In the second half of the twentieth century trade has played a major role in integrating national economies. This lead to evolution of the Multinational Enterprises (MNE) these are the firms operating in two or more countries. There are many factors which encouraged the evolution of the MNE’s such as competitive advantage, country specific advantages, international marketing and the most important factor is that globalization many scholars and researchers strongly believe that MNE’s herald the concept of the globalization. Most of the MNE’s in the initial period originated and from the developed into the countries which explored expanded
developing countries. After the Second World War many of the developing countries became financially very weak which encouraged them to invite foreign investments which lead the countries like northern America and European countries to expand their business. As time progressed the dependence of MNE,s on the foreign operations became quite heavy as the host countries became main centre for the business. Thus the impact of MNE, s dependence foreign operations and competitive advantage has become an important factor. Many researchers and scholars have carried out many investigations in this area concentrating on MNE’s located
in a single country or a comparison of firms located in two different countries and delivered great scholarly articles. This article examines the relationship between foreign dependence and performance of multinational enterprises in general particularly concentrating on the MNE's originating from the Triad regions of the Pacific Rim, Western Europe and North America and displays the impact of the relationship weather it is positive or negative. There are many huge MNE’s which originated in the triad regions of Pacific Rim, Western Europe and northern America which expanded their businesses to Asian, African and Latin American regions. We are going to see how these MNE’s performance depends on the operations in the host countries and see the impact of this dependence. This paper first discusses about the impact of the dependence of multinational enterprises (MNE’s) on foreign operations and corporate performance and the case of MNE’s located in single country or a comparison of firms in two different countries and the companies’ dependence on outsourcing and advantages and disadvantages of it. Finally the paper concludes displaying weather the impact is positive or negative and the status of the dependence of the MNE’s on the foreign dependence.
The foreign operations carried out by the international companies are known as outsourcing.
What do you do when you are too busy to handle all the operations of your core business and not able to focus on it? What do you do when you are facing time and human crunch? What do you do when you have a project that is so critical and you are well equipped to do? What do you do when you when you have a project in hand but not enough time to finish it? What do you do when you want to be the best and first in the market? The answer to most of these questions is outsourcing. Outsourcing is a phenomenon which has many names. In business terms some call it 'off shoring'; some call it 'BPO' and some call it 'global sourcing' which means delocalization in laymen’s language. Regardless of how you call it, it is common to all the MNE's as it is major
mart of their business to get the work done cheaply and quickly and spread their business across the world. Outsourcing is defined as the management and/or day-today execution of an entire business function by a third party service provider. Outsourcing involves transferring or giving a significant amount of management control to the supplier. Buying buying products services from from supplier provider is is not not outsourcing, necessarily
considerable degree of two way information exchanges coordination and trust. For instance if you buy a product from a vendor it is not outsourcing updating your requirements to him and having direct contact with the worker who is manufacturing the product and getting you product is known as outsourcing. The idea of outsourcing has its roots in the 'competitive advantage' theory propagated by Adam Smith in his book 'The Wealth of Nations' which was published in 1776.over the years the meaning of outsourcing has undergone significant changes. These changes started the movement of manufacturing units to the countries which provide cheap labour during the period of industrial revolution which is the context of the present scenario. Over the past few years IT has the backbone for the world economy this boosted the companies to outsource more
rapidly. Outsourcing is the processes of a company hand over a part of its work to other company where it can be done cheaply and quickly. The work transfer to other company is constantly monitored and processed according to the requirements and specifications of the outsourcing company. This process id beneficial to both the outsourcing company and the service provider, as it enables the outsourcer to reduce costs and increase quality and provide service to a lot of customers at a time. The service provider also benefits by providing employment to the staff and expand its business. In a nutshell, outsourcing is an accepted management tool for restructuring and refocusing the way an organization does business. Here is the general process in which outsourcing is done 1. Deciding to outsource 2. Supplier proposals 3. Supplier competition 4. Negotiations 5. Contract finalization 6. Transition 7. Transformation 8. Ongoing service delivery 9. Termination or renewal
Going in detail this is how a project is outsourced in steps
2.1DECISION-MAKING PROCESS Each outsourcing decision involves several steps and it is important to go through them: Step 1: Inventory of in-house resources. Step 2: Assessment of in-house resources compared to
services available in the market place. Step 3: Identification and evaluation of prospective
bidders. This requires collection of market intelligence, finding out other companies experiences with outsourcing etc. Step 4: Competitive bidding procedure, including request for proposals, evaluation of bids according to selected criteria and clarification and comparisons of bids. Step 5: Negotiations, including a letter of intent and
usually a term sheet. The negotiations have to be exhaustive. Step 6: Signing the contract. Step 7: Transition phase where the function from the
clients’ facilities are transferred to those of the vendor. This can be-and should be-a slow process and needs to be handled with great precision.
