Article #20

Global Market for Outsourcing IT and IT

Enabled Services

By: Shailendra C. Jain PalviaPresented by: Rachel Kha

Article #20

ObjectivObjectivee To explore the global market for To explore the global market for

outsourcing IT and IT enabled outsourcing IT and IT enabled servicesservices

See the benefits to outsourcingSee the benefits to outsourcing

Understand all functions that can be Understand all functions that can be outsourcedoutsourced

Previous Work• 1996-Lacity-1989 $4 billion business1996-Lacity-1989 $4 billion business

• 2001-Casale-2000 $56 billion per year-IT Functions2001-Casale-2000 $56 billion per year-IT Functions

• 2002-Vijayan-2005 made $160 billion in the US2002-Vijayan-2005 made $160 billion in the US

• 2003-Hoffman-has reduced corporate IT expenses 2003-Hoffman-has reduced corporate IT expenses by 20% to 50%by 20% to 50%

• Global Insight-by 2008, Global Insight-by 2008, – IT off-shoring will account for roughly $125 IT off-shoring will account for roughly $125

billion in additional US GDP annuallybillion in additional US GDP annually– $9 billion jump in US exports and a net increase $9 billion jump in US exports and a net increase

of 317,000 jobsof 317,000 jobs– amount is expected to increase to $250 billion amount is expected to increase to $250 billion

by 2015by 2015

Previous Work ContinuePrevious Work Continue• 2003-Gartner Dataquest-estimated the 2003-Gartner Dataquest-estimated the

global market for Business Process global market for Business Process Outsourcing would reach: Outsourcing would reach: – $131 billion in 2004$131 billion in 2004– $131 billion in 2007$131 billion in 2007– Growing at a compounded annual growth Growing at a compounded annual growth

rate of 9.5%rate of 9.5%

• 2005-Minevich-IDC estimated that the global 2005-Minevich-IDC estimated that the global BPO market was expected to grow to $1.2 BPO market was expected to grow to $1.2 trillion in 2006 from $300 billion in 2004trillion in 2006 from $300 billion in 2004– expect about 25% of US spending on expect about 25% of US spending on

application development, integration, and application development, integration, and management services to go to offshore management services to go to offshore providersproviders

• 2005-Gross-IT outsourcing by U.S. firms may 2005-Gross-IT outsourcing by U.S. firms may itself create new IT related jobs here in the itself create new IT related jobs here in the USUS

Outsourcing Country Outsourcing Country StatisticsStatistics

1.1. India (7.3/10)-(3.4/4 cost; 1.6/3 envn’t; India (7.3/10)-(3.4/4 cost; 1.6/3 envn’t; 2.3/3 people) 2.3/3 people)

2.2. Canada (6.2/10)Canada (6.2/10)

5.5. PhilippinesPhilippines

7.7. IrelandIreland

8.8. AustraliaAustralia

11.11. ChinaChina

BrazilBrazil

MexicoMexico

HungaryHungary

Czech RepublicCzech Republic

RussiaRussia

Breaking the StereotypeBreaking the StereotypeIs Outsourcing really BAD?Is Outsourcing really BAD?

Benefits:Benefits:

1.1.Cost Savings of $.58 for ever dollar spent on Cost Savings of $.58 for ever dollar spent on jobs in Indiajobs in India

2.2.American jobs outsourced to China have American jobs outsourced to China have generated more demand for American generated more demand for American productsproducts

3.3.Created jobs in other sectors Created jobs in other sectors

4.4.““Reverse Outsourcing”/ “Backsourcing”-Reverse Outsourcing”/ “Backsourcing”-foreign firms have outsource back to USforeign firms have outsource back to US

5.5.IT outsourcing by US firms may itself create IT outsourcing by US firms may itself create new IT related jobs here in the USnew IT related jobs here in the US

No Independent Study Reported in this Paper

• Conceptual Paper– It proposes a model but no tests or

theories, thus no results

• Functions that can be Outsourced

Areas of Work Areas of Work OutsourcedOutsourced

•Information Technology (IT)

