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UNIVERSITY OF SUNDERLAND

PRESENTED

BY

OBASI MICHAEL EBERECHUKWU

ON

INTERNATIONAL BUSINESS ENVIRONMENT

TOPIC

(Critically Assessing the Benefits of Outsourcing to the Host Country with Examples)

ON

24TH OF SEPTEMBER 2010


Table of Contents Pages

1.0 INTRODUCTION 3
2.0 CRITICALLY ASSESSING THE BENEFITS OF OUTSOURCING TO THE
HOST COUNTRY 5
3.0 CONCLUSION AND RECOMMENDATIONS 11
4.0 REFERENCES AND BIBLIOGRAPHY 12
4.1 TEXTBOOKS AND JOURNALS 12
4.2 WEBSITES 15

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1.0 Introduction

In recent years the subject of outsourcing have increasingly gained an enormous attention

from journalists, politicians and practitioners; due to the emergence of globalisation which

has become a phenomenon in the means of communication. Outsorcing through the use of

call centres in low-cost locations is an example of location advanatges which offers many

advanatges and disadvantages to the home countries as well as the host countries

(Whittington and Molloy, 2005). As a result of this organisations consider outsourcing when

it considers that certain support functions can be completed cheaper, faster or even better by

an outside organisation and at the same time allows the organisation to concentrate more on

its core competencies (Belcourt, 2009). According to Bloomberg Businessweek (2010)

among the top countries for outsourcing India is on top of the list with an overall score of

6.9%; followed by China at 6.6% and Malaysia at 6.1%; and the areas that are mostly

outsourced within an organisation includes the Information Technology and the Human

Resource departments (Scott-Jackson et al , 2009). On the other hand it is also important to

note that for every dollar of value created by US outsourcing, the US managers captures 78%,

and 22% accrues to the receiving country; which means that the full $1.45 to $1,47 of the

value created globally from outsourcing $1 of US labor cost, the US alone captures $1.12 to

$1.14 of value while receiving contries like India, China and Malaysia capture on an average

just 33 cents (McKinsey Global Institute, 2010). This overwhelming wave towards

outsourcing has been motivated as 92% managers hope on reducing costs and increasing

profits for the organisation through outsourcing; one in 10 private organisations also plan to

outsource jobs abroad in the next 12 months; with almost 17% of manufacturing and 44% of

IT companies planing to outsource employment abroad (CIPD, 2010). The purpose of this

report is to analyse the current practice of outsourcing by critically assessing the benefits of

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outsourcing to the host country. It is also important to note that India will be used in this

report as a host counrty because of its vast experiences in outsourcing and for the fact that is

one of the leading countries in terms of outsorcing whereas the developed countries of the

world such as United Kingdom and United States of America will be referred to as the home

country in the process of writing this report. The study starts by shedding light on the

meaning and background of outsourcing together with the reasons for outsourcing and give a

practiacl examples of some of the organisations in the United Kingdom and the United States

of America that outsource their non core competence to India; then it will move on to

critically assess how outsourcing have benefitted the Indian economy recently in terms of the

countries GDP growth, employment; market share and Foreign Exchange Inflows of the

country; together with the negative impacts of outsouring to the Indian economy and some of

the risks faced by the home countries in their outsourcing activities with Indian software

development companies.

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2.0 Critically Assessing the Benefits of Outsourcing to the Host Country

According to Bravard and Morgan (2009) outsourcing simply means the delegation of one or

more business processes to an external provider, who then owns, manages and administers

the selected processes based on the defined and measurable performance metric. This implies

that outsourcing is used in the leverage of third-party resources, assets and skills, with

guaranteed levels of quality, resilience and value to cost criteria and measurement to deliver

services previously provided in-house possibly involving the transfer of existing staff to the

service provider and transformation of the business support processes and technology (CIPD,

2010). The models of outsourcing includes the following such as Application Service

Provision; Build Operate Transfer; Business Process Outsourcing; Facilities Management;

