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Amity University
Assignment
1.Introduction
Outsourcing can be defined as an allocation of specific business processes to a specialist
external service provider. Most of the times an organization cannot handle all aspects of a
business process internally. Additionally some processes are temporary and the
organization does not intend to hire in-house professionals to perform the tasks. Once the
task is assigned to the service provider, he will take the responsibility of carrying out the
tasks and maintaining the organization’s assets.
Vendors providing outsourcing services are generally grouped into two models: Business
Process Outsourcing (BPO) and Application Service Provider (ASP). In the BPO model,
major resources and assets are transferred from the company to the vendor. Under the
ASP model, on the other hand, vendors concentrate on providing selected services for
multiple clients .Nowadays there is also a wide range of pricing models and options
available i.e. there is a seemingly endless combination of service, pricing, and delivery,
providing a solution for most situations.
Top outsourcing countries includes Brazil, Bulgaria ,Chile , China, India, Indonesia,
Malaysia, Mexico, Philippines ,Singapore ,Thailand ,Vietnam , Pakistan , South Africa
,etc.
Global Outsourcing Market
According to McKinsey, the global "addressable" Business Procurement Outsourcing or
BPO market is worth US$122 - US$154 billion, of which: 35-40 retail banking, 25-35
insurance, 10-12 travel/hospitality, 10-12 auto, 8-10 telecoms, 8 pharma, 10-15 others
and 20-25 is finance, accounting and HR.
Advantages of Outsourcing:
• Reduced Operational and Recruitment costs: Outsourcing eludes the need to hire
individuals in-house; hence recruitment and operational costs can be minimized to a
great extent. This is one of the prime advantages of offshore outsourcing.
• Risk-sharing: one of the most crucial factors determining the outcome of a campaign
is risk-analysis. Outsourcing certain components of your business process helps the
organization to shift certain responsibilities to the outsourced vendor. Since the
outsourced vendor is a specialist, they plan your risk-mitigating factors better.
• Concentrating on core process rather than the supporting ones: Outsourcing the
supporting processes gives the organization more time to strengthen their core
business process.
• Swiftness and Expertise: Most of the times tasks are outsourced to vendors who
specialize in their field. The outsourced vendors also have specific equipment and
technical expertise, most of the times better than the ones at the outsourcing
organization. Effectively the tasks can be completed faster and with better quality
output.
• Lower personnel costs: Some businesses choose to take their outsourcing one step
further by choosing a vendor, located in another part of the world. Doing so typically
saves them more money because they end up paying a much lower wage than would
be necessary in their home country. By outsourcing job duties to non employees, a
business does not have to pay consistent wages or offer additional employee benefits.
The company may pay lower taxes because independent contractors, the people who
complete the outsourced projects, pay their own withholding, social security, and
other taxes. This can add up to substantial savings .
• Outsourcing speeds up production time. Since the third-party vendor will only be
concentrating on one specific task, instead of numerous office duties, actual
production time can be greatly increased.
• Outsourcing gives a business the flexibility to change third-party vendors whenever
necessary. This process is not as time-consuming as the normal employee hiring
process, because they are not screening individuals, they are considering established
companies with proven track records.
Some of the major disadvantages to outsourcing include poor quality control, decreased
company loyalty, a lengthy bid process, and a loss of strategic alignment ,etc .Following
are the important disadvantages of outsourcing : -
Political : There is a major divide between the rich and the poor; good national IT
policy in place. Brazil is the largest and most populous country in South America;
instability within its political system;
• Difficult climate.
• Government is unusually supportive in developing IT outsourcing however results
of it remain to be seen.
• Government in Brazil is showing his eagerness to attract foreign investors. The
government is keen to contribute to the development of Brazilian off shoring ,
• Security is a major issue in Brazil. Social inequality, gun crime and drug dealing
are sad realities on the streets of the big centers like Rio de Janeiro and Sao Paulo,
and should show up in the risk management assessments of any offshore program.
• Despite the newly launched efforts, Brazil has been challenged to make changes
and compete at the incredibly rapid pace of offshore growth. This will continue to
be a challenge; outdated labor laws and a slow-moving official bureaucracy
continue to reduce the agility and flexibility of businesses.
Conclusion: Outdated labor laws are still a sizable hurdle, and although currently under
debate, they are not expected to change significantly in the short term. However, the
country has made important forward strides in the past two years. Additionally, non-
government organizations and IT-sector constituencies have become more proactive and
aggressive to get the government to enact change — and the results are beginning to be
meaningful.
Global and Legal factors:
• The legal system is complex and overburdened. Brazil was ranked very low by the
World Bank for ease of doing business (122 out of 178).