Step 8: ‘Steady state’ period which marks the end of the transitioning phase and the beginning of the cost-cutting phase for the company. Step 9: Renegotiation or termination. Renegotiations
happen after the contract period is over and the company wants to continue with the same vendor. Termination occurs in case the relationship turns sour with the vendor over quality or service issues and/or the company has found another, better vendor to do the same task.
Here are the main reasons why a company will look to outsource: 1. Cost savings 2. Cost restructuring 3. Improve quality 4. Knowledge 5. Contract 6. Operational expertise 7. Staffing issues 8. Capacity management 9. Catalyst for change 10.Reduce time to market 11.Commoditisation 12.Risk management
13.Time Zone 14.Customer Pressure 2.2 Types of outsourcing: Outsourcing can be classified into three types basing on the services provided they are; Human resource outsourcing Business process outsourcing Knowledge process outsourcing The types of outsourcing are classified depending on the processes they outsource regarding a company Typically, all activities performed by companies can be classified into the following broad categories: core and non-core and critical and non-critical activities. Core activities are the basic reasons for a company existence, such as product design, sales manufacturing, management branding, etc. marketing,
Critical activities are ones that are time-sensitive; if they are not done within the specified time, there can be serious repercussions for the organisations Below is a illustrative table which explains the critical and non critical process of an organisation.
Non-Core – Critical
Core – Critical
• Customer Care • HR related administrative • Medical Transcription for a Health-care service provider.
• Product design • Final Manufacturing or main function assembly • Branding
Non-Core –NonCritical • Security • Cafeteria • Housekeeping • Helper/peon service
2. Core – Non –Critical
Marketing of Credit Cards for a Financial Service Company
• Transaction processing • Accounts, receivable management
2.3Human resource outsourcing HRO is the application of different business models and techniques to new forms of activities that are radically redesigned to generate desired outputs as required by the
end users such as customers or employees. HRO is based on principles of re-engineering. It combines these principles with ownership and management of processes on behalf of management by outside vendor.
HRO has been applied to many transactional processes in a company. The transactions transfer a part of ownership to the outside vendor. Out of the companies that outsource 90% of them are IT industries. the main agenda behind the company's to outsource is to concentrate on their core business and outsource most of their non core businesses to concentrate more on their core business, in some cases even core business is outsourced when required as core competencies that drive competitive advantage. The outsourcing of hr processes emerged in late 1990s, pioneered by firms specialising primarily in IT outsourcing. US is the first country to outsource some MNE's in us had outsourced in Asian countries to reduce the labour costs. The transactional HR processes that are outsourced are associated with electronic delivery, the day to day HR processes can be transferred to third party providers as payrolls and benefits are not the core points of the business to concentrate on they can be outsourced to the third party. The competition among the HRO outsourcing
companies has dramatically reduced prices this lead many companies to outsource. In the past HR outsourcing was thought of as hiring a vendor to provide a service. With change in vision of outsourcing the opportunity of sharing the business with vendor to provide services on long term basis rather that single time transaction has been boosted. HR outsourcing includes; 2.3.1 Discrete services: In these types of services a part of business process or a set of services are outsourced to the third party administrator. Examples of these type of services include annual open enrolment process, payrolls etc 2.3.2 Multi-process services: The total outsourcing of one or more functional human resource processes can be said as an example of multiprocesses outsourcing. The complete outsourcing of benefits like health and welfare, retirement plans are the examples of multi-process outsourcing.
2.3.3 Total HR outsourcing: Total HR outsourcing represents the transfer of majority or complete HR services to a third party. The services include recruitment, payroll, HRIS, benefits, compensation and communications. The HR executive management will be with the organisation as it is a core point of business, though the services are outsourced the strategic planning, people management and other key HR functions are done by the core HR executives.
2.4 BPO outsourcing:
Business process outsourcing is the process of hiring another company to handle business for you. Business Process Outsourcing (BPO) is outsourcing of business functions generally performed by white collar and clerical employees to achieve various benefits such as cost savings, better quality and ability to focus on core competence.
BPO refers to processes in organizations delivering services to customers as opposed to organizations that
manufacture products. so BPO is mainly discussed on the context financial of service organizations warranty rather and than manufacturing industries these generally include banking, services, insurance, technical support etc. in today’s complex business world it is hard to find a organization without relevant BPO.
outsourcing. The IT outsourcing companies hire a third party company or a service provider to provide them IT related services such as application management, application development and testing etc. BPO has huge relation with IT outsourcing as most of the IT companies have a BPO which provide them technical and voice support. The BPO market size is globally is very huge as is estimated to be USD 641.2 billion in 2009 and it is still growing. In modern day business world more and more companies are reaping the benefits of BPO to expand and improve quality of their business.