Joint Venture; Offshoring and Service Bureaux (Palmer, 2009). According to Financial Wire

(2009) before considering the need for outsourcing the organisation in a home country should

be able to have a granular knowledge about the full cost involved in outsourcing in order for

them to be able to compare operational performance data against various alternatives whether

driven by their own needs or by various constructs pushed by the service providers. At the

same time the organisation should be able to determine their strategic intention for

outsourcing in order to be able to determine if outsourcing fits into their longer strategic and

competitiive planning especially in the light of other large scale change programmes in the

pipeline such as Merger and Acquisition, restructuring , geographical expansion, legislative

compliance, technology refresh requirements together with determining the alternatives to

outsourcing. The organisation should alo be able to define the business benefits outsourcing

will bring to the organisation; generally organisations go into outsourcing in order to be able

to save cost and be able to focus on the core competencies and be able to gain flexibility

within the organisation. At the same time organisations should be able to resolve on the

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capabilities they will let go and be able to commit to the ongoing relationship to its host

organisation ( Beulen and Ribbers, 2008).

As identified by Towers (2008) the main reasons for outsourcing includes to have access to a

larger pool of workers; save money; improve on quality of services rendered by the

organisation; benefit from an improved customer service and be able to assess expertise not

otherwise available within the organisation. Organisations within the financial, insurance,

manufacturing, health care and government agencies are recently moving their call centres to

India because of their specialized call centre outsourcing services and their latest technology

and high-end infrastructure which have earned them resepct and trust from global

organisations (Taylor and Bain, 2008). According to CIO (2010) some of the reason why

India is an ideal place for outsourcing is because of the fact that the country is a place where

a business can achieve more with less mainly because of the cheap skilled labour that is

readily available. This simply means that outsourcing to India helps organisations to be able

to focus their business activities on their core competencies without having to face any kind

of distractions. According to Williams (2009) within an organisation anything that detracts

the organisation from focusing its core competencies may be considered for outsourcing; and

organisations should outsource their non-core activities in order to help them focus on their

core activities; this is because an organisations success depends hugely on building its core

competencies and serving its customer needs. It is also important to note that non-core

activities were outsourced for two reasons which includes firstly to allow the organisation to

focus in on its core competencies or the activities they do best within the organisation and

secondly allow them to transfer non-core activities to specilaized vendors who can help the

organisation to improve on the performance of such activities and at the same time reduce the

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cost of the services (Deavers, 2007). As stated by Lyons (2008) organisations has considered

outsourcing as a very powerful tool to cut costs and improve on organisational performance;

at the same time the principal idea behind outsourcing is to obtain services of specialist in

their different field of study who will perform the function more better at a lower cost.

According to recent survey by the Outsourcing Institue (2008) the five main reasons for

outsourcing includes to improve company focus, access to world class capabilities, share

risks, free resources for other purposes, accelerating benefits from reengineering and improve

company focus. Rao, K. (2008),

At the same time as stated by Rao (2008) large number of companies are going offshore in

some countries like India in order to develop their softwares and some of these companies

includes American Express, Bank of America, General Electric and Target. According to a

recent survey by carried out by NASSCOM (2010) concluded that almost two out of five

Fortune 500 companies currently outsource their software requirements to India with Indian

firms such as Wipro, Infosys and Tata Consultancy Services. The reason behind their action

is for the fact that outsourcing to India saves money, time and better work ethics and also for

the fact that India is top of the table with an overall score of 6.9% whereas its competitors

like China which is another powerhouse of information Technology has an overall score of

6.6%; and at the same time the cost involved in sending business to India is relatively low

when compared to other countries (Bloomberg Businessweek, 2010). As stated by Tucker

(2008) other reasons why India has become an ideal location for outsourcing is as a result of

its labor pool with about 75,000 English speaking IT professionals graduating annually with a

full knowledge of the I.T industry well qualified and ready to work; at the same time its

10hrs time difference allows for 24hrs service and communication; outsourcing to India

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ensures higher quality of work because in major US companies like the Microsoft 30% of its

programmers are Indian’s and the IT sector has attracted government support and presently in

the country their is a National Minister who is responsible for the Information Technology

(NASSCOM, 2010). In the UK organisations like the Barclays Bank plc in 2005 outsourced

its internal helpdesk and the techncal support centre from its branches in Cheshire to India in

order to be able to save cost, improve on quality and at the same time be able to benefit from

their latest technology and high end technology (BBC,2005).

