Category: Offshore outsourcing

With the advent of globalization outsourcing has experienced a phenomenal growth. The success story of this concept is so over-powering that it has almost outshone the disadvantages associated with it. This concept may have helped myriads of companies in accumulating wealth but it has also spelled doom for many, and honchos at Boeing can very well vouch for this statement. More often than not, companies get so busy reaping the short term gains that they lose sight of the unpredictable astronomical losses, which is almost like collecting dimes in front of a bulldozer. So, what is wrong with outsourcing? Nothing is wrong with outsourcing. The way some businesses use it is wrong. Initially outsourcing business processes helped companies save a lot of money and it was passed on as a newly found corporate genesis which could substitute the traditional ways at a very less cost. This belief did hold good as long as outsourcing was handled properly, but it was soon discovered that any glitch or unpredicted spikes in the defined process proves fatal for the business. Importance of far-sightedness Far-sightedness is one of the prime prerequisites to chalk out a strategy for outsourcing which, let’s face it, lacks in the new kids on the block. Most of the nascent business units led by young professionals that solely rely on outsourcing suffer an ill fate because of lack of far-sightedness and curtailed experience. A detailed description on the common problems associated with outsourcing can help young entrepreneurs develop a fair idea and induce a sense to use this practice judiciously. • Power shift in the Managerial Control When you enter into a contract with another company and allow them to perform your business processes you involuntarily turn the managerial control to them. This could turn your company into a mere “authority” that the outsourcer is working for, a relationship of this sort differs substantially from a normal in-house work relationship. The company that outsources cannot oversee the functioning of the operations which may lead to loss in quality and other quality related issues. Your extended work force may not imbibe your company’s cultural values and exerting these values may not be even possible. Their only motivation would come from reaping maximum profits from the services provided by them to your company which is not an ideal work relationship. • Uncalled for legal problems When you sign a contract with another party, you are liable to release payment if the conditions of the contract are met. To meet the conditions the other party can stoop down to any levels and even comprehend the conditions of the contract to its benefit. To counterfeit such implicitly deduced inferences a legal aid is usually sought, which adds to the unseen costs. A situation like this invites expenses which are uncalled for and causes unnecessary psychological stress. It has been noticed that, while outsourcing almost all the companies ended up seeking legal help, and spend indeterminable amounts of money. Once both the parties enter into a conflict, it turns into one of those sunny days for legal advisors to make hay. • Quality is compromised When a third party organization takes control of internal business processes of a company, the quality of service rendered can be questionable and is often not up to the mark. Reaping greater profits is the sole motive for most of the organizations and in doing so they tend to cut down on expenses which can directly affect the quality of work delivered by them. This is something that an in-house department of a company would never do, as its own company’s reputation is at stake, but a third party whom you outsource your business process may not think in the same lines. Reviewing the quality of a product is much easier than reviewing the quality of services rendered by the third party to your company’s customers, which leads to confusion and delay in claim settlement. Recently, Dell fell prey to this situation, it had hired a third party to handle its customer grievances cell and the customer complaints increased exponentially over  the call centre executives not being adept in handling the complaints. To substantiate its claim against the third party Dell had to conducts surveys and collect feedback from its customers, this activity itself entailed a significant amount of expenses which were not foreseen. • Surprise hidden costs are extremely unpleasant Incurring hidden costs is never a pleasant experience especially when you are on a budget with no extra money at your disposal. Imagine the look in your face when you buy an expensive home appliance with a promise of free installation and then get charged almost double the standard installation fee because of some paraphernalia used in installation that you thought came along with the appliance. Now, multiply that look a few hundred times when your company is concerned, as the costs involved would be humongous. A contract by far covers almost all the basic costs which are foreseen, but the costs incurred when the business processes are carried out are accounted under hidden costs, which also entails legal fee, if charged any. • Confidentiality and security are at stake A contract usually reserves a company’s right to sue the third party who accepts the outsourced work, if there is a breach of confidentiality, but the damage done cannot be reversed. Highly classified information for a company is what a wedding ring is for girl, if it is stolen, hell hath no fury like a company whose confidential information is leaked. At the end of the day, no matter how much the company tries to bring down the accused for breaching the contract, there is not much that can be done. The leaked information could be used by the company’s arch rivals and if the information is critical it could completely destroy the company. To avoid a situation like this vital information must not be passed on to the third party handling the outsourced work. • Dependence on