The working process of BPO involves transfer of complete or a part of business to a external service provider who executes the transferred business. The usage of BPO is mostly in the IT industry. the IT intensive processes such as payroll processing, human resources,
logistics, financial accounting, administration call centers, ATM’s etc. though BPO is very much interrelated to IT industry it is different from IT outsourcing which doesn’t involve any business process where as BPO would alloy the third party organization to completely outsource full business with its sub elements. BPO could be said as complete transfer of process ownership to the BPO vendor. Here is a table showing the elements of outsourcing
Elements of Business Process Outsourcing Back-Office IT/Software Finance & HR Services Transaction Processing
Check, Credit Debit card Processing Collections & receivables Direct & indirect Order processing Customer support Warranty procurement Transport administratio n Logistics and dispatch Warehouse Requirements Engineering Application development Application testing Packaged application outsourcing Implementatio n services IT help desk
Customer Interaction Services
Customer Service Voice/Email Marketing Services Telesales
Billing Services Account payables Account receivables General accounting Auditing and compliance Payroll Services Healthcare administratio n Hiring recruitment Workforce training Retirement benefits
Data Analytic Data Mining
Knowledge management Voice of the customer feedback
2.4.1 BENEFITS OF BPO:
FOCUS: BPO allows companies to concentrate or focus on core processes by outsourcing non core activities. This makes the company extremely lean and agile, thereby allowing the CEO and the top management to spend more time on the very purpose of their existence-the customer. They can spend time understanding his customer and react to them fast before he decides to change further. BEST PRACTICES: Since BPO vendors specialize in specific processes, over time they acquire considerable expertise and domain knowledge in these activities. They are able to bring best practices to work and do a reengineering of business processes such that there is improvement in parameters like quality, man-power requirements etc. COST REDUCTION: This is one of the biggest attractions of outsourcing. Some organisations have been able to achieve cost reduction of as high as 50% through outsourcing. BPO vendors are able to achieve this due to their economies of scale for each process. Also, since BPO vendors use the latest technology and best practices, they can streamline
processes better and achieve optimum results in cost, quality, and speed. REDUCTION OF CAPITAL REQUIREMENTS: Organizations are able to free up both fixed and working capital required to perform processes. They save a substantial amount of money as they need not spend to buy and maintain their systems; their BPO vendors do the needful and bring in best practices from the world over.
Here is a pictorial description of why most of the organizations choose BPO
Increase Speed To Market Series1 Improve Qualities
Focus on Core Competencies
Major reasons for outsourcing (Source: The 2001 Outsourcing World Summit, Michael F. Corbett & associates)
2.5 Knowledge process outsourcing: Knowledge process outsourcing (KPO) is a form of outsourcing, in which work which is related to knowledge is carried out by a third party organization which may be located in the same county or different country. KPO is quite different from BPO as it doesn’t involve any of the manufacturing processes or support it mainly involves taking of low level business decisions the staff that involve in KPO are highly skilled they are generally appointed to decrease the work pressure for the higher level business people by making floor level decisions and supporting higher level decisions.
KPO is merely a continuation of BPO with more business complexity. The major difference between BPO and KPO is KPO generally focuses on knowledge intensive business processes that require significant domain expertise and application professionalism. For a BPO it is easy to recruit staff as they need not be skilled where as for a KPO the recruiting can not be done overnight as the
staff needs to be highly educated, trained and trusted to take decisions on behalf of the client.
IT outsourcing is strongly focuses around technical professionalism outsourcing professionalism. and KPO migration extra includes to business of more process complex includes dimension ever application
professionalism that the above two types of outsourcing. to demonstrate this difference when we look at the people hired by a KPO they are more diverse than just being drawn from the technical IT services they are mostly post graduates, engineers, medicos or people with special business skills. KPO delivers higher value to organizations by increasing their business quality and allow them to concentrate on the higher level core business. So KPO involves a shift from standardized processes to advanced analytical thinking, technical skills and decisive judgment based on experience.
Here are the general business process that are outsourced to a KPO
Research & Development Business and Technical Analysis Learning Solutions Animation & Design Business & Market Research Pharmaceuticals and Biotechnology Medical Services Writing & Content Development Legal Services
Intellectual Property (IP) Research Data Analytics Network Management Training & Consultancy
the future of KPO has a high potential and it is not limited to IT organizations it also includes other sectors like legal processes, financial services, web development, business research, clinical research, market research and many more. In today’s competitive environment every organization is trying to concentrate on core specialization and outsource the other processes that are less core competency areas. As they realized that outsourcing improves the business by decreasing business costs and increasing the efficiency.
