off shoring outsourcing rev 7
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OFF-SHORING / OUTSOURCING
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Definition
When is the model used
Advantages and Disadvantages How is the Model Used
Examples
Where do jobs go
Scope
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DefinitionOutsourcing
Outsourcing is contracting with another company or personto do a particular function.
The outside firms that are providing the outsourcing services
are third-party providers, or as they are more commonlycalled, service providers.
Off-shoring Off-shoring is comparable to outsourcing, but the business
process such as production, manufacturing or services ismoved to another country.
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OUTSOURCING/OFF-SHORING
Domesticin-house productionCompany produces its productsdomestically without any outside
contracts
Off-shore in-house sourcing
Company uses services supplied by
its own foreign-based affiliation(subsidiary)
Domestic outsourcingCompany uses services supplied by
another domestically-based company
Off-shore outsourcingCompany uses services supplied by
an unaffiliated foreign-basedcompany
DOMESTIC OFF-SHORE
IN-HOUSE
OUTSOURCED
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When is the Model used?Companies usually choose to outsource or off-shore parts oftheir 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 thereis a need for international focus.
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Advantages reduce fixed costs;
to increase focus on core competencies
in order to use their labor, capital, technology andresources more effectively.
To cope-up with the paace of technologicaladvancement
Larger knowledge pool
Reduce project cycle time
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Disadvantages1. Loss of Managerial Control
Your outsourcing company will not be driven by the samestandards and mission that drives your company.
Difficulty in communication
Time zone / deadline delays
2. Hidden Costs
3. Threat to Security and Confidentiality
4. Quality Problems
5. Tied to the Financial Well-Being of Another Company
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Stages of Outsourcing and Off-shoring
1) Strategic Thinking - to develop the organization's philosophyabout the role of outsourcing in its activities;
2) Evaluation and Selection - to decide on the appropriateoutsourcing/off-shoring projects and potential locations for thework to be done and service providers to do it;
3) Contract Development - to work out the legal, pricing andservice level agreement (SLA) terms;
4) Outsourcing Management or Governance - to refine theongoing working relationship between the client and outsourcingservice providers.
How is the Model Used?
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How is the Model Used?The following steps are necessary in deciding whichprocesses 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 countr ies and with which par tners? Experience
Skills
Culture
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How is the Model Used?The following steps are necessary in deciding whichprocesses to off-shore and which country:
3. What are the costs, profits and risks, and whichprocesses 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.
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Most Outsourced Job Types Technology
Software/Hardware Maintenance Support
Finance Loan processing Independent analysis
Accounting audits
Insurance Claims processing
Health Care
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Example - NIKEPROFILE
Major publicly traded sportswear and equipmentsupplier based in the United States
Products: Athletic shoes, apparel, and sportsequipment
Market Share: 47% market share of the domesticfootwear industry, with sales of $3.77 billion.
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Example - NIKEOUTSOURCING STRATEGY
Subcontractors throughout the globe
China Indonesia Vietnam Italy Philippines Taiwan South Korea
Nike employ teams of 4 expatriates per each of the big countriesvisiting the factories weekly to monitor production and working
conditions.
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Example - DellDell, the world's largest producer of personal computers, has begunoperations 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 "primarilybecause of the strong language and communications skills of its workforce and a robust telecommunications infrastructure."
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Where are the Jobs Going?
INDIA CHINA PHILIPPINES
CANADA
COSTA RICA
BRAZIL
EASTERN EUROPE
RUSSIA
SPAIN
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Contact centre is consist of inbound and out band voice operation service forsale, customer service and technical support among others whiletranscription is data transcription (including medical) services.
Back office service is also known as knowledge process outsourcing (KPO)
like finance, accounting and human resources administration.
Sector Percentage No. of Companies
Contact Centre 31 % 191
Transcription 22% 135
Information technology 19% 119
Back office (KPO) 13% 81
Animation 8% 49
Engineering 7% 43
Total 100% 618
Percentage Distribution and Number of BPOCompanies, by sector, 2008
Source: Business Processing Association of the Philippines (BPAP)
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Based on a Phil ippine Daily Inquirer Article 21 July2011The 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 willcontinue 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 pieand $45.7 billion in offshoring revenue.
Philippines seen to remain No. 3 in g lobal outsourcing
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Why Choose Phil ippines forOutsourcing?1. The Philippines has less expensive operational and labor
costs.
1. English language proficiency.
1. Cultural affinity to western countries.
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