Outsourcing may seem like an easy option when you have a lot of work on your hands and very few people in your team, but the itch to outsource work spontaneously must be controlled as it may pose a potential threat to your company. Myriads of benefits of outsourcing have already been established, but little do we know about the demerits and seldom do we bother to know about “when not to outsource”. Should you be worried about something? Notwithstanding the major benefits of this business option there are situations which call for controlling the need to outsource. Acquiring the expertise to identify such situations may take an entire lifetime, but with a comprehensive view on the basics you could develop a knack to identify such situations. Irrespective of the reduced labor costs and increased flexibility outsourcing is not always a viable option and delegating work to an in-house team even at a higher labor cost may deem necessary. Companies who are extremely particular about their cultural standing and their business strategies might not appreciate outsourcing at all, as it involves transferring the job to a third party which may have a different culture and a different management style. The woes of outsourcing are well known by all, but there are companies that still fall prey to common traps. To avoid repeating the common mistakes in outsourcing, it is crucial to acquire in-depth knowledge on outsourcing and carefully study cases where outsourcing proved to be a fiasco, which, let’s face it, no one does and ends up going down the hill. To make things easier for you here is a list of scenarios where outsourcing may seem like a viable option but one should steer clear of it to avoid trouble in the long run. 1. When Outsourcing increases expenditure The prime reason for outsourcing is cost reduction and if that is being compromised then you might want to reconsider your options. This business option is believed to reduce costs as it does not entail overheads like social security and health care of the employees, more often than not the third party also offers a competitive quote which adds to cost reduction. With so many parameters working to its advantage it usually seems like a viable option as compared to delegating work to an in-house team and is bound to reduce costs, but if that is not happening then you might want to consider your options. There may be situations where the cost of outsourcing is much higher than operating an in-house department, which might lead to a financial loss. To avert a financial implication arising from a similar situation you could delegate the work to an in-house team. 2. Outsourcing may not be applicable for every project Just because outsourcing reaped maximum profits in a project does not necessarily mean that it would fare the same way in other projects. Pay close attention to the requirements of the client and the project, there are situations where the client insists on getting the job done from an in-house team rather than a third party. This is clearly because of trust related issues, the client finds it difficult to bank on the quality of the service provided by a third party and prefers to bank upon the company’s reputation. In a fix like this you might want to cater to your client’s requirements rather than outsourcing operations to generate greater profits. 3. Not wise to outsource during management restructuring Any decisions pertaining to outsourcing require undivided attention which is not possible if the top honchos of a company are involved in figuring out their new roles. Restructuring internal operations, eliminating hierarchies and divesting unprofitable functions require a lot of attention and are usually not done over night, after the structuring is completed it takes quite some time for employees to figure out their new roles that come along with new designations. If a company plans to enter into a contract during such unstable times the probability of error and misjudgment increase by leaps and bounds. Any kind of outsourcing needs sufficient focus and ample of time to reap the desired benefits. 4. Outsourcing to a company that frequently changes its senior management may not be a good idea The basic idea behind outsourcing is to transfer the control of business operations of one company to another to the costs and the responsibility associated with it. If the management of the third party goes through constant restructuring, the benefits of outsourcing may not be so pronounced. An unstable management may result in constant reallocation of roles which in turn may cause a lot of confusion in dealing with the employees of the third party. You may end up inviting more trouble in an attempt to brush off responsibility associated with the outsourced business process.  It is essential for the third party to have a stable senior management to facilitate your company in heaving a sigh of relief. 5. Think twice before outsourcing to countries with political unrest The economy of a country heavily depends on the political stability, an unstable economy can adversely affect any company and cause it to topple down from the zenith of success, and this could happen to your third party outsourcing vendor too. Consider the case of Egypt, which was touted as “the next big thing” in 2010 by the industry watchers in the outsourcing domain, came crumbling down when the anti-government protests pushed its government to shut down all the communication services overnight. This caused huge resentment amongst the citizens and agitated them further, almost forcing the nation to be ousted from the list of dream destination for outsourcing. Many cases of outsourcing involve in allocating personnel from your company to the third party’s country and during political unrest you may also jeopardize the lives of your valued employees. Foreseeing political unrest in a country may need a lot of experience and conviction, but it certainly pays off and can save you from incurring grievous loses. 6. Countries with a laid

