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The Impact of Outsourcing Business, Jobs and Economies of Wealthy and Poor Nations.
The truth about the speed, scale and unstoppable momentum of business processoutsourcing and offshoring. What will be the net impact on the American and European economies? How should company executives and union leaders respond to emerging markets? Can or should the offshoring process be reversed? Advantages and disadvantages of outsourcing? By Patrick Dixon, who was ranked as one of the 20 most influential business thinkers in the world in 200
Current outsourcing trends worldwide
1. Outsourcing in traditional areas like customer care, financial services, manufacturing, IT, ITESis growing.
2. Large multinational companies are investing in captive BPO units in supplier countries inmultiple locations, to reduce risk and control quality.
3. Outsourcing is becoming more sophisticated. Customers are looking for business processexcellence, speed to market, improvement in quality, benchmarking to world-class standards.CEOs are involved to ensure the long-term success of strategic offshoring decisions. On theirpart, suppliers understand that they must compete globally and that outsourcing will play a more transformational and strategic role for the client.
4. There is increasing global competition and pressure on margins from emerging lower-cost outsourcing destinations.
5. Risk factors for outsourcing like terrorism and war, disaster and disease make contingency plans a necessity.
6. The IT industry will see roughly 10 to 15% of its jobs move overseas during the next ten years, inviting more political debate.
7. For the past two decades, China has been growing at an astounding 9.5% a year and India by 6%. They are impacting the global economy and leading the outsourcing revolution.
Future outsourcing trends worldwide
1. Outsourcing expenditure will continue to rise.
2. More countries will find outsourcing attractive, creating a multi-polar world. Following thelead of the US and UK, the European Union markets will expand their offshoring programs,
while Japan will increasingly look to China for its needs.
3. Clients will take greater control in driving and designing deals.
4. The interlinking of the supply chains brought about because of outsourcing will create stability
as companies will put pressure on governments to avoid wars.
5. Risk factors and unexpected occurrences like war, terrorism, disease, natural disasters and economic upheavals can throw a wrench in the works.
6. The rising price of oil will put increasing pressure on companies to both utilize technology and
outsource to remain profitable.
7. The rising price of oil will cause oil consuming countries like the USA to be less competitive
resulting in more outsourcing to India and China.
8. India will show excellence in Services that require advanced English like Knowledge Process
Outsourcing (KPO), Content and Medicine.
9. Political backlash over outsourcing is likely to lessen over time as economies strengthen and
companies continue to reap the benefits of offshoring.
10. Technological power will shift from the West to the East as India and China emerge as
big players in the global outsourcing market. The two countries have the size and weight totransform the 21st global economy.
11. By 2015 China will be No. 1, India No: 2 in the global top five outsourcingdestinations.
12. Vendor focus will shift from basic skills, costs and processes to domain knowledge, transitionchallenges, change management, HR issues and governance.
13. Regional outsourcing hubs will develop as companies will take strategic near-shoringinitiatives to minimize risk and leveragecultural and linguistic compatibility. The supplier
countries are in the same time zone as their clients.
14. The large diverse Indian companies will face stiff competition from new focused smaller
companies. Because these companies are able to focus and become excellent in one are theywill be able to provide a higher level of service. In 2006 there will be a flood of companies
targeting niche services.
|Challenges and Future Prospects in India|
India has become one of the most sought after destination for the companies wanting to outsource their business, knowledge, research, legal and related high-end processes. This not only boosts exports, increases national income and creates greater employment avenues, but also increases tax revenues, caters to the growth of other related industries like infrastructure, catering, etc. The companies involved in outsourcing activities tends to earn huge profits out of this and thus, are in a position to offer their employees the good and competitive pay packages, along with many attractive employee benefits.India has already made remarkable achievements in the field of Business Process Outsourcing (BPO), with high export revenues. The Indian IT-BPO sector has been able to built a strong reputation for its high standards of service quality and information security, which has been acknowledged worldwide and also helped to enhance buyer’s confidence. The industry is continuing this trend by combining provider and industry-level initiatives as well as by generating greater awareness and facilitating wider adoption of standards and best practices. It is moving to provide high-value services to its clients rather than just minimizing/ saving costs.
