Beyond Cost-cutting in Outsourcing

Cost-cutting is the prime driver for outsourcing. The perception of outsourcing is that of a global pursuit for low-cost solutions. It is important to look beyond this perception to note the long-term value addition including cost-efficiency in outsourcing agreements.

The Global Pursuit of Low Costs

A common business strategy among companies seeking to outsource has to been to pursue low-cost labour in the BRIC bloc of countries (Brazil, Russia, India and China) and Mexico. Some global companies are considering even lower-wage options such as Vietnam. According to a report by the First Consulting Group Vietnam (October 2006), labour rates in Vietnam are 30 to 50% less than India. Eastern European countries such as Poland are also emerging as outsourcing destinations.

Relatively low-cost of labour combined with low infrastructure costs in these locations enable business to cut costs significantly.

The Value-proposition of Outsourcing

Cost-efficiency is not the only value which outsourcing brings to a company. In fact, cost-cutting and cost-optimisation goes hand-in-hand with other important factors of outsourcing, which create value-addition.

Here are some other aspects of outsourcing, which bring value addition for companies: -

Domain Expertise and Best Practices

Process Transformation

Access to large Talent Base

Innovation and Intellectual Capital

Access to New Markets

1. Domain Expertise and Best Practices

Businesses may want to concentrate on their core-competencies and outsource other non-core functions to specialist vendors. Domain expertise of mature service providers ensures that they have standard process in place and follow best practices in the related field.

For example, Bechtel, a US-based construction firm found communication and teamwork to be a major bottleneck during its projects in China, where teams consisted of a mix of Chinese, American and British staff. Taking the help of Hewitt, it was able to improve "communication and cooperation across cultural boundaries", contributing to a "more efficient and effective crew", according to Hewitt.

Thus companies can benefit in terms of the knowledge-gain and access to best practices, which can bring about operational excellence.

2. Process Transformation

Using outsourcing as a transformational tool is a growing trend. Many firms decide to outsource selective under-performing processes and functions, which are bottlenecks to their over-all performance. The service providers use their expertise and experience to streamline customer processes according to needs and objectives, creating process excellence.

The telecom Giant Vodafone in UK, decided to outsource staffing and recruitment functions to Alexander Mann Solutions. Before, Vodafone staffing was done on a decentralised basis. Alexander Mann provided consistent recruitment processes and scalability to Vodafone.

Process transformation brings value to a client company in terms of increase in process quality, having a cascading effect on overall quality of client products and services.

3. Access to large Talent Base

Globalisation enables companies to access a wide base of local skilled talent, with the help of global service providers. India and China, with their vast pool of qualified talent are viewed as a major sources for human capital, especially in the fields of science and engineering.

According to a McKinsey Global Institute study, done for National Association for Software and Services Companies (NASSCOM), India produces around 3.6 lakh engineering graduates per year, and more than 6 lakh arts and science graduates per year.

The availability of English-speaking, qualified, talented and cost-effective human capital ensures that services can be sustained at a consistent high-quality level, with scalable operations.

4. Innovation and Intellectual Capital

The availability of high-quality human capital has prompted companies into Knowledge Process Outsourcing and R & D outsourcing. This in turns spurs innovation with the development of cutting-edge products and companies filing patents for the same.

Some sectors, which have seen investment in India as an R & D hub, are biotechnology, pharmaceuticals, software, telecom and the automobile industry. According to Ranbaxy, which has R & D collaboration with Glaxosmithkline, R & D in India can cost one-fifth or one-seventh of what it would cost in Europe.

Creation of new intellectual capital through development of cutting-edge products, service innovation and patents can help businesses gain a competitive edge in the global market.

5. Access to new Markets

An aim of outsourcing can be to access local markets as well. Many BPO operations in India service local as well as global customers. As more products and services are developed for local needs, the market for such products increases.

A typical example is the software localisation sector. Software companises such as Microsoft and Google are involved in developing local language technologies, increasing the local market for these products. For example Microsoft Windows XP now offers multilingual computing, has also started a portal bhashaindia.com to promote indic language computing.

Access to new markets can in turn fuel business growth.

Vendor as a 'Partner-player'

Instead of treating a vendor as a commodity provider, focussing on costs, the trend now is to consider service providers as value-partners, who can create assets for the company in terms of improved processes, innovation, human capital, customer satisfaction, and competitive edge. Only then can companies witness real business growth.

- Professionally Qualified Employees - Secured Development Environment - High coding standards - No hidden charges - Online 24/7 support More benefits

Get a Quote Now!

6 Easy steps to hire a dedicated employee

Fill the Request a Quote form. Tell us your requirements.

Sign up for Mazibo services.

Assign Dedicated Employee/team

Allocate assignments/projects

Manage resources and receive updates

Sign off or renew contract