Most people will have you believed that outsourcing jobs to another country will take away American jobs and lead to economic and social difficulties. Many research studies however point to something contrary. Vinod K. Jain, PhD at the Robert H. Smith School of Business, University of Maryland and Kamlesh Jain, PhD at the India-US World Affairs Institute, D.C. published a study titled ‘How America Benefits from Economic Engagement with India’ in June 2010. The authors noted that a number of Indian companies have been investing steadily even as American companies are accused of offshoring jobs to India. Indeed, outsourcing and offshoring is never a one-way relationship. Instead, the outsourcing destination usually contributes by investing money, manpower and talent in the client nation. Both Republican and Democrat politicians have often used outsourcing as a scapegoat to win the hearts of people and they may certainly believe that they are right too. The idea of purchasing talent, goods and being ‘self sufficient’ is a collectivist tendency that does not go well with an individualistic and entrepreneurial culture like America’s. Here are many reasons why outsourcing is important for America economy: Outsourcing benefits American Economy It is a myth when people say that outsourcing jobs to other countries harms economy. Of course, on the surface it looks like valuable jobs are being exported abroad while unemployment numbers increase back home. Most of the jobs that are outsourced help create higher paying jobs in North America. Economic stagnancy which often results from people doing the same thing all over again can be avoided when jobs that are repetitive and cumbersome are outsourced. Of course, companies spend less on outsourced jobs and end up making more money and pay more taxes. That alone helps to boost American, Canadian or British economies. Outsourcing can improve employment conditions in America Many jobs that are outsourced often require a lot of hard work. This hard work necessarily does not mean high incomes at the end of the month either. Instead, one has to look at jobs as they were, before the advent of IT outsourcing. IT jobs were rare and few and most computer engineers often were not paid as well as they are today. Thus, when these jobs were outsourced abroad, only a small percentage of the jobs were outsourced. Instead, many middle level and senior level jobs were created in order to manage, supervise and train those offshore workers. These jobs ultimately continue to benefit Americans today. If one were to ask the question how these jobs may improve actual working conditions in the U.S., the answers can be varied and diverse. When low paying but demanding jobs are outsourced to low cost countries, corporations have more time and resources in their hands to train their employees. Employees who earlier had to work more number of hours for a lesser salary can often look forward to increased incentives, opportunities to train themselves in new skills an build their career paths in a more opportunistic manner than otherwise. Employees who work in companies that outsource demanding jobs often enjoy more leisure time, avoid hazardous work environments and have better relationships with their managers. American companies gain access to affordable talent Technical education in offshoring destinations is inexpensive. Countries like India, China, Philippines, and Bulgaria tend to veer towards the left and heavily subsidize education. What might cost $100,000 for an undergraduate degree in computer science may cost only a few thousand dollars in these countries. Consequently, there are more technical graduates in Eastern Europe, South Asia and China than in the West. There is also a tendency to favor technical education as opposed to a liberal arts education. This of course results in a group of youngsters who make great employees. Hiring someone who has had graduate education in the U.S. will be significantly more expensive than hiring someone from India or Philippines. This reality is often painted negatively but it not only helps companies that hire these employees, but also onshore employees who can put their liberal arts education to better use. More unemployed people in America can start their own businesses The argument against outsourcing goes like this: jobs that are desperately needed in the U.S. are sent to offshore destinations and that results in unemployment. In reality, there are no conclusive studies that point against outsourcing. Instead, there is a stronger likelihood that highly demanding but low paying jobs are offshored, making room for American unemployed to try newer avenues for creating wealth. That naturally veers towards forming companies and starting own businesses. Entrepreneurial spirit among the unemployed must be encouraged as there is a wealth of talent in offshore destinations that these new entrepreneurs (previously unemployed) can make use of. What may seem like a nemesis can actually prove to be an opportunity to create more wealth and jobs. Outsourcing increases innovation There is nothing more important than being able to create something new and unique. In order to create something new, there has to be room for innovation. When companies, employees and entrepreneurs worry about technical skills, operational tasks and other high-demand issues, they often lose out on innovation. By outsourcing these high demand jobs abroad, entrepreneurs and corporations can invest more time and money into research and development. Innovation helps corporations to increase wealth, employment opportunities and ensure a better ROI in the long run. Controlling capital costs There are other less obvious benefits to outsourcing. A New York Times article pointed out that outsourcing tasks may help in controlling capital costs. This in return attracts more investment and a firm looks more attractive to stakeholders. By controlling capital costs, a company can ensure that significant draining of funds is avoided and available resources are made use of appropriately. The article also points out that outsourcing can increase efficiency within an organization, especially if it is a small or medium sized business. American economy is really fragile at the moment but outsourcing high demand jobs which are low-paying can increase