• Conversely, the country is increasingly open to global issues. An increasingly
broader portfolio of trading partners opens the country to global practices, and
global concerns like the environment, mature fast.
• IPR is a big issue in Brazil.
• Government laws are fair.
• Most cases of piracy in the world; largest losses by copyright industry
• Inadequate enforcement.
Conclusion :Brazil's legal system, while slow and complex, is compatible with modern
Western democracies, and the continuity of commercial contracts is respected.
Regulatory changes in the economy are minimal
Cultural issues:
• Originally a Portuguese colony, the country has been the destination of several
waves of immigration from different areas, most notably Italy, Germany, Japan,
the Middle East and other Latin America countries.
• Business practices are influenced by American and European multinationals;
several multinational shared services and development centers are established in
the country.
• Language is a major barrier, and English proficiency on the whole is poor. Modest
English skills
• Very innovative society.
• Development of top innovation parks. Language is a major barrier, and English
proficiency on the whole is poor.
• Close physically and timewise to the U.S.
Conclusion: Brazil is well-connected to the world. Immigration has resulted in cultural
diversity. The culture in general, and business practices in particular, are influenced by
U.S. and Western European practices.
Economic /cost advantage:
The economy of Brazil is the world's eighth largest by nominal GDP and ninth largest by
purchasing power parity. Brazil has moderately free markets and an inward-oriented
economy. Its economy is the largest in Latin American nations and the second largest in
the western hemisphere. Brazil is one of the fastest-growing major economies in the
world with an average annual GDP growth rate of over 5 percent. In Brazilian reais, its
GDP was estimated at R$ 3.143 trillion in 2009. The Brazilian economy has been
predicted to become one of the five largest economies in the world in the decades to
come.Brazil is a member of diverse economic organizations, such as Mercosul, Unasul,
G8+5, G20, WTO, and the Cairns Group. Its trade partners number in the hundreds, with
60 percent of exports mostly of manufactured or semimanufactured goods. Brazil's main
trade partners in 2008 were: Mercosul and Latin America (25.9 percent of trade), EU
(23.4 percent), Asia (18.9 percent), the United States (14.0 percent), and others (17.8
percent).
Highly unequal income distribution remains a pressing problem .The country has large,
well-developed agricultural, mining, manufacturing and service sectors .Its economy
outweighs that of all other South American countries .Brazil is expanding its presence in
world markets .Brazil’s economy is expanding its presence in world market partially due
to outsourcing. The challenge is to maintain economic growth over a period of time to
generate employment and make the government debt burden more managable.
Infrastructure risk:
• Brazil is South America's largest telecommunications market. It has more than 40
million installed fixed lines and more than 150 million mobile subscribers.
• Internet user penetration is above 25% (12 million connections and 45 million
unique addresses), and the market is forecast to grow at a compound annual rate
of 12%. This is partly due to government efforts to enhance accessibility and a
recently launched government-sponsored program to provide low-cost computers
to public school students.
• Internet users: 14 million
• Major companies, including GE, Goodyear and Xerox, have partnered with
Brazilian outsourcing companies.
IT Competency risk:
• Good project management; excellent technical and management experience
• highly skilled IT workers and growing sophistication of expertise in software and
new technologies
• Application development and maintenance is the specialty of Brazilian IT
programmers very good
• BPO: Excellent
• System Writing Project R&D: Average
Labor Costs:
• Brazil has relatively competitive salary rates among the various countries in Latin
America.
• The cost differences between Tier 1 and Tier 2 cities can reach 50% in the three
biggest cost areas for IT services — salaries, facilities and telecommunications —
demanding extensive due diligence from providers and clients alike.
• The Brazilian currency has been steadily appreciating and now floats around 1.8
per U.S. dollar, which represents a 25% increase in two years in costs for
American buyers of Brazilian services. To counter that effect, the government
presents a portfolio of different export incentives and tax breaks (for exports in
general, IT services in particular and for innovation).
Conclusion: Despite the steady appreciation of the Brazilian real against the U.S. dollar,
the country still offers competitive service costs. Brazil is very competitive among Latin
America countries and against many African, Middle Eastern and Asian destinations.
Relatively competitive costs, coupled with strong business acumen, solid infrastructure
and high international business exchange structure, highlights Brazil's overall
attractiveness .Brazil is cheaper than almost all other South American or European
countries, with a 30% salary advantage cost over the US. However it is not the cheapest
option, with Indian locations benefiting for an additional 30% cost advantage.
Advantages to outsourcing to Brazil :
• Time zone: Our development center is located just one time zone east of New
York. This geographical proximity translates into easier access, better
communication and lower costs. Brazil is conveniently located in a time zone
between North America and Europe. With minor shifts, we can maximize the
number of hours in which both our teams and our clients' are at work.
