BUSINESS ENVIRONMENT TERM PAPER

Submitted To Prof. Mahima Sharma Faculty, Business Environment Jaipuria Institute of Management

Submitted By Deepshikha Biswas (CFT07_041) Dilip Gupta (CFT07_042) Dinesh Kumar (CFT07_043) Ekta Saxena (CFT07_045) Garvit Tiwari (CFT07_046) Students, 4th Trimester, Jaipuria Institute of Management

9 August 2008
WHAT IS OUTSOURCING
Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers. Although outsourcing has been around as long as work specialization has existed, in recent history, companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data entry. Those processes could be done more efficiently, and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel. Currently, outsourcing takes many forms. Organizations still hire service providers to handle distinct business processes, such as benefits management. But some organizations outsource whole operations. The most common forms are information technology outsourcing (ITO) and business process outsourcing (BPO). Business process outsourcing encompasses call center outsourcing, human resources outsourcing (HRO), finance and accounting outsourcing, and claims processing outsourcing. These outsourcing deals involve multi-year contracts that can run into hundreds of millions of dollars. Frequently, the people performing the work internally for the client firm are transferred and become employees for the service provider. The process of outsourcing generally encompasses four stages: 1) strategic thinking, to develop the organization's philosophy about the role of outsourcing in its activities; 2) evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to be done and service providers to do it; 3) contract development, to work out the legal, pricing and service level agreement (SLA) terms; and 4) outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers. In all cases, outsourcing success depends on three factors: executive-level support in the client organization for the outsourcing mission; ample communication to affected employees; and the client's ability to manage its service providers. The outsourcing professionals in charge of the work on both the client and provider sides need a combination of skills in such areas as negotiation, communication, project management, the ability to understand the terms and conditions of the contracts and service level agreements (SLAs), and, above all, the willingness to be flexible as business needs change. The challenges of outsourcing become especially acute when the work is being done in a different country (offshored), since that involves language, cultural and time zone differences.

THE 5 Ws OF OUTSOURCING

Who should outsource? Every company can reap big benefits through outsourcing. Outsourcing can change the way companies do business - through people, processes and technology. Whether B2B or B2C, whether SMEs or large diversified companies or small home offices, every company can leverage the power of outsourcing for business transformation. Technology is the key to the competitive edge in the marketplace, and outsourcing helps companies to leverage the latest and most sophisticated workflow technologies - without capital investment - to optimize their business processes and get "more bang for the buck." Outsourcing opens the door to a global talent pool of human resources with the qualifications and skillsets to harness this technology effectively. The internet along with workflow technology has streamlined the processing, transfer and delivery of data so that large volumes of work can be quickly and efficiently completed and delivered. Process maturity in the outsourcing arena has revolutionized the way the world conducts business, and radically improved business processes to make them faster, cheaper and better. Outsourcing has been proven to reduce capital costs, increase efficiency, speed up timeto-market, reduce labor costs, and enable core business focus. Outsourcing has actually helped companies find newer and better ways to do things, thus adding value to their products and services. Why should a company Outsource? Outsourcing gives: The competitive edge - through sophisticated technology and people Support to do tasks faster, better and cheaper Operational efficiencies without capital investment Leading-edge e-business infrastructural support and facilities Management Better performance Lower cost Security Process maturity What should a company Outsource? Outsourcing is a technology-driven, process-centric service business. Business process outsourcing (BPO) refers to definable, repeatable business processes that involve scale and volume. Research and Analysis outsourcing is the higher end of the BPO spectrum, involving advanced analytical skills, domain knowledge, expertise and judgment. When should a company Outsource? When you want to focus on your core business and leave tasks that are not mission-critical to those expert in doing them

 When you want it fast, you want it now, you want it cheaper and better - and you don't have the time, money and people to do it all yourself When you need specialized skills which are which aren't readily available in your market - or cost the earth When you want to gain the competitive edge Where should a company outsource? Firms are considering outsourcing more than ever before -- and their choices are growing by the minute The company should outsource keeping in mind costs, geographical locations, cheap labour, high quality service and price competitiveness.

BENEFITS OF OUTSOURCING
Cost savings: The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Improve quality: Achieve a step change in quality through contracting out the service with a new Service Level Agreement. Knowledge: Access to intellectual property and wider experience and knowledge. Contract: Services will be provided to a legally binding contract with financial penalties and legal redress. Operational expertise: Access to operational best practice that would be too difficult or time consuming to develop in-house. Staffing issues: Access to a larger talent pool and a sustainable source of skills. Time zone: A sequential task can be done during normal day shift in different time zones - to make it seamlessly available 24x7. Same/similar can be done on a longer term between earth's hemispheres of summer/winter. Increase in business: Benefit of outsourcing is seeing a big increase in your profits, productivity, level of quality, business value, business performance and much more. Concentrate more on your core business: One of the benefits of outsourcing is that your organization will be free to concentrate on your core business. By outsourcing all your non-core functions, your employees can be put to better use and you will be able to see a huge growth in your core business. Make faster deliveries to customers: Another benefit of outsourcing is that you can make quicker deliveries to customers. Your outsourcing partner will be able to provide faster deliverables and you in turn will be able to make quick deliveries to your customer. Faster deliveries can also help you save on time. Improved customer satisfaction: With timely deliveries and high-quality services you can impress your customers. Outsourcing can help you benefit from increased customer satisfaction and your customers will remain loyal to your organization.