•Accounting

•Human Resources

•Research and Development

•Customer Relationship Management and Call Centers

•Tax Preparation

•Radiology Analysis and Medical Tourism

•Film and Cartoon Production

Information TechnologyInformation Technology• First to be outsourced onshore/offshoreFirst to be outsourced onshore/offshore

– IS Development, IS Maintenance, IS IS Development, IS Maintenance, IS OperationOperation

– Entire IT function Entire IT function • All company computers and data All company computers and data

centerscenters• PC maintenance and supportPC maintenance and support• Acquisition and maintenance of the IT Acquisition and maintenance of the IT

infrastructure-hardwareinfrastructure-hardware• Systems softwareSystems software• Telecommunications networksTelecommunications networks

AccountingAccounting• Expected to grow at a 9.6% compounded Expected to grow at a 9.6% compounded

annual growth rateannual growth rate

• Top $47.6 billion in 2008Top $47.6 billion in 2008

• Ex: US accounting firm helped an Indian Ex: US accounting firm helped an Indian start-up firm start-up firm

Human ResourcesHuman Resources• Benefits:Benefits:

– Saving moneySaving money– Focus on strategy and core businessFocus on strategy and core business– Improving complianceImproving compliance– Improving accuracyImproving accuracy– Lack of experience in houseLack of experience in house– Taking advantage of technological Taking advantage of technological

advancesadvances

Human Resources Human Resources ContinueContinue• Other functions outsourced

– 401 (k) administration– employee assistance/counseling– retirement planning help– pension administration– temporary staffing– background checks– training and management development programs– executive development and coaching– health care benefits administration– employee benefit administration– Payroll– risk management– executive staffing– employee relocation– Human Resources Information Systems

selection/training/implementation– Recruitment– executive compensation and incentive plans– policy writing– administration of compensation/incentive plans– wage and salary administration

Research and Research and DevelopmentDevelopment

• Survey 2003Survey 2003– 50% of R&D groups in the auto, high-tech, 50% of R&D groups in the auto, high-tech,

aerospace and defense industries had no aerospace and defense industries had no interest in outsourcing IT supportinterest in outsourcing IT support

– 12% were outsourcing IT projects related to 12% were outsourcing IT projects related to R&DR&D

– 4% said they do any outsourcing of this 4% said they do any outsourcing of this functionfunction

• BenefitsBenefits– Reduced costsReduced costs– Minimize business risksMinimize business risks– Hasten market entry of productsHasten market entry of products

• Example from Author-India vendorExample from Author-India vendor

Customer Relationship Customer Relationship Management and Call Management and Call

CentersCenters• Benefits:Benefits:

– Client companies do not have to invest customer Client companies do not have to invest customer relationship management services and relationship management services and infrastructures with expensive in-house IT and infrastructures with expensive in-house IT and service departmentsservice departments

– Lower costsLower costs

• Companies aren’t too certain about intrusting Companies aren’t too certain about intrusting their customers to a third partytheir customers to a third party

• Good companiesGood companies– Customer and client relationship should be seamlessCustomer and client relationship should be seamless– Vendor should not offer a one-size-fits-all packagesVendor should not offer a one-size-fits-all packages

• It should reflect the profile of the customer, not the It should reflect the profile of the customer, not the reverse reverse

Tax PreparationTax Preparation• Spending on tax should increase by 9.3% per Spending on tax should increase by 9.3% per

year over the next 5 yearsyear over the next 5 years

• Benefits: Benefits: – Cost reductionCost reduction– Improved turnaround timeImproved turnaround time– Increased productivity (returned in less than 48 hrs.)Increased productivity (returned in less than 48 hrs.)– Allows more time for CPA firms to offer more value-Allows more time for CPA firms to offer more value-

added services added services – Tax outsourcing can serve as a catalyst for business Tax outsourcing can serve as a catalyst for business

transformation (enabling a firm to outsource other transformation (enabling a firm to outsource other accounting functions, such as bookkeeping)accounting functions, such as bookkeeping)