3. Literature review:
Now that we know what exactly is out sourcing and the types of outsourcing available today, the next topic of our thesis will provide a comprehensive report on the advantages and disadvantages of different outsourcing
methods available today and which are employed by different organizations Once the general advantages are identified on a broad level, then in the next stage, we will go a step further and provide the advantages in two different levels which basically provides you what are the advantages which out sourcing company or country has and similarly advantages which are available for out sourced company or country. Once all these things are completed, at the final step, we would then provide a small over view on what are the important destinations for such companies To start of with, the biggest advantages of outsourcing are many. Each company has its own reason to outsource a particular project to another company. The most important factors to out source a particular project will be the cost effectiveness and the reliability of work which the companies provide for 24/7 support. Few biggest advantages of outsourcing are 1) Cost Saving: - this is the first and foremost
advantage for any organization to outsource a particular project is the cost savings it would provide. When a particular project can be done for only few thousands of dollars or pounds which are taking some millions of amount in their own country for a period of time, then, it's an obvious choice that
if the project is outsourced, it would yield benefits. For example, if there are some back end functionalities which needs the support of at least 3 people continuously working for 24 hours a day, it practically is impossible to keep only three persons there and the minimum pay you need to pay them would be around 1800-2500 pounds a month for each employee. If we outsource the same project to some company way back in India, they would provide the same efficiency and results and the over all cost of the project would be hardly 200 pounds which is one third the original amount and thus is showing 67% profits on the first level 2) Focus on Core Business: - for a new start up companies or small firms who are taking up their first bids, it is very important for all the entrepreneurs to concentrate on business rather than the small technical glitches of the applications. To eliminate all these kinds of issues from their notice, outsourcing the project is the solution. By doing this task, for the same amount, they can get better quality of work and all the external factors of pressure related to this area would be eliminated totally and they can mainly concentrate on developing the business rather than on small internal things. If we rapidly want to grown an organization, the main concentration should be on sales and
marketing. As the sales, grow, the back office functionalities will also grow and thus the resources required for each phase would be more and more. So, if we outsource the project at the initial level only, all these issues will not affect the core business and our focus will be on the point
3) Technical Expertise: - When we want to set-up an organization, it is very important for us to get the required technical expertise who can deliver our work more efficiently. If we want to hire all these technical people right from the scratch, then it’s a very time consuming process and it might take a lot of time before we come up with correct output. Outsourcing the entire project will be benefiting this point as well because the company to whom we outsource will surely have all the people with the technical expertise we are looking out for and thus our job of making the things would surely become easier. For example, if we want to write a simple website with content management system, we should have a web designer to develop the website, a hosting person to host the site, a programmer to write the back end functionality and a tester to test the entire application. If we out source this project, we will only deal with the main person and remaining
aspects will be taken care by him and thus, is a lot time saving activity 4) Staff of Headcount proper Requirements: head count and One of the the important advantages of outsourcing is to keep track the ensure requirements are met. A project when initially started might require more people to work where as it might require is the less staff once we with the are some entire only basic development maintaining completed application and
functionality. The staff fluctuation is always possible and few may resign when there is high possibility of their need. Also, if we taken an example, accounting section of a particular organization will need more time during the financial year ends where as not many are required during the other phases of the year. So, the staffing in these areas can be managed as per the requirement if they all are outsourced and there is no additional over head or burden on us to maintain the same 5) Operational Control: - this is also a big reason for a particular work to be outsourced. If we take an example to explain the same, Shipping goods to USA would cost us around 10 Millions per Cargo in USA where as the same can be Shipped for 2 Millions in India and hence, we can literally see around 8 Millions profit if we ship them to India and sell the