DISADVANTAGES OF OUTSOURCING
Lose of control Quality problems Slow response time Can't understand foreign accents Slow resolution times Can't produce desired results Reduced sales Irritated customers

 Irritated employees, unions, people within community

TYPES OF OUTSOURCING
NEARSHORING Nearshoring is one of the forms of outsourcing, where an organization outsourcers its business processes to an outsourcing partner who provides cheaper services. The main differentiator between offshore outsourcing and nearshore outsourcing is that the outsourcing partner in nearshore outsourcing is located geographically closer than the outsourcing partner in offshore outsourcing. The term "Nearshore" has been taken from the fishing industry and now it is used widely in the world of outsourcing. Advantages of Nearshore Outsourcing Closer proximity Both the outsourcer and the vendor are in the same time zone Better coordination and communication Similar culture, mindset and language Frequent visits to the outsourcing partner is possible Greater efficiency OFFSHORING Offshoring simply means having the outsourced business functions done in another country. Frequently, work is offshored in order to reduce labor expenses. Other times, the reasons for offshoring are strategic - to enter new markets, to tap talent currently unavailable domestically or to overcome regulations that prevent specific activities domestically. ONSHORING Onshore outsourcing (also called domestic outsourcing) is the obtaining of services from someone outside a company but within the same country. The process of engaging another company within your own country for BPO or ITO services. ADVANTAGES OF OFFSHORING AND ONSHORING: Reduce and control operating costs Improve company focus on its core competencies and strategic imperatives Access to world-class capabilities and best of breed technology Re-allocate internal resources to higher-value purposes Address the issue of limited internal resources Accelerate re-engineering/transformation efforts Manage more effectively a difficult or problematic function

INFORMATION TECHNOLOGY OUTSOURCING

IT outsourcing occurs when an organization contracts a service provider to perform an IT function instead of performing the function itself. The service provider could be a third party or another division or subsidiary of a single corporate entity. Increasingly, organizations are looking offshore for the means to minimize IT service costs and related taxes. Many times, the outsourcing decision results in a transfer or sale of the information processing assets and the people who performed the in-house function to the service provider. Outsourcing is also a common option for start-up operations and for organizations entering new business lines. Rather than devoting time, energy and capital to the creation of IT processing services, organizations feel they can minimize the startup time required to enter new markets by contracting a third party to provide those services immediately. IT outsourcing is an attractive option for many organizations. IT outsourcing should be an integral part of an organizations overall business strategy, involving senior executives and key IT staff. The rationale for pursuing outsourcing options involves the strategic, financial and technological benefits to be gained.

KNOWLEDGE PROCESS OUTSOURCING

Knowledge process can be defined as high added value processes chain where the achievement of objectives is highly dependent on the skills, domain knowledge and experience of the people carrying out the activity. And when this activity gets outsourced a new business activity emerges, which is generally known as Knowledge Process Outsourcing. Knowledge Processing Outsourcing (popularly known as a KPO), calls for the application of specialized domain pertinent knowledge of a high level. In fact, it is the evolution and maturity of the Indian BPO sector that has given rise to yet another wave in the global outsourcing scenario: KPO or Knowledge Process Outsourcing. The success achieved by many overseas companies in outsourcing business process operations to India has encouraged many of the said companies to start outsourcing their high-end knowledge work as well. Cost savings, operational efficiencies, availability of and access to a highly skilled and talented workforce and improved quality are all underlying expectations in outsourcing high-end processes to India.

BUSINESS PROCESS OUTSOURCING

Business process outsourcing (BPO) is the contracting of a specific business task, such as payroll, to a third-party service provider. Usually, BPO is implemented as a cost-saving measure for tasks that a company requires but does not depend upon to maintain its position in the marketplace. BPO is the process of hiring another company to handle business activities for you.