According to McKinsey Global Institute (2010) India’s nominal GDP plus its Purchsing

Power Parity in the year 2009 stood at a record US$3.561 Trillion making it the fourth largest

economy in the world; as argued by Taylor and Bain (2008) outsourcing brings about cost

savings and increase in profits not only to business firms, but to the host country such as

India in macro-economic terms; in India its IT and IT-enabled services industry is said to be

the most powerful drivers of its economic growth over the years. As identified by Main

(2009) outsourcing has benefitted the Indian economy tremendously over the years and have

led to the growth in the country’s Gross Domestc Product from 1.4% in 2001 to 7% by 2008

and presently have contributed to an increase of about 19% to its economy; and at the same

time have recorded a high compounded annual growth rates of about 40% per annum which

has also led to its market size by more than 4% since 2008 (NASSCOM, 2010). It is also

important to note that the outsourcing has also led to the increase in India’s Foreign

Exchange Inflows and its ITS and ITES exports have grown significantly higher rate than

other exports and invisibles and have contributed over 30% of foreign exchange inflows to

the contrys economy since 2008 (NASSCOM, 2010). Outsouring industry has improved

Indian economy primary by creating enormous employment opportunities within the country

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together with the maintenance and building of infrastructure; the IT industry since 2008 have

employed over four million and have also created significant entrepreneurial and employment

opportunities in services such as transport, security, food/ canteen, housekeeping, training

and support services (Smith, 2009). As noted by the CIPD (2010) the sky is the limit for India

eduction because as a result of outsourcing to the country the education system has improved

drastically and the country now enjoys a high level of stability due to the assumption of

limited demand. At the same time the country has also witnessed a tremendous reforms in

terms of power, rural development, labour policies, telecommunications and at the same time

the country spending capacity in terms of the economy has over the years increased

drastically due to investment by multinational organisations in the country (Gupta, 2009).

On the other hand outsouring on its own in relation to India has been criticised because of the

fact that the emergence of outsourcing brought about the migration of qualified Indians to

developed countries of the world; where they think that they will paid based on their worth

without being relegated to cheap labour (Yee, 2008). This means that outsourcing to India

acted as an eye opener for the its citizens; and as argued by Gospal and Srinivasan (2009) the

emergence of outsourcing has brought about brain drain to the host country because India has

lost its highly skilled citizens to the developed countries of the world such as the United

Kingdom, United States of America, France and Germany. This has also hampered and

delayed on the developement of India because the people who will contribute their quota to

the development of the country are migrating to other countries to help them in developing

their own country (Kavilanz, 2010). At the same time it is important to note that the resources

and I.T expertise of of India and its citizens are being under utilized; because its I.T highly

skilled workers are not remunerated properly when compared to their counterparts in the

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developed world like the United States, United Kingdom, Germany and France. It is also

important to note that the outsourcing activities and the availability of I.T jobs and other

customer service jobs in the country; will bring about increase in the countries population

which will become a burden on its shelter, food and the countrys inadequate infrastructure.