goods internationally from there. From this example, we should always bear in mind that all the operations which are going out of control should be outsourced as this would provide us better options along with great profits. Outsourcing and getting the work done is far better than poorly managing and spoiling the relationship Outsourcing 6) Expansion: - if the company's business is growing rapidly, then there is a big need to expand the organization and include new staffing as well. If the cost of staffing and expansion is really high in the area where we have initially set-up or for some reasons, if we don’t find enough space to expand, we cannot stop business at this point of time. Outsourcing the project and expanding it in a new place is the concept which would be used here and thus, outsourcing will help us in expanding our existing business into new horizons 7) Risk Management: - Managing the risk is one of the most important aspects for any business or organization. Attrition rate periods of high turnover are certain factors which come under the radar of risk management and al l these kinds of risks should be eliminated at the first level only if we want a rapid growth in the business. Outsourcing will provide this with the clients and hence this operational control is an important advantage of
risk management capabilities and also some level of confidence and continuity and thus maintaining good relationships with the existing employers. 8) International Relationships: - If we want to upgrade our existing technologies, there is a very big need for all the employers working currently in the organization to understand the new technology to which we are upgrading and then work on it accordingly. To attain this, we need set of skilled people who understands both the technologies and this requires multi-skilled people with in the same organization which is a rare scenario. Out sourcing these kind of projects will help us getting all these things done really easily and also will help us developing the international relationships 9) Flexibility: - Staffing flexibility and their availability for 24/7 is one of the most important facts for a particular project to be outsourced. Due to the time difference between different countries, outsourcing a particular project will ensure that out of peak hours in a particular country are also supported effectively by an another country 10) Training: - Last but not the least training the current staff on the new technologies on a bulk ratio is always expensive. Outsourcing these kinds of work would ensure that skilled people are already
available for us to use and time as well as money is saved Now that we have provided all the advantages in details, to end the topic, below is the gist of all the advantages  Outsourcing will provide us more time to concentrate on real business activities Offshore onsite model of outsourcing will provide more high quality services Efficiency is always guaranteed and 24/7 support Business processes can be easily streamlined Flexibility will surely be improved Control over the activities which we perform will be increased Money and time will be saved Have a chance of continuously upgrading to latest technologies available in market and thus become a tough competitors Management level problems will become really less All the customer demands can be implemented with even more ease Operational costs of the over all project is reduced by a lot of amount Provides a competitive edge over the competitors for our business
All the infrastructure problems and network problems will be easily resolved Capital expenditure will be saved International relations will be build and more exposure to new horizons for development
Thus, the above mentioned things are some important advantages of out sourcing a project. Though there are many advantages, this also has some disadvantages. In the next section, we will concentrate on certain disadvantages of outsourcing. To start of with, 1) Managerial Control: - the biggest challenge of all is the loss of managerial level control which you have with the organization. When we outsource a particular task to other company, you are initially signing a contract which states that the total control of that task will be under the new organization and now the control which you have on this task is no longer available. The set of core values and rules and morals which you maintain may be different for the new company and they would perform the activity according to their ideologies and we don’t have any decision to take against them unless this is proving
bad for the company overall performance. The same standards and mission which drives our company may not be the driving factors for the other company 2) Hidden Costs: - When we initially write a contract, all the details must be included in the contract. If something is missing which we come to know after the contract is written and if there is a need for change after a period of time, then all the additional work which we do will be accomplished with additional costs and sometimes, this would surely become an extra burden. We need to understand that outsourcing is a business for other companies and they know all the loop holes of the business. Hence, we must take all the necessary care before completing the contract and in most of the cases, some or the other details will be missing 3) Confidentiality: - It is 100 percent certain case that all the project confidential information which we will be dealing with surely will be with us only when the entire information is with us. But when we outsource, there is always a possibility of misuse. Some company confidential information may be leaked and used to others advantage. Though there is a confidentiality clauses written at the time of agreement, there are a number of cases reported like for example, in January 2004, WIPRO SPECTRAMIND a New Delhi based telemarketing
contracting company lost its contracts after an audit survey proved that their employers were inflating the credit terms . Similarly in the year 2003, a Pakistani transcriber threatened to post the medical records of university of California San Francisco medical centre . So, it is one of the biggest problems of outsourcing 4) Quality Problems: - the biggest motivating term for all the outsourced companies is to make profit. So, as a part of their profit making abilities, they sometimes tend to go down on quality of the product and this is another disadvantage of outsourcing. At the time of writing the contract. If they say that this is a fixed term contract, to make more profits from the work, the only way for them would be to decrease the expenditure and all the other additional costs which sometimes will surely be of less quality. This sometimes will also take us to a stage where in we loose our ability to respond to the business changes quickly 5) Financial Issues: - when we outsource a particular task, it means that the part of our job is moved to other company and hence the financial issues of their company will also play an important role. If due to some financial down drains, the other company to which our product is outsourced is bankrupted, then this would also affect us. So, basically the
