Outsourcing of business services to China will more than double in value by 2015, research has predicted.

Global Locations Compass: China, published this week by the Everest Group, forecasts that the global services export market in the country will grow by between 20-25 per cent each year until 2015 hitting an overall value of $9.5-$10 billion (£6-£6.3 billion).

The report said the market in the country for IT outsourcing (ITO), which accounts for 65 per cent of its revenues, and business process outsourcing, which accounts for the remaining 35 per cent, has increased from $1.2 billion (£700 million) in 2007 to $3.5 billion (£2.2 billion) in 2010. It contends that the growth rate will continue and lead the value of the industry to hit around $10 billion (£6.3 billion) in 2015. It noted a number of recent developments in the Chinese market that will support continued growth, with the country benefitting from the economic development of the Asia region.

Commenting on the findings, Amneet Singh, vice president of global sourcing at Everest Group, said: “China offers a compelling regional language advantage and cost arbitrage and is thus best leveraged to serve the Asia region, which accounts for 60 per cent of China’s global sourcing revenues.”
The study revealed that more than 15 new delivery centres were established or expanded in the country over the past year and that services delivered by China’s second-tier cities (provincial capitals) have grown at a rapid pace, nearing the quality of service provided by tier-cities (including Shanghai, Beijing and Guangzhou). The report also forecast that cost arbitrage will remain favourable for the next 13-14 years, enabling companies to take a relatively long-term strategy on offshoring.

Singh believes that while competing countries, such as India and the Philippines offer better language skills to European and American businesses, China will continue to attract business from the regions. He said: “While lack of clear cost and language skills translate to a limited competitive advantage over India and the Philippines for work exported to North America and Europe, these regions still account for about 40 per cent of China’s global sourcing exports. China can serve as a risk diversification alternative to serve North America and Europe.”

Source:http://www.supplymanagement.com/news/2011/offshoring-in-china-to-hit-10-billion-by-2015/

Dispute resolution is always an important consideration when outsourcing IT. If that fails, however, you can always sue if your provider has breached the contract. “But you probably shouldn’t,” says Edward Hansen, a partner with the law firm Baker & McKenzie.

Outsourcing lawsuits are notoriously difficult to prosecute, can create such a distraction that it puts the organization at operational risk, and rarely benefits either party in the long term. Offshore outsourcing litigation is even more complicated.

“Sometimes, however, litigation is necessary to resolve outsourcing disputes when all other reasonable or contractually obligated means of solving the problems in the business relationship have been exhausted,” says Shawn C. Helms, an attorney in the technology transactions and outsourcing practice at Jones Day.

How do you know if it’s time to take your offshore outsourcing provider to court? Ask these six questions first.

1. What is the nature of the dispute? “There is a huge difference between discussing litigation in the context of a vendor that is underperforming versus one that has been negligent or violated a trust,” says Hansen. “For example, breaching the privacy provisions of an agreement is very different from failing to deliver on transformational savings.”

A well-drafted contract contains remedies for a privacy violation. But underperformance can be murkier. There may be something about the underlying economics of the deal that encourage bad performance, says Hansen, or you may have chosen the wrong partner. In either case, litigation is unlikely to solve your problems.

2. Do you have informal dispute resolution processes at your disposal? “A good contract will provide many alternatives to a suit,” says Brad Peterson, a partner in the business and technology sourcing practice of Mayer Brown. Look for dispute resolution provisions in your deal’s project management or governance mechanisms.

In addition, most contracts lay out “mandatory, mandatory, detailed, multilayered, and gradually escalating dispute resolution processes,” says Shawn C. Helms, an associate at Jones Day, starting with informal dispute resolution procedures and going all the way through litigation. “Most outsourcing disputes are resolved confidentially through out-of-court settlements so that service providers can protect their business interests and customers can maintain an ongoing relationship with the service provider.”

3. Can you withhold payment? Customers may seek to use financial leverage to right a wrong. Some contracts contain a provision call “Right of Set-Off” or “Right to Withhold Disputed Payments” that allow the customer to deduct from payments otherwise owed to the service provider amounts of money representing damages that the customer claims the service provider caused as a result of failing to perform its obligations under the contract.

“If the service provider disputes the amount of the deduction, it may be required by a forum-selection clause in the contract to file a lawsuit in the U.S. to have a court resolve the dispute, or it may be required by an arbitration provision to arbitrate the dispute in the U.S.,” explains Robert Kriss, a partner and litigator at Mayer Brown. “In the meantime, the customer holds onto the disputed amount or deposits it in an escrow account, depending on the terms of the contract.”

