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Monday, July 11, 2005
Tips on Back Office Business Process Outsourcing
China catches up with India in outsourcing
John Cester thought he had found a big opportunity four years ago when he opened a business in China and hired local programmers to write software for Western companies.
But the initial response was less than enthusiastic, said the Harvard Business School graduate whose company, Freeborders, is in China's southern city of Shenzhen. Western companies seeking to outsource work were focused on India at that time, he said.
"The rest of the world was very skeptical," said Cester. "India was very successful, and people were satisfied that India was perfect, and there was no need to go anywhere else."
But as the number of US companies with operations in India increased, so did India's wages, personnel turnover and delivery problems, prompting clients to seek alternatives.
China, the Philippines, Russia, Poland, and Israel now are seen as growing alternatives for outsourcing.
In 2004, not a single buyer surveyed by Chicago-based management consulting company DiamondCluster International Inc
Interest in moving some operations to China in the next three to five years has quintupled. The percentage of companies who expected to establish outsourcing operations in China in the next three to five years has surged to 40 per cent from 8 per cent just a year ago, according to DiamondCluster's survey.
By comparison, outsourcing to India is not expected to increase much in the next three to five years, it said.
"China is starting to look like India did 10 years ago," Tom Weakland, who leads the outsourcing practice at DiamondCluster said. "Manufacturing firms have been in China for a long time and IT services have just started to ramp up in China right now."
China attracts Western companies with its reliable infrastructure, skilled workers and domestic market. Wage rates in coastal cities such as Shanghai have gone up, but overall remain lower than those in India.
Analysts say China, already a $30 billion software market, has the potential to become the world's next software outsourcing center.
But the country must first overcome several obstacles such as deficiencies in English fluency and intellectual property protection.
Because China does not have as many fluent English speakers as India does, it has focused on other prospects of business process outsourcing rather than call-center work, or taking customer service calls.
"India may have a little big edge because of the language," said Trip Chowdhry, analyst with FTN Midwest Research. "But I have also seen a lot of cooperation as many Indian software companies have opened offices in China."
Freeborders' Cester said better infrastructure is China's biggest draw.
"We ask our clients to go to India first and then fly to Shenzhen, we couldn't have better sales materials than that," Cester said. "Because the minute you land in Shenzhen you can see the environment is much better."
US companies, as well as India's emerging software giants, are busy building operations in China.
Infosys
Accenture Ltd.
U.S. consulting firm BearingPoint
"China is coming to the forefront in terms of the demand," Manuel Barbero, vice president with BearingPoint said, adding that quarterly growth rate averages 25 percent there.
Costs of its China centers are about a quarter less than that of India, Barbero said.
China has developed strong expertise in transforming, integrating and implementing enterprise resources planning systems, Barbero said.
It also has more engineers who are familiar with the open source software, which is a free operating system favored in developing countries, he said.
India, instead, tends to focus on call centers and software coding. It moves upstream by handling more consulting work, analysts said.
India will occupy top slot in IT services by 2020
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."