performance of the product is depended on the financial output of the second company. Similarly, vice For versa is also a possible Bit disadvantage of outsourcing where in one company will be at loss. example, a All the jolt Indian IT companies filed for received major then NORTOL
bankruptcy, NORTOL is linked up with major biggest in the Indian IT Market like INFOSYS ,TCS , WIPRO and SANSKEN and all these companies had to bear losses  Entire IT market was in losses due to this filings and will thus have major financial issues 6) Publicity and Loss of Jobs: - When we outsource a particular project, it means that all the staff who used to work in that project is no longer required and this would surely increase the loss of jobs for its employers. Sometimes, the people who lost the jobs will go out for bad publicity and ill feelings would also be created. 7) Contractual Agreements: - When we outsource a particular project, the company's will basically go for long term contracts and these kinds of things will have certain disadvantages. For example if the company to which we outsourced the work turns out to be unsuitable for our requirements and is not doing the work as per the required standards, then it would be really difficult for us to move out of the project. Also, it is difficult for us to assume and
foresee what out requirements are after five or ten years and cannot write agreement for all those things right away. Thus, there are few other agreements which are tough to act upon and turnout to be major disadvantages for outsourcing 8) Competitiveness: - When an IT team sits with you and work along with the business requirements and vision of the organization, there is more competitive edge for our work rather than it being moved out. So, this always is an issue for outsourced projects. The internal divisions of our organization will surely have more knowledge than the outsourced company Now that we have understood the major disadvantages of outsourcing, like we provided a gist of all for advantages, below are some simple points which show a negative shade for outsourcing More cost effective at time with the inclusion of hidden costs Companies confidential information is leaked Managing processes with in the organization is always easier than managing the process outside the organization Finding other company if in case the original company is not working properly will always be a tough task
Outsourcing company will have many clients and hence the complete devotion will never be only on us Employers with the organization will never want their products to be outsourced as its their loss Renewing differences Customer focus will not be there and this might affect the business May have some potential threats and redundancies in the organization So far in our discussion, we mainly concentrated on the advantages and disadvantages of outsourcing on a global level. If we take it at a particular company level, both the outsourced company and outsourcing company will have its own advantages in passing on and taking over the project. On the whole, the outsourcing has benefits and this has been proved by many economists who continuously worked on a number of projects. Despite a lot of backlash and a number of strategies proposed by Barrack Obama ( The President of U.S.A) to not outsource the projects and a number of fines and additional charges applied on the outsourcing companies, major US clients are still outsourcing their product for the over all gains they are achieving. contracts, and misunderstandings, cultural issues, time communication
Let us consider the global example and identify from the real statistics which are applicable today and thus find out the real advantages and disadvantages of outsourcing. It is a well know fact that USA and Europe has got the maximum number of projects which they are outsourcing to countries like India and China to get the work done for cheap labour and expenditure. A number of articles have been written in USA on many websites about the outcry of outsourcing The Economist in the year 2003 came up with an article entitled " America's Pain is India's Gain"  where in they clearly mentioned that outsourcing is turning out to be an advantage only for the company or the country to which the project is outsourced. outsourcing will have its own advantages Now and
disadvantages as discussed previously. Once should never feel that outsourcing is an issue and it should be understood that the projects are outsourced only to get over all benefit to the organization. Once the benefit at the high level is evaluated, then we understand the importance of outsourcing. In the next section, we will now concentrate on various advantages of outsourcing by a particular country A to a particular country B. and find out as to what are the global benefits
In this research two methodologies were used while conducting the research: 4.1Secondary data collection: Large amount of secondary data is taken from article, journals and previously conducted researches. All this collected data regarding outsourcing helped to determine the trends of outsourcing. The data gathered also helped in identifying key parameters to examine through further exploration and this helped in defining the hypotheses for further study and it also helped in preparation of questionnaire.
