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The companies in USA and Europe are increasingly using the offshore outsourcing model for cutting the cost. Some of the interesting articles, statements and case studies are listed below:
Quote from Bill Gates
"As a business manager, you need to take a hard look at your core competencies. Revisit the areas of your company that aren't directly involved in those competencies, and consider whether Web technologies can enable you to spin off those tasks. Let another company take over the management responsibilities for that work, and use modern communication technology to work closely with the people - now partners instead of employees are doing the work. In the Web work style, employees can push the freedom the Web provides to its limits."
Quote from Inc. magazine
In their book, unleashing the Killer App: Digital Strategies for Market Dominance (Harvard Business Press), Mui and co-author Larry Downes urge companies to perform internally only those activities that can't be performed more cheaply in the open marketplace. When the marketplace in question is the Internet, where vendors with only "dot com" over their head can operate at very low costs, the savings from pushing out business tasks is considerable.
70:70:70 rule of GE (Source: "Business World")
The world's most revered chief executive Jack Welch has introduced a new rule. It is called the 70:70:70 rule. Apparently, it has also been e-mailed to GE employees across the world. Welch has decided that 70% of GE's work will be outsourced. Out of this, 70% will be done from offshore development centers. And out of this, about 70% will have to be done here in India. This ultimately boils down to about 30% of GE's work being outsourced to India.
Business process outsourcing bound for Bangalore, India (By John Ribeiro, IDG News Service)
BANGALORE, INDIA -- Seeking to cut costs in today's sluggish economy, U.S. and European companies are capitalizing on the latest buzzword in India: business process outsourcing. Starting with call centers and other customer relationship management (CRM) services, companies are either setting up their own business process outsourcing centers or outsourcing to a growing number of Indian companies a variety of internal processes, ranging from finance and accounting to human resources functions such as payroll management and transaction processing.
Read More >>
Fast, cheap, and in English, India clerks for the world (Robert Marquand - Staff writer of The Christian Science Monitor NEW DELHI)
Three years ago British Airways "back office" sat in costly London. Now the operation runs out of Delhi and Bombay, staffed by college grads. For them, the $282 a month starting salary is princely - some 7,000 Indians compete for each job. So effective and cheap has been the airline's move to India that it is branching out to other simple data services, opening a new 1,000-strong office this month.
Read More >>
Business process outsourcing bound for Bangalore, India (By John Ribeiro, IDG News Service)
BANGALORE, INDIA -- Seeking to cut costs in today's sluggish economy, U.S. and European companies are capitalizing on the latest buzzword in India: business process outsourcing. Starting with call centers and other customer relationship management (CRM) services, companies are either setting up their own business process outsourcing centers or outsourcing to a growing number of Indian companies a variety of internal processes, ranging from finance and accounting to human resources functions such as payroll management and transaction processing.
Similar to India's software services business, business process outsourcing opportunities are predicated on the availability of low-cost, English-speaking manpower in India.
"To the extent that software services are about 50% cheaper [than in the U.S.], it is likely that business process outsourcing would benefit at around the same order of cost savings," said Roland Wee, a fund manager at ING Investment Management in The Hague.
Business process outsourcing services are less expensive to carry out in India. "We estimate the current capital cost per seat in India to be between $7,000 and $17,000, depending on the nature of the business process outsourcing services offered," said Prasad Baji, assistant vice president at Edelweiss Capital, a Mumbai, India-based investment bank. "The cost of a similar facility in the U.S. can be about two to three times this amount."
Back office in Bangalore
Before Indian companies saw an opportunity in offering business process outsourcing services to U.S. and European companies, multinational companies set up captive back-end processing centers in India.
One pioneer was Stamford, Conn.-based General Electric Capital Corp., a subsidiary of General Electric Co., which operates centers in India in Hyderabad and Gurgaon, near New Delhi. In addition to running call centers, GE performs back-office processing tasks for other GE companies worldwide. GE Capital has also set up a joint venture in Hyderabad, called iProcess, which offers IT-enabled business process outsourcing to both GE and other customers. By December, GE had a staff of 10,000 doing business process outsourcing and CRM functions.
Hewlett-Packard Co. is moving key accounting functions to Bangalore-based Global e-Business Operations, a wholly owned subsidiary of Hewlett-Packard Europe. Several foreign airlines and banks have also set up business processing operations in India.
A clear objective for multinationals setting up captive business process outsourcing operations in India is cost savings, primarily from the lower cost of labor in India. Doing HP accounts in India costs one-sixth of the cost in the U.S. -- without sacrificing quality, according to Vivek Nagarkatti, president of Global eBusiness Operations.
Whereas U.S. and European companies first turned to India as a place to host their own business processes, a growing number are outsourcing such operations to independent Indian companies.
Challenges abound
Getting business from customers abroad isn't easy for Indian companies. "The business process outsourcing industry in India is in a very nascent stage, and the concerns expressed by potential customers can range from concerns about the partner's lack of experience to the reliability and scalability of his service and his financial stability," said Prakash Gurbaxani, CEO of TransWorks Information Services, a Mumbai-based CRM services company that recently began to offer business process outsourcing services.
"However, the value proposition offered by Indian companies is so compelling that companies are willing to try it out by running a pilot to make sure it is a viable option and then scaling it up," Gurbaxani added.
Companies that contract with Indian business process outsourcing firms are still wary of being named. None of the service providers would reveal a single customer reference. "The names of Fortune 500 companies can ... be misused by start-up companies who still have to prove their ability to deliver and their long-term sustainability," Gurbaxani said.
