OFF-SHORING / OUTSOURCING

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Scope

Definition When is the model used Advantages and Disadvantages How is the Model Used Examples Where do jobs go

Definition
Outsourcing Outsourcing is contracting with another company or person to do a particular function. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers. Off-shoring Off-shoring is comparable to outsourcing, but the business process such as production, manufacturing or services is moved to another country.

OUTSOURCING/OFF-SHORING
DOMESTIC Domestic in-house production IN-HOUSE
Company produces its products domestically without any outside contracts

OFF-SHORE Off-shore in-house sourcing

Company uses services supplied by its own foreign-based affiliation (subsidiary)

Domestic outsourcing OUTSOURCED

Off-shore outsourcing

Company uses services supplied by Company uses services supplied by another domestically-based company an unaffiliated foreign-based company

When is the Model used?

Companies usually choose to outsource or off-shore parts of their business for one or more of the following reasons:

reduce fixed costs to increase focus on core competencies in order to use their labor, capital, technology and resources more effectively.

The decision to move to another country is taken because there is a cost or skills advantage in doing so, or because there is a need for international focus.

Advantages

reduce fixed costs; to increase focus on core competencies in order to use their labor, capital, technology and resources more effectively. To cope-up with the paace of technological advancement Larger knowledge pool Reduce project cycle time

Disadvantages
1.

Loss of Managerial Control

Your outsourcing company will not be driven by the same standards and mission that drives your company. Difficulty in communication Time zone / deadline delays

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Hidden Costs Threat to Security and Confidentiality Quality Problems Tied to the Financial Well-Being of Another Company

How is the Model Used?

Stages of Outsourcing and Off-shoring
1)

Strategic Thinking - to develop the organization's philosophy about the role of outsourcing in its activities; Evaluation and Selection - to decide on the appropriate outsourcing/off-shoring projects and potential locations for the work to be done and service providers to do it; Contract Development - to work out the legal, pricing and service level agreement (SLA) terms; Outsourcing Management or Governance - to refine the ongoing working relationship between the client and outsourcing service providers.

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How is the Model Used?

The following steps are necessary in deciding which processes to off-shore and which country:
1.

Why choose outsourcing / off-shoring?

To reduce cost and gain skills advantage Profit margins are under pressure because of higher price competition To gain international exposure and advantage

1.

To which countries and with which partners?

Experience Skills Culture

How is the Model Used?

The following steps are necessary in deciding which processes to off-shore and which country:
3.

What are the costs, profits and risks, and which processes are eligible for outsourcing / off-shoring?
Alternatives Cost-benefit analysis

Wage levels Extra costs and charges Price levels Effect on the internal value chain of the company

3.

What happens next?

Finally, carry out a detailed feasibility analysis for each country, partner, process, and contract.

Most Outsourced Job Types

Technology Software/Hardware Maintenance Support Finance Loan processing Independent analysis Accounting audits Insurance Claims processing Health Care

Example - NIKE
PROFILE

Major publicly traded sportswear and equipment supplier based in the United States Products: Athletic shoes, apparel, and sports equipment Market Share: 47% market share of the domestic footwear industry, with sales of $3.77 billion.

Example - NIKE
OUTSOURCING STRATEGY Subcontractors throughout the globe

China Indonesia Vietnam Italy Philippines Taiwan South Korea

Nike employ teams of 4 expatriates per each of the big countries visiting the factories weekly to monitor production and working conditions.

Example - Dell
Dell, the world's largest producer of personal computers, has begun operations at its call center in the Philippines. The call center, provides customer and technical support to Dell computer users abroad. The company said it chose the Philippines for the center "primarily because of the strong language and communications skills of its work force and a robust telecommunications infrastructure."

Where are the Jobs Going?

CANADA COSTA RICA BRAZIL EASTERN EUROPE RUSSIA SPAIN

INDIA CHINA PHILIPPINES

Percentage Distribution and Number of BPO Companies, by sector, 2008 Sector Contact Centre Transcription Information technology Back office (KPO) Animation Engineering Total Percentage 31 % 22% 19% 13% 8% 7% 100% No. of Companies 191 135 119 81 49 43 618

Source: Business Processing Association of the Philippines (BPAP)

Contact centre is consist of inbound and out band voice operation service for sale, customer service and technical support among others while transcription is data transcription (including medical) services. Back office service is also known as knowledge process outsourcing (KPO) like finance, accounting and human resources administration.

Philippines seen to remain No. 3 in global outsourcing

Based on a Philippine Daily Inquirer Article 21 July 2011 The Philippines is seen holding on to the third spot in the global off-shoring market, with revenue for the year expected to reach $10.7 billion for a 7.4-percent share of the market. According to Canada-based research firm XMG Global, India will continue to be the world leader, with an estimated global take of $61.5 billion, or 42.5 percent of offshoring revenue in 2011. China will come in second with a 31.5-percent share of the pie and $45.7 billion in offshoring revenue.

Why Choose Philippines for Outsourcing?

The Philippines has less expensive operational and labor costs. English language proficiency. Cultural affinity to western countries.

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