4.2Primary data collection: Primary data is collected through the means of sample survey. The questionnaire prepared was mailed to some of persons working in BPO, HRO and KRO's and their response was solicited. The data collected through this survey is analyzed to determine patterns and for testing the validity of the hypotheses for formulated. 4.3 Analysis of data: A survey was conducted with the sample questionnaire which we have prepared in the earlier section and distributed it to around 500 different people across various places. Though all were not totally encouraging,
around 200-250 applicants have provided us proper details of the survey. Below given are the various results of the survey for each question wise. In the below given section, we will again recap all the questions and the responses which we received Our first aim was to segregate the business or the number of applicants according to the industry or the vertical they belong to. This was mainly put to distinguish different sectors and what are the major sectors under which boom are present. From the various options which we have provided, ITES /BPO Sector and IT sector stood out to top the list. Most of the projects and the people which are getting outsourced today are more or less in ITES/BPO and IT sector. A number of projects from various parts of the world and a number of companies turning up today require an IT section and it is really difficult for any organization to concentrate both on their IT as well as business priorities. Hence, if they can move this IT sector to another place or out source it, the burden will be really high. Also, all the companies are thinking about the flexible and cheap labor which they are getting by outsourcing and hence, we see maximum percentage of outputs in these areas. Out of the survey results which we received, a total of 40% approximately were from BPO/ITES sector followed by 32% from IT sector. After these two, it is a bit surprising to know that rather than manufacturing and retail sector, major projects from
medical and Healthcare are being out sourced a lot and there were around 20% of the projects from the survey which we conducted. Remaining all the organizations like manufacturing, retail and others have very small point. Of all the options, government sector has the lowest priority in outsourcing as they mainly concentrate only on their teams Once we differentiated the organizations based on the industry, then we on to the second question and here, we segregated the industry based on the number of years they are into the field. Out of the numerous results we have received, around 60 percent of the companies are the ones who are into the market from long time and already have some products for them to define. They already have a stabilized system but the main reason why they are trying to outsource is for the basic reason to enhance their existing applications. Also, if they want to enhance their existing applications with the same IT team, they need to provide some additional training tot he IT team which is becoming more burdensome. Henceforth, they are rather moving the entire division to a separate place and thus saving time, resources and well as money put in the project. Then the next trend is major among the start up companies. A company which is established recently is directly outsourcing their projects or different modules of their project so as they can actually concentrate on other business requirements. So, around
33 percent of the turnout percentage was checked for the companies with less than 3 years of experience. Middle level companies like 3-5 years have not been of high range as they are already up to date with their IT sector and application development and also formed a team capable enough to get on to the recent trends After this was completed, then we moved to the vertical based analysis where in we tried to find out as to what are the major kinds of services which an organization is most likely to pass across as a part of outsourcing and from the survey results, Business process outsourcing or the BPO took the maximum lead with 74% of the applicants. Now, its a well know secret that almost all the companies have their own IT department and they need continuous on call support for 24/7 to ensure all the users are happy. So as to accomplish this task, they thought that outsourcing this project is the best possible solution. Next in the fray comes the KPO solution which is approximately 20% of the entire statistics in this section. Knowledge process outsourcing has slowly started to develop and the boom in this particular part will be of great deal in coming times. Hence, though at this point of time, we see only 20% of the results, the overall performance is going to be increased in course of time for sure. Least of all these turn out to be the HR solutions where in they are transferred to a different organization only when there is absolute need and requirement
Our next set of questions were to segregate down the business further into smaller verticals and what exactly are the different verticals under which the main concentration is going into. Out of the number of options which we provided like temporary staff outsourcing, recruitment and selection, training, and payroll systems, the first and the foremost priority was given to recruitment and selection process where in a company is going through various divisions and outsourcing agencies to get the right candidates. Around 22% of the entire results were for this particular point. After this, training and development section as well as pay roll systems took the next big lead with 20 percent each as the companies can divert their attention to a different level. Managing benefits, conducting and employee surveys rarely are of low requirement henceforth are outsourced.
Training and development is basically done by big companies rather than small ones. For example, if a company needs to training around 100-200 people for a new project in some latest technology and there is a requirement to get this job done in a quick time, then the resources are going for training otherwise, the self learning modules which they put in the organization are almost meeting all the requirements Now that we have segregated everything in terms of verticals and what are the important things which are getting outsourced to complete out survey properly, we
thought out next aim was to identify the major reasons for outsourcing. To complete this part of the questionnaire, we along with cost savings, provided various options to the users. Out of all the options provided in the survey, around 86% of the results showed us that the main reason for us to outsource the project is cost savings. The total amount of cost to do the project in USA is approximately ten times more than the total cost in India and hence all the major giants or small scaled industries are outsourcing all the projects to India as they are seeing a lot of gain. After the cost savings aspect, the next important priority was given to the access of better technology. The main reason provided to this was a simple factor; many companies in which projects are running like a banking sector etc. are running on pretty old technologies. If they want to stay ahead in the market, then it is important that they need to update themselves with the latest technologies and as a part of this, the next main emphasis after the cost savings was provided to better access of systems and latest technology. Also, one of the important factors is the skill availability which is not present in their organization playing a major role. In these days, it has become very important for a person to be multi skilled rather than working on the same technology. This is turning out to be the one of the biggest reasons why companies are out