As a result of this before embarking on outsourcing activities to India the home country

should be able to ensure that the software development comapnies have plans for business

continuity and disaster recovery in order to help the business to progress in the midst of all

the risks it will face in the process of establishing itself in India; or alternatively the home

country should be prepared to for the ventuality of non-availability of their outsourcing

partners (Khanna and Palepu, 2008). At the same time it is important to note that in terms of

outsourcing organisations in the home countries should be aware of the risks involved in

outsourcing software development to India; this because the offshore software developments

in India is at a development stage and largely unproved yet but over the years has proved

itself as the best when compared to other Asian countries. On the other hand India is a

country characterised by political instability and religious activities; as a result of this makes

it a risky place for the home country to outsource its non core activities. Riot in some parts of

the country has delayed the software development in the country and this are making

organisations that are located in a particular city to move to another city as a result of the

violence in such areas (Pellegrini, 2009).

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3.0 Conclusion and Recommendations

Having examined the benefits of outsourcing to the host country which India; it can be said

that outsourcing is the delegation of one or more business processes to an external provider

who manages and administers the selected processes based on the measurable performance

metric (Bravard and Morgan, 2009). In order to carry out outsourcing of non core activities

the organisation in the home country uses models such as apllication service provision, build

operate transfer, joint venture and offshoring in order to be able to carry out its operations

successfully in the host country. It is also important to note that the main reason of

outsourcing is for organisations to be able to save cost, improve on quality and be able to

assess expertise not otherwise available within the home country. Outsourcing poses as a

benefit to the host country as well as has a negative impact for the organisation; apart from

providing jobs for the citizens of the host country outsourcing also benefits them in terms of

developing the contries economy (Towers, 2008). As a result of this before embarking on

outsourcing activities to India the home country should be able to ensure that the software

development comapnies have plans for business continuity and disaster recovery in order to

help the business to progress in the midst of all the risks it will face in the process of

establishing itself in India; or alternatively the home country should be prepared to for the

ventuality of non-availability of their outsourcing partners (Khanna and Palepu, 2008).

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4.0 References and Bibliography

4.1 Textbooks and Journals

 Belcourt, M. (2009), ‘Outsourcing: The Benefits and the Risks’, Human Resource

Management Review. Vol 16, No 2, June. Pp269-279

 BBC (2005), ‘Barclays Moves Tech Jobs to India’, Available at:

[http://news.bbc.co.uk/1/hi/business/4683687.stm]; [Accessed on 20 September 2010]

 Bloomberg Businessweek (2010), ‘Top Countries for Outsourcing’, Available at:

[http://www.businessweek.com/interactive_reports/global_outsourcing.html];

[Accessed on 20 September 2010]

 Beulen, E. And Ribbers, P. (2008), ‘Managing an IT-Outsourcing Partnership in

Asia’, Computer Society

 CIPD (2010), ‘Survey on HR Outsourcing’, Available at:

[http://www.cipd.co.uk/subjects/corpstrtgy/general/hroutsourcing.htm?IsSrchRes=1];

[Assessed on 19 September 2010]

 CIO (2010), ‘Seven Reasons Why Outsourcing to India is Good for Your Business’,

Available:

[http://www.cio.com/article/146451/Seven_Reasons_Why_Outsourcing_to_India_is_

Good_for_Your_Business]; [Accessed on 24 September 2010]

 Deavers, K.L. (2007), ‘Outsourcing: A Corporate Competitiveness Strategy’, Not a

Search for Low Wages. Journal of Labor Research, 18(4), 503

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 Financial Wire (2009), ‘Opportunity India: Retail Sector’, Financial Wire, 19

October, pp.1

 Gupta, R.K. (2009), ‘Fulfilling India’s Proomise’, The McKinsey Quarterly, August,

Special Edition

 Gopal, A. And Srinivasan, R. (2009), ‘The New Indian Consumer’, Harvard Business

Review, Vol. 84 No.10, pp.22-3

 Lyons, E.R. (2008), ‘Towards Global Outsourcing: Leveraging Value for an

International Portfolio’, Journal of Corporate Real Estate, 3 (4), 346

 Kavilanz, P.B. (2010), ‘Be Indian, Buy American’, Available at:

[http://money.cnn.com/2010/09/23/news/international/india_usbrands/index.htm];

[Accessed 23 September 2010]