• Ethical concerns in regard to off shoring tax Ethical concerns in regard to off shoring tax documentdocument– Follow four rules in AICPA Code of Professional Follow four rules in AICPA Code of Professional

ConductConduct

Radiology Analysis and Radiology Analysis and Medical TourismMedical Tourism

• Benefits Benefits -Ease the shortage of radiologists and increasing work -Ease the shortage of radiologists and increasing work

loadsloads

• Technology now allows the internet Technology now allows the internet transmission of crystal-clear radiological scanstransmission of crystal-clear radiological scans

• Now contracting nighthawks-radiologists from Now contracting nighthawks-radiologists from Israel, Australia or Switzerland where it is Israel, Australia or Switzerland where it is daytimedaytime

• Issues with credentialing, licensing, accuracy of Issues with credentialing, licensing, accuracy of the readings, liability, and public perceptionthe readings, liability, and public perception

• Strict requirements that all teleradiologist be Strict requirements that all teleradiologist be US trained, licensed, and board certifiedUS trained, licensed, and board certified

Radiology Analysis and Radiology Analysis and Medical Tourism ContinueMedical Tourism Continue

• Issues: USA has no jurisdiction outside its Issues: USA has no jurisdiction outside its bordersborders– The hospital would be liable but the The hospital would be liable but the

radiologist is under no obligation to come radiologist is under no obligation to come to US for trialto US for trial

• Tourism increasing due to “medical Tourism increasing due to “medical tourists”-traveling to India, Thailand for tourists”-traveling to India, Thailand for affordable First World health care.affordable First World health care.– McKinsey & Co. estimated that India’s McKinsey & Co. estimated that India’s

medical tourist industry could yield up to medical tourist industry could yield up to $2.2 billion in annual revenues by 2012$2.2 billion in annual revenues by 2012

• Hospitals in India and Thailand are just as Hospitals in India and Thailand are just as good if not better-ISO 9001 certifiedgood if not better-ISO 9001 certified

Film and Cartoon Film and Cartoon ProductionProduction

• Jaddoworks.comJaddoworks.com– Indian outsourcing hub for animation Indian outsourcing hub for animation

cartoonscartoons

• Indian animation industry is a $550 Indian animation industry is a $550 million industry million industry – expected to grow at 30% annually expected to grow at 30% annually – reach $15 billion by 2010reach $15 billion by 2010

• Ex: Ex: Sindbad: Beyond the Veils of the Sindbad: Beyond the Veils of the Mists Mists – first full-length Indian animated 3D film using first full-length Indian animated 3D film using

“motion capture”“motion capture”– Film was finished in 18 months instead of the Film was finished in 18 months instead of the

usual 2 years of moreusual 2 years of more– Only cost $14 million instead of $40 millionOnly cost $14 million instead of $40 million

ConclusionConclusionFunctions that are easy to outsource:Functions that are easy to outsource:

Information Technology (IT)Information Technology (IT)

Accounting (expanding)—IndiaAccounting (expanding)—India

Human ResourcesHuman Resources

Tax Preparation—still ethical concernsTax Preparation—still ethical concerns

Radiology Analysis and Medical Tourism—still liability Radiology Analysis and Medical Tourism—still liability issues—India and Thailandissues—India and Thailand

Film and Cartoon Production—IndiaFilm and Cartoon Production—India

Hard to Outsource:Hard to Outsource:

Research and Development—dealing with extremely Research and Development—dealing with extremely sensitive data--Indiasensitive data--India

Customer Relationship Management and Call CentersCustomer Relationship Management and Call Centers

Implications for Service Managers

• Many functions can be outsourcedMany functions can be outsourced

• Choose based on type of jobChoose based on type of job

• Ensure that all is considered before Ensure that all is considered before deciding to outsourcedeciding to outsource

• Customer ServiceCustomer Service

• Standards Standards

• AccentsAccents

• QualityQuality

• AccuracyAccuracy

• Legality, JurisdictionLegality, Jurisdiction

• CultureCulture