The decision to set up captive centers rather than outsource to local business process outsourcing companies is based on the need to keep a tight control on operations.
"By a combination of process re-engineering consultancy and the processing in India, we can achieve a cost takeout anywhere from 25% to 75%, depending on the process," said Kishore Mirchandani, CEO of New York-based itAccounts, a finance and accounts outsourcing spin-off from MLZ Partners, a New York-based accounting company.
Trust issues
Itaccounts operates a processing center in Bangalore and won't outsource processing to other companies in India. "It has to be run by us because of the control and security issues and confidentiality involved," said itAccounts CEO Kishore Mirchandani. "I think that our clients would have a problem if we were to use third-party infrastructure."
But the cost structure of captive operations tends to be higher than outsourcing because of their cost-center orientation, according to Baji. Since the execution responsibility is with the multinational company, it has to find suitable management and staff, as well as make investments in infrastructure, Baji added.
Outsourcing can take place only if the multinational company trusts an Indian partner, because the Indian partner would get access to sensitive areas of the business, according to Wee. Some multinationals are using a mix of captive and outsourced services, with some of the more sensitive and complex processes done in-house.
India's business process outsourcing future
Indian business process outsourcing companies are on a roll. India's business process outsourcing, both captive and third-party, is estimated to grow by 107% to $583 million in revenues and employ 35,000 people in the fiscal year ending March 31, according to the New Delhi-based National Association of Software and Service Companies. That contrasts with about 30% growth in software services exports for the same period, it said.
But a lot could go wrong. The market is likely to get overcrowded, as happened in the call center business. Customers in the U.S. and Europe are still testing the waters and are increasingly apprehensive about border tensions between India and Pakistan. Furthermore, many new entrants are rushing in to provide business process outsourcing services with an eye to making a quick buck, while offering little in the way of infrastructure or processes.
"India has all the ingredients to become a major hub for outsourced services," Gurbaxani said. "A long-term threat would be India's failure to provide high quality, reliable and scalable service."
Fast, cheap, and in English, India clerks for the world (Robert Marquand - Staff writer of the Christian Science Monitor NEW DELHI)
Three years ago British Airways "back office" sat in costly London. Now the operation runs out of Delhi and Bombay, staffed by college grads. For them, the $282 a month starting salary is princely - some 7,000 Indians compete for each job. So effective and cheap has been the airline's move to India that it is branching out to other simple data services, opening a new 1,000-strong office this month.
With India's vast pool of educated English speakers, and new high-speed data technology that wasn't available five years ago, the question is: Will India become secretary to the world?
Critics say the work is a form of "techno coolie labor" - low-tech sweatshops that may use labor in the way that assembly-line workers in other developing countries have been exploited.
Indian skill in applied math made this country a Silicon Valley of South Asia during the 1980s - with firms in Bangalore and Hyderabad now turning out engineering schematics, top-quality graphics, and Y2K research at a fraction of the cost charged in the West.
But a globalizing economy allows India to bid for the services known as "back office" or "remote processing." In front of blinking computer screens 9,000 miles from the United States, Indians are producing legal and medical transcriptions while Americans sleep. In Madras and Calcutta they answer customer requests, offer help desks for computer dummies, process payroll accounting, and take 24-hour phone calls on credit cards.
The number of Western and Indian firms starting back-office services has exploded. Since 1996 the back-office sector in India has grown from $15 million to $300 million, according to the Delhi-based National Association of Software and Service Companies (NASSCOM). Wide-eyed entrepreneurs here speak of a $250 billion global market. "My business has developed from a few people to 300," says Veer Sagar, whose company transcribes doctors' notes for an Ohio firm.
"This is a developing phenomenon," says a Western economic official. "A lot of the back office comes from big corporations with staff sitting around Delhi and Bangalore, waiting for India to liberalize its policies. They are becoming familiar with India and feel, 'Hey, here's how we can make, or save, a buck - instead of twiddling our fingers.' "
Indeed, the back-office phenomenon creates an embarrassing dichotomy for the Indian government. Traditionally, India, which has some of the highest tariff rates in the world, has defended a protectionist policy on the grounds that swadeshi, the term for economic self-reliance, is a moral imperative. The government has made it difficult for overseas firms to enter and compete in all sorts of consumer products. Yet so far the Indian government has been happy to accept overseas pay for its domestic labor pool, and has not limited back-office firms.
Technologically speaking, the back office is made possible by new forms of encryption and faster baud rates that allow huge blasts of confidential data to dart instantly around the world. Satellites transmit millions of lines of code in minutes. Also, "The time difference gives us a special advantage," says Deepak Luthra of NASSCOM. "By the time you wake up, we have done the work."
Many Indian firms keep a low profile. Not only is there a concern over an eventual outcry from countries losing jobs to India, there is also a local dimension: Many firms do not want the Indian government getting too involved, creating burdensome oversight and rules.
"We have heard managers saying they prefer that Delhi continue with the hands-off approach it has taken to the computer industry," says the Western official.
Back at the British Airways office, Menon corrects hundreds of messages a day, but finds the work interesting since it involves solving coding puzzlers. The office has modular desks and carpeting, and looks out over an open-air lobby where giant sculptures and paintings hang above indoor plants. Menon does not feel exploited. Rather, her job, which she does along with post-graduate work, gives her status with her friends.
"It's a new idea for us - handling global work. We have become the backbone of British Air," she says with a self-mocking bravado that suggests she feels it is partly true. "Plus, I get great deals on travel!"
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