4. Do you have a binding arbitration clause in your contract? A well-written deal contains a provision obligating parties to arbitrate any disagreements through a neutral arbitration body such as the American Arbitration Association or the International Chamber of Commerce. That becomes especially important with offshore outsourcing, says Helms, “because foreign courts are often more likely to enforce an arbitration ruling against a local provider than a ruling by a U.S. court.”

Many countries have agreed by treaty to enforce arbitrated judgments. Just make sure the arbitrating organization is one whose awards are enforceable in the country where the outsourcer’s assets are located.

5. Where is your offshore provider based? “You have to determine first how you would enforce a judgment,” says Kriss. “If the offshore outsourcer’s assets are located in a country that will not enforce judgments rendered by U.S. courts, then you will have to bring suit in the country where the assets are located.” Indian courts, for example, will not directly enforce the U.S. judgments because the U.S. is not a “reciprocating territory” under Indian law. And pursuing litigation in India can be painful. “The Indian court system is infamously slow,” says Helms. And bringing a suit against a vendor in its own country may not be worth it anyway. “The outsourcer may have a home court advantage,” adds Peterson.

6. Is there money to collect? Should you decide to sue your provider, a court may decide in your favor, but you remain responsible for collecting your judgment. And there may be little money to chase. “Offshore outsourcing companies often have few assets. They may be leasing their facilities and equipment and paying out cash to the owners as soon as it is received. The offshore outsourcing companies with assets may have those assets pledged to first-priority lien holders,” says Peterson. “Thus, even if the U.S.-based customer manages to get a judgment against the outsourcing company, there may be little or no cash to collect.”

Make sure your vendor is not what the legal community calls “judgment proof” before you look to the courts for restitution.

Source:http://www.infoworld.com/d/the-industry-standard/when-your-offshoring-fails-guide-suing-the-outsourcer-170973

There have been two recent government announcements on outsourcing; one attracting attention in the national press, the other almost unnoticed. The latter – and arguably the most important – was the one from the Cabinet Office providing guidance to public sector organisations on offshoring.

Offshoring means relocating work from the UK to be done abroad. It can be done when outsourcing takes place or it can occur when existing suppliers choose to move some of the work abroad. Traditionally it has been for call-centre type work and data processing, but is increasingly seen as an opportunity to access expertise, say in ICT development, more cheaply than may be available in the UK.

Offshoring has already been operating, albeit under the radar. For example, several systems integration and facilities management suppliers have offices in Bangalore and work has been offshored there with risk of insufficient contractual safeguards.

So why has the advice been issued now? Policy documents like this tend to have a longer gestation period so it is unlikely to have been triggered by the proposal of Capita, in partnership with Birmingham city council, to offshore some jobs; a decision that has been rescinded.

Although the guidance has been seen by some as a change of policy by the UK government in favour of offshoring (the document denies this), and the government believes that some new players in the systems integrator and ICT market are needed to provide a greater diversity of suppliers, I don’t believe it necessarily marks a change in policy per se; the paper is quite clear that any proposals for a central government department to offshore jobs being done in-house must be referred to ministers.

As much as anything it reflects that existing suppliers may offshore certain activities and that there are risks in doing so. Therefore, when letting contracts, public sector contracting personnel need to be aware of possible risks, for example for data security, must take appropriate steps to mitigate them and consider whether any offshoring would be acceptable. The guidance is therefore relevant to the whole of the public sector, not just central government, to which it is addressed.

The guidance is made more important by the prime minister’s visit last year to Bangalore as part of a trip to increase business between India and the UK. . However, in accessing the undoubtable expertise and lower cost base that exists in, say, Bangalore, might the government be in danger of damaging the UK ICT industry for the sake of short term cash gains? The Cabinet Office document deals with this, but not very convincingly and one is left feeling that the government lacks a strategic view of how it expects the UK ICT industry to develop, and the part that public sector procurement might play in this.

The other announcement was about introducing competition for £1bn of various treatments, including audiology, into the NHS. Is this the start of wholesale privatisation of the NHS? Not very likely. Several of these areas are rather neglected by many hospitals and trusts and are ideal for new providers. It is probable that, had Labour remained in power, similar competition would have occurred, so this decision could be seen as a continuation of its policy.

The difference may be that if such competition does deliver better and cheaper health care than at present, the temptation to introduce competition at a much faster rate, into new areas, could become irresistible.

Source:http://www.guardian.co.uk/public-leaders-network/2011/aug/01/offshoring-guidance-relevant-public-sector