Business process outsourcing is the latest thing to affect all the industries in a positive way. (BPO) Business Process Outsourcing has a common thing for every business. It helps the businesses take care of certain tasks, which, if done in house, will prove to be nothing but a waste of time, and both financial and human resources. Every business has various tasks to be taken care of, both internal and external. These tasks also involve some, not worthy of the time, money, and manpower, which could be spent on something better and more productive. But still, these tasks have to be finished. This is where BPO business process outsourcing comes in handy. A company can acquire business process outsourcing service for many types of work. But, the services provided are broadly divided into two groups. The first one is for the internal operations or tasks, and is called the back office outsourcing. It tackles various operations within the organization. For instance, a company may hire a business process outsourcing company for the purpose of hiring or payroll. The other type of business process outsourcing services deal with the external operations of a company. These could be anything such as providing customer services, providing technical support to the customers, or anything similar. Such services are called front office outsourcing. Benefits derived from BPO can be summarized as follows: Productivity Improvements Access to expertise Operational cost control Cost savings Improved accountability Improved HR Opportunity to focus on core business

EFFECT OF BPO ON EMPLOYMENT

The continuously growing BPO sector in India is the new call for young generations of the country who are on the verge of make their careers. The BPO industry boom in India is bringing along with numerous of job opportunities for young as well as old from various different backgrounds. Business Process Outsourcing (BPO) in India gives tremendous opportunities for professionals pertaining to different backgrounds. BPO undertakes tasks of various natures. There are opportunities in operations, quality maintenance and control, client servicing etc. People with clear voice modulation can account for call center facilities thriving in India. All the major Product and Service providing companies longs to have a strong customer based program to enhance their customer base. As such they implement call center facility that deals with customer through telephones. The inbound and outbound calling ensures that there is a constant touch with the customers. Staff employed in ITES-BPO: 2002/03: 171,100 2003/04: 245,100 (ITES-BPO: IT enabled Services - Business Process Outsourcing) Staff employed in outsourced customer service: 2002/03: 65,000 2003/04: 95,000 Standard salary for call centre worker in India: around Rs.1.2 lakh or Rs.10,000 per month. GROWTH OF BPO SECTOR IN INDIA During the first half of 2007 was showing a moderate trend of growth which is registered at 14%. Five years ago, the growth in this sector was quite low due to less contracts but the situation is worse now. However, the growth of the BPO sector is expected to improve. Indian BPO sector is facing competition from countries like Philippines, Mexico, Malaysia, China, and Canada. India has an edge over other countries as we consider the following: Tech savvy professionals Cost effectiveness Superior competency 24 hour service Economy of scale

INDIA- THE MOST PREFERRED DESTINATION

At present, the most preferred destinations for outsourcing include Ireland , India , Israel , Canada , Philippines and South Africa.

India is leading the list of the most favored outsourcing destinations across the world has a proven process maturity model and has captured major share of the offshore market. The significant increase in offshore outsourcing is in part, a result of the quality work that India has provided for US companies and others. There are about 300 million Englishspeaking Indians, so language isn't a barrier, and India 's labor costs, though rising, remain low. India has become the world's outsourcing hub. India offers many competitive advantages such as technological agility, quality, flexibility, cost control and faster time-tomarket. India is a talent rich country and currently it exports software to more than 95 countries around the world. India is the best place to outsource to as you can avail the best-of-breed services at a cost-effective price. Philippines is India's closest competitor in terms of low average IT employee costs. Here the education system is on par with the US system. The total outsourcing revenues from Philippines is estimated to be under $350million. Upcoming destinations include Ukraine, Russia , the Czech Republic , Poland , China , Pakistan , Brazil , Argentina and Mexico.

SOCIO-CULTURAL ENVIRONMENT

Though many qualified Indians continue to migrate, there are enough qualified people in India, which leads to a high level of entrepreneurship and availability of managerial talent. Industry and service sectors show high growth rates, benefiting the outsourcing industry, serving both domestic and international demand. High value-adding, intellectual work starts to come to India. Indian outsourcing companies dominate the global competitive scenario as access to capital becomes easier. Many qualified Indians continue to migrate, but there's enough quality manpower in India, leading to a high level of entrepreneurship, as well as the availability of managerial talent for the outsourcing industry. If we talk about Indian society, then definitely one can notice and observe the change brought by the outsourcing services and institutions. Being worlds second most populated country, human resources are a boon by itself, in India. Outsourcing can be both beneficial as well as harmful to the society. This industry, which booms in metro cities, has caught hold of what can be called as the jugular vein. Its role is somewhat restricted to the developed cities only and can be least found in the villages and remote areas of India. Outsourcing industry has improved Indian economy primarily by employing a large number of people and building and maintenance of infrastructure. It is because of the outsourced projects that people at large in India get opportunities to know and work in multi national corporations. BPO companies also provide ample opportunities for women and as such help them in their liberation and liberalization. There is a good percentage of women workforce employed in the outsourcing companies in the cities. The role of women has consistently changed and they can better take care of their finances and their career. Meanwhile we are also losing on several cultural and traditional benefits. The outsourcing companies and projects emphasize on the foreign cultural values, the place from which the original project has been outsourced. The holidays, the work culture, dayto-day dealings and more tend to lay greater importance on the social norms that are not part of our system, our community. We are slowly adapting to the change, accepting the dominant culture and yielding to such values, which neither we have assigned, nor have they come from our own social domain Outsourcing based on call centers comes with a package of cultural and value systems associated with western culture. As Indian BPO s serve mainly customers from western countries, their employees are provided with opportunities and training in understanding the culture, accent, and customs existing in the outsourcing receiving countries.