Outsourcing helps smaller businesses too, consultant says

Outsourcing helps smaller businesses too, consultant says
By ALEX PHILIPPIDIS
Smaller businesses could tap into the potential savings that corporate giants have enjoyed in recent years by outsourcing work overseas, according to the head of a Chappaqua market research and intellectual property services firm.
The key for smaller businesses is forming cooperatives that aggregate enough buying power, demand for work and resources to justify shifting operations from the United States to countries with lower labor costs, said Dr. Alok Aggarwal, founder and chairman of Evaluserve.
"You're not just taking one job from the United States to India or somewhere else. You're also reducing your price level. This is where I believe co-ops come into the picture," Aggarwal said.
Among areas where startups could outsource and save, he said, were drafting patent applications and other legal documents, as well as handling business processes, such as customer call centers.
Aggarwal spoke minutes after he and a lawyer specializing in international business discussed outsourcing trends and challenges at "New Trends in Globalization of Services: What's All That Buzz About Global Outsourcing?"
The June 23 panel talk was presented by the World Trade Council of Westchester at Pace University's Lubin Graduate School of Business in White Plains.
Forrester Research has estimated that 3.3 million American jobs would be outsourced overseas by 2015. Aggarwal said many of the jobs outsourced from the United States will go to the world's current outsourcing leader India, which has attracted $17 billion in exported business activity.
Besides enjoying the world's second-largest population with more than 1 billion people, India graduates 2.5 million science and technology majors each year, 85 percent of whom speak English, more than double the number of Americans.
"The kind of reverence for science and technology they have in some of these countries, Russia, India, China, does not exist in the United States. And, it starts very early on in the school system," Aggarwal said.
India's brain gain is reflected at Evaluserve. Of the company's 750 employees, 725 work in India. Of these, half are MBA graduates, 25 percent engineers, 15 percent CPAs, and the remainder MDs, Ph.D.s, lawyers or holders of advanced economics degrees.
Aggarwal said India will face two challenges in coming years –– increasing competition from Canada and Europe and problems within its own borders such as its slow judicial system and the theft of $350,000 from four Citibank customers at an Indian customer-service center. Forrester has predicted a 30 percent drop in India's business-process outsourcing activity as a result.
A second panelist detailed another challenge to the growth of outsourcing: the nation's largest companies are unhappy with the results. A Deloitte Consulting study released last April found that 70 percent of 25 corporate giants surveyed reported negative experiences with outsourcing and one quarter of businesses shifted overseas work back stateside as a result.
The study, "Calling a Change in the Outsourcing Market," also found most businesses intended to continue outsourcing, but of nonstrategic functions like Web hosting and lower-level processes, with an eye to keeping savings rather than sharing them with vendors.
The survey should not prove a comfort to domestic economy watchers since most businesses burned by an outsourcing vendor switch to another one, whether in the same country or in another, said William B. Bierce of the New York City law firm Bierce & Kenerson P.C.
PREVENTING PROBLEMS
Bierce, the publisher of www.outsourcing-law.com and the Outsourcing Law & Business Journal, said businesses of all sizes can prevent many outsourcing problems by nailing down contracts that:
+ Assign an executive to outsourcing issues.
+ Set clear performance standards, and consequences for not meeting them, in contracts with vendors.
+ Define not only the term of the contract but the structure of the relationship: For example, will it be fee-for-services or a license?
+ Spell out upfront, ongoing and termination payments.
Other considerations, Bierce said, include protecting intellectual property and privacy, as well as the need for disaster recovery and business continuity rules.
Bierce urged the United States not to adopt the job-for-life approach to domestic jobs held by the European Union, but acknowledged along with Aggarwal that outsourcing has become a thorny domestic political issue.
Just how thorny, Bierce said, was brought home to him when he e-mailed Lou Dobbs to disagree with the CNN host's stance against U.S. businesses that subcontract work overseas.
"I had the temerity to respond by saying that outsourcing was a response to the necessity to eliminate waste and inefficiency," Bierce said. "Lou Dobbs growled at me for two pages."