Outsourcing to India

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Outsourcing to India

• Kevin Anderson

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Definition

• Outsourcing Hiring another company to perform a
  business process.
• Off shoring Moving a business to another
  location.
• Scope of this presentation is on outsourcing.

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When did it start?

• 1990s in preparation for Y2K
• Not enough manpower so employees from India
  brought to US
• Good experience with Indian workers
• Demonstrated prowess in IT skill set

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When and why did it expand?

• 1990s due to tight labor market caused by
  dotcom boom
• Success of Y2k experience
• Deregulated high speed internet environment
• Fiber optic cable expansion

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Who benefits from outsourcing?

• Young and/or small companies without a lot of
  capital
• Large MNCs looking to cut costs
• According to McKinsey Global institute of the
  full 1.45 to 1.47 of the value created globally
  from off-shoring 1 of US labor cost, the US
  alone captures 1.12 to 1.14 of value while
  receiving countries like India capture on an
  average just 33 cents.
• Consumers foreign outsourcing allows U.S.
  companies to dramatically cut the cost of certain
  information technology services
• US Companies become more competitive in their
  core competencies

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Advantages

• Cost savings (40-50)
• Workforce guaranteed for any project
• IT Infrastructure is sophisticated
• Highly skilled, highly educated workforce
• English speaking
• Cross training between countries
• Scalability of Indian vendors (wide range of
  services provided and strong focus on quality)
• Much cheaper office space

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Advantages

• IT managers adopting US approach to quality and
  individual initiative
• Mindset changing from companies that provide
  services to companies that provide solutions
• Call centers reduce average cost per call
• Offers expertise your company many not have
• US and European companies save up to 70 on
  software budgets

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Advantages

• Outsourcing contracts are in USD-protects against
  currency fluctuations recently seen in Asia,
  Europe and even Canada
• Far more Americans lose their jobs to
  technology, domestic competition, and changing
  consumer tastes than to foreign outsourcing or
  other forms of international competition.

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Advantages

• Allows companies to focus on core competencies
• Streamlines business operations
• Access to additional headcount
• Frees up HR
• Frees up cash flow
• Allows your business to be more flexible in
  responding to change

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Advantages

• Allows companies to upgrade their quality of
  services
• 24/7 production cycle
• Loss of jobs can create new types of jobs
• Allows companies to perform tasks previously not
  possible such as re-claiming revenue from
  delinquent accounts

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Disadvantages

• The physical infrastructure is that of a
  developing nation

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Disadvantages

• Transportation time within India is very, very
  slow.

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Disadvantages

• Loss (or perceived loss) of managerial control
• Cost of initial investment in infrastructure and
  training can be quite high
• New firms often lack focus on domain expertise
• Some firms are so eager for business they will
  over promise or falsely advertise experience

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Disadvantages

• Cost of labor, land and taxes increasing in India
• Potential hidden legal and contract costs
• Threat to security and confidentiality of company
  information (payroll, legal)
• Loss of flexibility in reacting to changing
  business conditions
• Unfavorable contract lengths

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Disadvantages

• High turnover rate-particularly of women
  (families dont like them working or traveling
  late at night)
• Initial overhead costs are very high when
  outsourcing is run by consulting companies-a
  trend seen in MNCs
• First contract may be inexpensive but will the
  next one be?

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Disadvantages

• Higher fuel electricity costs
• Higher telecom and internet access fees
• Creates potential redundancies
• Competitors may be using the same vendor-this can
  create conflicts of interest
• Inherent communication problems when primary tool
  is email

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Conclusions

• Outsourcing is a fact of life and will not go
  away
• White collar jobs are being lost
• There are both advantages and disadvantages to
  outsourcing
• What you outsource is critical-core competencies
  should usually be kept at headquarters-commoditie
  s can be outsourced

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Conclusions

• How you outsource can make the difference (e.g.
  continuing to change vendors or preferred
  vendors)
• Length of project is critical-longer projects
  will often be shortened if run in India and vice
  versa
• There are alternatives to India (e.g. Jet Blue
  model, China)

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Advantages of India over China

• English speaking
• Common heritage as former British colonies
• India offers more service-sector jobs versus
  manufacturing jobs than China
• Indias regulatory environment in some industries
  (e.g. pharmaceuticals) can be more friendly than
  Chinas
• China does not have the same incentive to
  innovate because someone down the road copies
  you
• IP laws tightening in India
• Indian companies less suspicious of western
  companies intentions than India

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Sources

• To be added