Producer Service & Service Outsourcing Mode Joe Valentine, MBA, PMP

Countries by 2011 GDP (nominal)

(Source: Wikipedia)

GDP real growth rate 2010

Source: Wikipedia

Countries by 2011 GDP (nominal) per capita

(Source: Wikipedia)

Nominal GDP sector composition, 2011

(in percentage and in millions of dollars)

Nominal GDP sector composition, 2011 (in percentage)

Estimated GDP gap due to shortfall from services sector in China, 2011

Main types of Outsourcing Services

Information Technology Engineering services Legal Services Business Process outsourcing - BPO Knowledge Process Outsourcing - KPO Financial Services Tax and Accounting Services Life sciences and healthcare Research and educational services

Information Technology Services

Types of IT Outsourcing: There are several types of IT outsourcing, defined by where the outsourced work happens. These include: offshoring; nearshoring; homeshoring/onshoring; blended-shoring;

Examples of Frequently Outsourced IT Services: application/software development; web development/hosting; application support or management; technical support/help desk; database development/management telecommunications infrastructure

Engineering Services
Engineering services are those service functions that deal with or are related to core engineering processes. Examples are: CAD / CAM (computer aided manufacturing / design) Auto design Failure analysis of structural steel Thermal design Architectural drawings Balance of Plant Design & Detailing Engineering Analysis Manufacturing Engineering Technical Publications Sustenance Engineering Embedded Systems Special Services Plant & Process Global spend on engineering services is estimated at over $800 billion.

BPO - Business Process Outsourcing KPO Knowledge Process Outsourcing

BPO is the process of hiring another company to handle business activities for you. Also called ITES -- information technology-enabled services.

Voice Processes Call Centers Telemarketing Market surveys

Non Voice Processes Market Research Technical support Help Desk Data Entry Product support KPO -- knowledge process outsourcing includes those activities that require greater skill, knowledge, education and expertise to handle. For example, whereas an insurance company might outsource data entry of its claims forms as part of a BPO initiative, it may also choose to use a KPO service provider to evaluate new insurance applications based on a set of criteria or business rules; this work would require the efforts of a more knowledgeable set of workers than the data entry would.

KPO involves moving up the value chain in offering services.

LEGAL OUTSOURCING
Drafting Contracts/Agreements Document Review Litigation Support Medico-Legal Support Services Medical Malpractice Litigation Support Litigation Document Management and eDiscovery Legal Pleadings & Documentation Legal Research Medical Malpractice Legal & Litigation Support Bankruptcy Filing, Pleadings & Documentation Paralegal Support Services Patent drafting and prior art search Simple legal filings Legal Publications Proof reading Trademark/copyright/patent research

Knowledge Process Outsourcing Financial services

Fundamental research Corporate finance Buy side research Quantitative research Editorial and publishing Data analytics Business research Customers include investment banks, retail banks, private equity, asset management firms, commercial banks, insurance companies etc.

KPO - Corporate and professional services

Market analysis and competitive intelligence Customer insight (market research and data analytics) Business development and sales support Intellectual property searches and analytics Information services and knowledge management Financial controlling and analytics Typical customers include law firms, consulting firms, accounting and advisory firms, market research firms, and human resources firms.

KPO - Life sciences and healthcare

Business analytics support Performance reporting Data preparation (data extraction and cleansing) Performance trackers Sales and promotions trackers Market share trackers and trend analyzers Performance analytics Marketing planning Product lifecycle analysis and modeling Forecasting support Promotional spend analysis Data analytics service Market research support Market research analytics: Data cleaning and processing as well as analytics and reporting Rewind service: Creation of new insights from existing market data Competitive intelligence support Intellectual property services R&D information solutions Patent licensing and commercialization support Procurement support Supply chain solutions Rapid research service

Success story of a small KPO services company in India

Factors responsible for growth of outsourcing services in India

Large number of trained and qualified human resources with good quality of higher education Lower cost of operations Availability of qualified experienced managers Stable democracy with strong legal system and intellectual property protection Favorable Government policies including tax exemptions for export sector Free Trade Zones English medium of education and common language Culturally cosmopolitan cities more akin to Western culture Liberalization of Indian economy promoting industrial and economic growth Good infrastructure in the cities Time zone difference of about 10 hours with the US EST Encouragement to entrepreneurship in the private sector and private business ownership Greater transparency in capital markets and rupee is freely convertible in the current account Development of capital market Inflow of foreign capital for investment Support from banking system for capital investment and working capital requirements Education is valued in India