The success of off-shoring BPO sector in India has led to the emergence of Knowledge Process Outsourcing (KPO) sector in India, which deals with off-shoring of knowledge intensive business processes requiring specialized domain-based expertise. India is well endowed with large pool of skilled manpower, like, chartered accountants, doctors, MBAs, lawyers, research analysts, etc., which would help to add value to the global KPO business and its high-end processes like valuation research, investment research, patent filing, legal and insurance claims processing, online teaching, media content supply, etc. This advantage, along with multi-lingual capabilities and advantages of lower costs, can help the country to emerge as a front-runner in KPO on the global platform. As per Nasscom estimates, the KPO industry is expected to grow by 45 per cent by 2010. Out of the $16 billion which the KPO industry is likely to assume by 2010, around $12 billion would be outsourced from India.
But, to be able to run stable outsourcing company (mainly BPO), one needs to overcome the challenges coming in its way. Some of these include: outsourcing is largely fragmented industry; there is more preference for young employees with good command over English and other foreign languages; facing cut-throat competition as well as severe shortages of trained and skilled manpower; non-existence of social security laws needed for checking the background of employees working in BPOs and call centres; at times, more focus on unproductive and non-core activities/ areas; etc.
Further, since KPO involves providing of domain-based processes and business expertise rather than only process expertise. This requires advanced analytical, interpretation and technical skills in the workers. As a result, it is right to say that outsourcing of knowledge processes tends to face more challenges than BPO. Some of these can be listed as: more investment needed in KPO infrastructure, lack of highly-skilled and trained workforce, need of higher level of control, confidentiality and enhanced risk management, maintenance of higher quality standards, etc.
Besides, there are several problems faced by BPO employees which not only affects their health and lifestyle, but also leads to decline in total output of the firm. Some of the prominent ones are:-
However, according to report by GlobalSourcingNow, the Global Knowledge Process Outsourcing industry (KPO) is expected to reach USD 17 billion by 2010, of which USD 12 billion would be outsourced to India. In addition, the Indian KPO sector is also expected to employ more than 250,000 KPO professionals by 2010. Further, a report by Evalueserve predicts that India will capture more than 70 percent of the KPO sector by 2010.
This shows that although outsourcing industry is having a bright future in India, there is still need to address many issues and challenges which restricts the healthy development of this industry. Efforts should be made to give appropriate training to employees of this industry as well as to develop a sound and healthy environment which do not have much detrimental effect on lifestyle of employees.
Facts about Outsourcing
Some say that it is wrong to pay people in India less than the same job would justify in somewhere like the US. However we need to compare not just salaries, but what those salary levels will actually buy in different countries. An IT professional in India may be far better off in terms of lifestyle, even though paid only a third of the US salary. It all depends on exchange rates. The pressures will continue to grow, not just for cost saving, but also for quality, service and speed.
* India produces more than 870,000 new IT graduates a year and produces more than a million engineering graduates a year, plus 16 million others with engineering diplomas. India is leading the way in new areas of pharmaceuticals, biotech, electrical and mechanical engineering. China also.
* Most outsourcing is by large companies, yet small companies provide most jobs in America and Europe, and most of the economic growth. Big companies create headlines but the greatest impact is elsewhere and almost invisible. The UK has 3.3 million companies. If each one takes on just one more person on average, the result would be more than 3 million new jobs, and that is what has happened in the last few years, with unemployment at very low levels despite several million people added to the labour force. Yet 6,000 redundancies at a factory is mistakenly seen as a national crisis.
* Each outsourced job in India can generate work for more than 20 other people as the money flows around the national economy, usually at a far faster rate than in countries like the US.
* When a product is manufactured in China instead of the US or Europe, only a small part of the total retail price lands up in that country. Most is taken as before by the retailer, wholesaler, distribution system, research, design and development teams and company owners as profit. So the impact is less than you might expect.
* Research shows that some of the new economic activity generated in developing countries by oursourcing will generate new demand for goods and services in the country where the jobs have moved from (eg America). McKinsey Global Institute estimates that for every dollar US corporations spend on outsourcing to India, 33c gets 33c and the US economy benefits by $1.14. This is based on several assumptions: that 69% of displaced service workers will find new jobs within a year, and will end up earning 96% of their previous wages – backed up by 1979-1999 data. However older workers may be out of work far longe, especially if their education is poor.
* Outsourcing saves money for corporations which means lower costs for consumers, and higher dividends for pensioners who own 75% of US and UK wealth – that means more money to spend on other things such as local services (meals out, beauty treatments, gardening, decorating etc) and that produces new jobs.
* Outsourcing has meant for example that you can buy a DVD player for less than $100. It is one reason why retail costs of products has halved in many sectors over the last 20 years, allowing for inflation.
* Future economic growth depends on new generations of creative, dynamic entrepreneurs, with good access to venture capital, who will drive national economies through transition.