Software Outsourcing and India
(Date: 2005-07-11 06:59:31)
Topic: IT & Computers
Many global consulting companies and other organizations have studied factors which should be considered while choosing any software outsourcing destination. And all studies show that, there are two main criteria which should be considered while choosing any offshore outsourcing provider. One is local attractiveness of software outsourcing industry and second is the capability of workers. In India, software industry is the high paying industry and that itself makes it most attractive industry. While offshore outsourcing was started in way back 90's, it has grown and matured now to provide quality software development as per any standards. And Indian companies are very much interested in maintaining their quality. Highest numbers of CMM Level 5 companies are in India at present. On the other hand, other countries are not matching above criteria.Majority of fortune 500 companies are considering India as their preferred destination for software outsourcing. India has emerged as a 'value-for-money' destination that has both cost advantage and quality that matches the expectation of global multinational companies. Indian universities are producing above 3 million graduates and around 300,000 post graduates every year. Software outsourcing industry is the highest paying industry in India. So large percentage of these students choose offshore software development company as their destination. But India is not just about number of graduates. Every CEO or CIO wants maximum return on his investment and reduce the cost. So more and more companies in developed countries are sending their software development requirements to low cost software outsourcing companies in India. Although, India has not remained as the lowest cost offshore outsourcing provider, it has based itself on quality of offshore software development at right cost. Advantage India has achieved in software outsourcing is not overnight. Offshore Outsourcing has grown and matured with time. In 90's, companies like GE, Citibank and British Airways started outsourcing to India and till then it has gone through many phases to compete with the best. After Initial phase, companies like Nortel and Lucent started to outsource product development to speed it up and market faster. During this time, Indian majors like Wipro and Infosys also started. In the second phase Y2K bug gave lot of work to Indian companies and gave them enough finance to grow. And with that, they started in service provider section as well as in enterprise application development. Next wave was of BPO Industry which is till going on and supply is not meeting the demand. And along with these, software outsourcing is increasing continuously. According to McKinsey, software outsourcing will increase 30-40% every year for next five years. According to Forrester research, around 3.3 million white collar jobs will be outsourced by 2015. And according to Deloitte research, two million financial sector jobs will be outsourced by 2009. And major chunk of this software outsourcing and other jobs are coming to India. According to Paul Saffo, as told to business week magazine, "Indians have a reputation of being a brilliant educated class and now they are taking a lead in colonizing cyberspace."
TCS to hire 13,000 professionals in FY06
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| Click the following to access the sent link: Rediff.com - TCS to hire 13,000 professionals in FY06 TCS and Microsoft were selected as strategic partners by Sino-India Cooperative Office of People's Republic of China among other Chinese investors to provide IT outsourcing services and solutions to both the global market and domestic market.The JV will provide IT outsourcing services and solutions to all major worldwide markets particularly US, Europe, and the Asia Pacific region including China s domestic market. This article can also be accessed if you copy and paste the entire address below into your web browser. http://www.rediff.com/money/2005/jul/11tcs1.htm | | |||
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UBS, Franklin Templeton plans backoffice in Hyderabad
The state government has roped in the Union Bank of Switzerland and Franklin Templeton for investing in the 20,000-acre Knowledge Corridor.
The two entities will be setting up their backoffice operations at Nanakramguda, on the city outskirts, which the state has earmarked for setting up a financial district.
Attracting these financial entities has been part of the state government's decision with regard to setting up a financial district in the Knowledge Corridor.
While UBS has been given the provisional allotment letter for 11.66 acres of land in that area, Franklin Templeton has been allotted 15 acres of land.
The land has been allotted at the rate of around Rs 80 lakh (Rs 8 million) per acre, amounting to more than Rs 9 crore (Rs 90 million) of investment from UBS and Rs 12 crore (Rs 120 million) from Franklin Templeton, according to Andhra Pradesh Industrial Infrastructure Corporation sources.
Earlier, there were reports about Franklin Templeton's plans to set up its backoffice operations at Banjara Hills in Hyderabad, though nothing emerged out of it later.
However, according to APIIC sources, this time it is confirmed that the financial entity will set up its operations at Nanakramguda as it has already been allotted land for the aforesaid purpose.
Franklin Templeton is one of the largest financial service groups based in the US that has $417.3 billion in assets under management globally.
It started its operations in India in 1996 where it manages Rs 16,254.84 crore (Rs 162.55 billion) of assets and has a presence in 33 locations nationwide.
UBS, one of the largest banking and financial services group in the world, reported net profit attributable to its shareholders of CHF 2,625 million in the first quarter of 2005 with the total operating income for its financial businesses being CHF 10,104 million during the same period.
It operates in over 50 countries and has a branch in Mumbai in India. UBS employs 67,424 people worldwide out of which 38.5 per cent are located in Switzerland, 38.9 per cent in the Americas, 16 per cent in Europe and the remaining 6.6 per cent in Asia.
Besides the international firms, regulatory bodies like the Insurance Regulatory Development Authority have also been allotted five acres of land in the area.
IRDA will also have a neighbour in the area in the form of Institute of Insurance and Risk Management that has been allotted five acres of land as well.Local players including Andhra Bank also seem to be keen on getting 10 acres of land in the area. According to sources, Andhra Bank is likely to get the final allotment in due course of time.