Issues affecting outsourcing services from China

Perception as a location for low cost manufacturing Difficulty in communication due to lack of English education Concern over protection of intellectual property Judicial system is perceived as weak Lack of enforceability of contracts Lack of transparency Lack of democracy and questions over human rights issues Export control laws and restrictions - EAR and ITAR Lack of modern management Restrictions on communication and internet access Need to identify areas to specialize and grow Need to understand the market and position and market services Need to innovate and upgrade technology Need to use modern project management, pricing and strategic management tools

Advantages of developing service business

Lower investment required in plant and machinery No requirement of shipping of finished goods Quicker cash flow due to no time required for shipping No cash locked up in inventory of raw materials and finished goods Less variance in cost of materials Greater investment in development of human resources Ability to leverage human resources Better educated workforce and citizens contribute to national development Upgrades management practices and techniques Enables cross pollination of ideas and innovations Services industry is more nimble and able to change with requirements. Provides employment to greater number of people and offers better paying jobs Can replace manufacturing jobs lost to other parts of the country Stimulates greater economic development and growth

Kunshan
(Source: Wikipedia)
One of the most economically successful county-level administrations in China. GDP has grown substantially from around 20 billion yuan in 2000 to 210.028 billion yuan (approximately 31.958 billion in USD) in 2010. Ranked first in the "25 Best County-level Cities in China" study by Forbes China in 2010 Immigrant population larger than the number of its permanent residents Capital-intensive and export-oriented economy Known as "Little Taipei" due to the influx of businessmen from Taiwan Duke Kunshan University campus is under construction

Major manufacturing companies AMI China, a subsidiary of American Megatrends Avery Dennison, a manufacturer of specialty tapes, engineering films, and other items Compal has its major notebook manufacturing factories takes OEM orders from Toshiba, Dell, Fujitsu, and Hewlett-Packard. Foxconn, a subsidiary of Hon Hai Precision Industry in the Mainland China and a contract manufacturer that makes iPod, iPad and iPhone Giant Bicycles, the cycling equipment manufacturer, which bills itself as the world's largest bicycle manufacturer Liftex Corporation, the lifting equipment manufacturer Olivet International, a manufacturer of luggage Shimano, the Japanese cycling, fishing and rowing equipment manufacturer Snap-on tools Sunrider Wistron Corporation, the world's second laptop contractor and the manufacturing arm of Acer Inc.

Action Plan points for Kunshan for growth in services business

SWOT Analysis - identify the areas of strengths, weaknesses, opportunities and threats Understand the global services outsourcing market Determine market positioning and value proposition Invest in developing and training human resources through short and long term education and training strategies Invest in bringing teachers and trainers from outside Legal system has to be strengthened to provide fair justice expeditiously Ensure respect for intellectual property and contracts English language teaching Address attrition and how to attract and retain the best talent Government policies - taxation, free trade zones, employment policies Reduce corruption and streamline procedures for approvals and licenses to do business Educate managers in modern management strategies Encourage a culture of innovation, risk taking and provide incentives for business Specialize in key areas and move up the value chain

Basis for strategies for Kunshan - 1

Type of service business Move up the value chain to more value added services Environmental factors Fast changing global markets Competitive analysis Pricing analysis Quality control systems Communication, overcoming the cultural and language barriers Government regulations Export control regulations Legal factors Intellectual property protection Written contracts Judicial remedies in case of disputes Arbitration vs Litigation
Infrastructural issues Facilities, broadband internet, educational and training institutions Government Licenses, procedures, clearances, taxation, policies

Basis for strategies for Kunshan - 2

Understand the market and your customer Who is your customer, where are they located and how best to reach them What is your service position in the market and message What are your customer's pain points and how do you meet them Why is Kunshan better than anyone else Market positioning and strategies You cannot be everything to everyone - specialize and focus Be the best in the world at what you do Combination of offline, online and social media marketing Inbound Vs Outbound Marketing Managerial factors Finance, marketing, strategic planning, project management, pricing strategies, innovation, cross cultural issues, dispersed teams, address attrition and plan incentives to attract the best resources. Human resources Education and training facilities Availability of skilled professionals Ability to communicate well English language teaching Addressing cultural issues and attitudes

Questions
Joe Valentine, MBA, PMP joyvalentine@gmail.com