 Khanna, T., Palepu, K.G. (2008), ‘Emerging Giants: Building World Class

Companies in the Developing Countries’, Harvard Business Review, Vol. 84 N. 10,

pp. 60-9

 Main, C. (2009), ‘How To Manage an HR Outsourcing Contract’, People

Management. Vol 12, No 13, 29 June. pp 44-45

 McKinsey Global Institute (2010), ‘Labour Markets and Offshoring’, Available at:

[http://www.mckinsey.com/mgi/rp/offshoring/]; [Accessed on 20 September 2010]

 NASSCOM (2010), ‘IT I ndustry Factsheet – August 2010’, Available at:

[http://www.nasscom.org]. [Assessed on September 20, 2010]

Name: Obasi Michael Eberechukwu; Student I.D: STUD - 7283 Page 13


 Outsourcing Institute (2008), ‘The Five Main Reasons for Outsourciing’, Available at:

[http://www.outsourcing.com]; Accessed on September 24, 2010]

 Palmer, T. (2009), ‘How To Select An HR Outsourcing Provider’ People

Management. Vol 11, No 22, 10 November. pp 42-43

 Pellegrini, L. (2009), ‘The Internationalization of Retailing and 1992 Europe’, Journal

of Marketing Channels, Vol. 1 No.2, pp.3-27

 Rao, K. (2008), ‘Retail: India – a Wiindow Opens’, Forein Direct Investment, 1 June,

pp.1

 Scott-Jackson, W., Newham, T. And Gurney, M. (2009), ‘HR Outsourcing: The Key

Decisions’, Executive Briefing, London: Chartered Institute of Personnel and

Development

 Smith, A. (2009), ‘Overcoming Four HR Outsourcing Obstacles’, Strategic HR

Review. Vol 5, No 4, May/June. pp28-31

 Towers, P. (2008), ‘Staying Ahead of Change: Evolving Realities and Expectations in

HR Outsourcing’ [Online]. Available

at: [http://www.towersperrin.com]

 Taylor, P. And Bain, P. (2008), ‘India Calling to the Far Away Towns: The Call

Centre Labour Process and Globalization’, Work, Employment and Society, Vol. 19

No.2, pp. 261-82

 Tucker, S. (2008), ‘Funds Study New Opportunities Private Equity’, Financial Times,

20 September, pp.8

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 Whittington, R. And Molloy, E. (2005), ‘HR’s Role in Organising: Shaping Change’,

Research Report. London: Chartered Institute of Personnel and Development

 Williams, K. (2009), ‘Is Off shoring for You?’, Strategic Finance, 85 (1), 19

 Yee, A.(2008), ‘Indian Retailers Up the Ante as Foreign Rivals Stalk’, Financial

Times, 28 November, pp.23

4.2 Websites

 [http://www.ls-

marketing.com/business/tips/advantages_and_disadvantages_of_outsourcing/];

[Assessed on 18 September 2010]

 [http://www.outsource2india.com/why_outsource/articles/benefit_outsourcing.asp];

[Assessed on 18 September 2010]

 [http://www.outsourcing.com/]; [Assessed on 18 September 2010]

 [http://www.outsource2india.com/why_india/articles/call_centres_india.asp]

[Assessed on 19 September 2010]

 [http://www.sourcingfocus.com/]; [Assessed on 19 September 2010]

 [http://itoutsourcingindia.com/india/]; [Assessed on 20 September 2010]

 [http://offshoreitoutsourcing.com/Pages/India_Economy.asp];

[Assessed on 20 September 2010]

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 [http://www.silicon.com/technology/it-services/2005/07/19/barclays-moves-helpdesk-

jobs-to-india-39150560/]; [Assessed on 20 September 2010]

 [http://news.bbc.co.uk/1/hi/business/4683687.stm]; [Assessed on 20 September 2010]

 [http://www.merinews.com/article/impact-of-outsourcing-on-induan-

society/12458.shtml]; [Assessed on 20 September 2010]

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