices, CBS’s initiative will help to expedite the entry of new BPO entrepreneurs, making the industry more dynamic and innovative.

Epstein was upbeat over the soon-to-be established incubator.

“The incubator is a 200 seat call centre that will be developed in the Montego Bay Freezone. The goal of the incubator is to attract foreign investors as well as local investors to start up businesses. Its cheaper access to entry, lower barriers to entry and faster uptime to get started into business. We want to make it as easy as possible for investors to want to come to Jamaica as well as for local investors and entrepreneurs to start businesses,” Epstein told the Observer West.

Epstein added: “It is also going to foster growth in existing businesses because if we have the space and someone can’t build out fast. Enough they will have access to the incubator to start-up grow their business while they develop their existing spaces.”


4 Steps to Leverage Offshore Outsourcing for Global Expansion

October 16th, 2014

Once upon time, multinational corporations are the only businesses that can expand offshore. Today, small businesses can expand globally without the need for a corporation-sized budget.Outsourcing23

Here are four steps that you can follow to maximise your outsourcing options and expand offshore:
Pick an offshore outsourcing partner.

Select an outsourcing partner to help you settle in a new market.

Your offshore outsourcing partner should be able to measure success and provide a solution that meets your needs instead of just a cookie cutter approach. Plenty have been said about the need for innovation. But unless you have the right environment to foster transformational change, it will not happen.

Look at the bigger picture.

Consider the location of your offshore outsourcing partner in both the local and regional level.

Make sure that the location of your offshore outsourcing partner has a readily available workforce. This will enable you to easily attract new hires, who will find it convenient that they don’t have to endure hours of traffic to go to work.

Pick an emerging market where you can find opportunities once you have gained experience in doing business in the country. Take a hint from multinational corporations. They use a global service delivery model to streamline their business.

Start small.

Small businesses that are new to outsourcing can start with a simple arrangement to gain experience.

Outsource your non-core business processes through offshore staff leasing. This provides a good introduction to an outsourcing relationship, managing an offshore operation, and handling offshore staff. This will help you to familiarise yourself with local culture.

Set up a managed operation.

A managed operation is a middle ground between outsourcing and having your own company.

Your managed operations service provider will provide support (such as recruitment, finance, expat support, and facilities management) and infrastructure (such as office space, software, computers, and telecom). You and the service provider will work together to manage the operation.

You can customise your operations and implement the level of control that you prefer. If you have a big team, you can hire your own team of expats to oversee the operation. If you have a small team, the service provider can manage the day-to-day operations.

Offshore outsourcing doesn’t need to be just moving jobs overseas. With the right mindset, small businesses can accomplish more and level the playing field.


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