• Distance facilities: Unlike most outsourcing locations, Brazil is just one
overnight flight from the U.S., usually with no need for connections. Airfare to
and from Brazil is moderately priced. Direct flights connect us to the major
foreign airports, making frequent meetings less costly and improving project flow.
• Proven capacity: the Press, research institutes, and consulting firms have been
publishing very positive reviews on Brazil and its outsourcing advantages.
• Faster and more responsive: Working hours are quite similar, making contact
between Paradigma’s staff and its clients much faster and more flexible.
• Cultural similarities: Westernized Brazilian business culture and values are very
similar to the American way of doing business, lowering the risk of cultural issues
and improving team integration. Brazilian IT professionals are highly trained,
speak fluent English, and are easy to work with on a personal level.
• Superior infrastructure: Brazil has an underlying infrastructure that is clearly
superior to that of most developing countries. Energy stability, political and
economic safety, and reliable network connections provide excellent conditions
for a technology company.
• Low risk: Brazil is a country that is historically untouched by natural disasters or
terrorist attacks (read U.S. economy at risk).
Cost :Cost is perhaps one of the major concerns for companies when choosing between
Brazil and other outsourcing countries. While the cost of hiring a Brazilian programmer is
about half the cost of hiring one from the U.S., it is still relatively more expensive.
Language :Although Brazilians share similar culture values like the Americans, they
don’t share the same language .English is the second most spoken language in the
country, however, it still lags in the amount of IT professionals that are English proficient
and that can actually talk. The Brazilian government apparently realizes the problem.
More training programs have been created to help Brazilian professionals improve
English skills.
Outlook :Despite some of the issues, Brazil remains a strong contender to be the next IT
outsourcing “power house”. The Brazilian government led by President Luiz has been
putting in effort to attract foreign investments into Brazil and create social programs to
combat social inequality. Big players in IT services such as CPMBraxis, Datasul, DBA,
Itautec and Politec have joined forces and formed BRASSCOM, which promotes the
export of IT services among 3,265 IT firms across the country.5 The future of IT
outsourcing in Brazil looks bright and promising.
Thoughts : Selecting the right country may just be as important as selecting the right
outsourcing partner. Since every country has its own advantages and disadvantages in
outsourcing, managers need to spend the time to create “rules of engagement” before
jumping ship to an outsourcing partner in a foreign country.
Key Findings
1.Brazil software and service exports are estimated to grow at a CAGR of 35.72% from
2007 to 2010.
2.Hardware industry in Brazil climbed up at a CAGR of 18.93% from 2004-2006.
3.Low cost outsourcing services and qualified talent pool are driving the industry.
4.The burgeoning IT industry provides opportunities to consultancy firms, R&D centres
and ICT industry.
5.With the development of IT outsourcing industry, enormous opportunities emerge in
the ICT industry and education service market for the global as well as domestic players.
Brazil has been showing signs of becoming a serious contender in recent years. Aware of
the opportunities of tapping into offshore demand, in 2009, the big national players in the
IT service industry in Brazil (CPM, Datasul, DBA, Itautec, Politec and Stefanini) created
BRASSCOM with the main objective of promoting the export of IT services among its
current roster of 3,265 IT firms. The Brazilian Association of Software and Services
Export is a clear attempt to emulate the Indian success story (though, if the organization's
Web site is any indication, the effort is an anemic one).
The global outsourcing service providers and software firms have a strong presence in
Brazil and many are already serving their global client bases. Companies such as IBM,
Unisys, HP, EDS, Accenture, Deloitte, Motorola, Intel and Nokia all have offshore
centers in Brazil. In addition, TCS, the largest of the India offshore players, has plans to
create a new global development center in the state of Sao Paulo, in addition to an
existing center in Brasilia.
As the offshore market continues to evolve, Brazil appears to be well placed to compete. It won't
provide the lowest prices. Brazil has a mix of capabilities that, in particular, position it to provide
nearshore services to the US. It also has the beginnings of a track record in ITO and BPO. It
appears unlikely they'll ever displace the current market leader, India, but by the time of the next
World Cup in 2010, Brazil may well be one of the leading runners up.
Market opportunity:
References :
1. http://www.articlesbase.com/management-articles/outsourcing-the-advantages-
and-disadvantages-of-outsourcing-536182.html#ixzz1AVkjvVYL
2. Outsourcing - advantage, benefits, disadvantages, cost, Advantages of
outsourcing, Disadvantages of outsourcing, Steps in successful outsourcing
http://www.referenceforbusiness.com/small/OpQu/Outsourcing.html#ixzz1AVkJa
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