sourcing the projects as the outsourcing company is able to provide people who have different skills with ease After finding out all the benefits of the organization, the next emphasis was put on the risks involved in outsourcing and similarly as we have provided the basic set of questions for the advantages, we also provided some set of questions to find out as to what are the major risks involved in outsourcing. Out of the various options which we provided, mismatch of culture and cultural understandings played the important part of the risk. When a project is outsourced, there are some linguistic and cultural differences which both the outsourcing and outsourced company should come in terms with. There are few instances where this was not happening properly. This turned out to be the biggest risk factor as around 30% of the people found this to be the toughest task to handle. Once this is done, the next results following the cultural differences were the justification of the cost calculations. When an initial contract is made, both the source and target companies come up with their own estimates and at the run time, there are many hidden charges falling on the company for each and every additional work. So, at the end of the day, the total amount is turning out to me a lot more than what they have initially expected henceforth, around 25% of people chose this as the second most important factor. All the security level maintenance requirements, financial
stability of the vector and the responsiveness of the vendor and other things played an important role as well and came up with good requirements in the survey. Over all the risks were given a major importance than what we initially thought Once this is completed, we moved to a specific section of HR outsourcing and wanted to get some information particularly from the HR outsourcing. We basically wanted to know if the organization would like to outsource different HR activities to different companies or would they prefer outsourcing all the activities to the same company. A whooping 95% of the people directly said that they would like to outsource it to different companies based on the requirement and the caliber of their companies. Also, one more important reason for them to outsource the module to different companies is to ensure that there is secrecy maintained. If they handle all the HR modules to the same company, some legal and important information is handed over and they don’t want that to happen and this turned out to be one more important reason for them not to outsource all the activities to the same company. The remaining 5 % of the companies who checked in favor of single company more or less are small scaled industries and have no big modules to maintain and hence were not in favor of moving small works to different companies
When after this, we asked the users to provide the ranking of different requirements for anyone to outsource their product and from the various options which we provided to the customers who took the survey; the first priority was given to the brand of the company and their track record in accomplishing the tasks. So, brand value was always given importance and there are very few companies who risked giving their products to people with no brand values. Once this is completed, the next importance was given to the cost and the range of services provided to the vendor, all the companies are looking for those kinds of vendors who provide different solutions with cost effective models. Last but not the least importance was also given to the support which they will be providing and the time they take to provide the response and when asked whether outsourcing has achieved its major goal or not, many people from both the organizations were very happy to accept the fact that outsourcing achieved its purpose and was really good. Thus, we tried to provide a comprehensive analysis on all the major aspects of outsourcing and its importance. This questionnaire which we prepared was a survey conducted across small set of people and the over all results might vary a lot if we conduct this survey for bigger groups in thousands. 5. Future prediction of outsourcing:
As per the data collected through survey here are some predictions regarding the future of outsourcing industry:
Outsourcing in traditional areas like IT services,
customer care, financial services, manufacturing and technical support will grow.
Many companies around the world will invest in
capital BPO units in supplier countries to reduce risk and improve control quality. Customers and good are looking for business For any process business
excellence, quality of service, world class standards customer service. customer is god but the organizations and its CEO can not be in regular contact with the customer to assist them so on behalf of them the outsourcing company will assist the customer. Suppliers understand that they need to compete globally and in order to do that they need to outsource some of the services to concentrate on core business thus the scope of outsourcing is increasing.
available the cost
outsource so the global competition as a result margins are made outsourcing less.
there are some risk factors while selecting a country to outsource like terrorism, disaster and disease prone areas so planning is necessary the IT industry is predicted to move some if its jobs to overseas inviting more political debate particularly during the period of recession outsourcing expenditure will continue to rise with other prices More countries will find outsourcing attractive
following countries like US and UK thus making a multi-polar world. clients will take greater control in driving and designing goals The rising price of oil will put increasing pressure on companies to both utilize technology and outsource to remain profitable.
The rising prices of oil and other products will make countries like USA hard to outsource as a result
outsourcing more. India will show excellence in services that require high technical skills and advance knowledge thus scope of KPO in India is more. political backlash over outsourcing is likely to
decrease over time as economies strengthen and companies shall be willing to benefits of off shoring by 2015 china and India will take top two positions respectively in global outsourcing destinations Vendor focus will shift from basic skills, costs and processes to domain knowledge, HR issues and governance. The time zone is also an important factor as the off shore an outsourcing companies time zones are different companies will look to outsource in countries which have similar time zones to them.
6. Limitations of Research:
Along with the various benefits of research, the research has following limitations too• The first and main limitation of this research is that the selected sample design was very small. May be the research that is conducted on chosen sample that is selected randomly, may be the information is not sufficient conclusion. • Target audience was reluctant to participate. Hence slight change in mode of collection of data is done and 190 out of 200 responses were collected online, which is a bit less authentic source of collection of data. • Some people are unable to understand the questions, they are asked in the questionnaire. They perceive these in their own way and give answers, this leads to wrong results of research and the whole research will go in vain. • We used convenience sampling technique owing to limited resources which is not ideal for this kind of research
Our limited experience was another constraint on the quality of the research.
Here is a map showing the major countries that are outsourcing today
More than 60% of the companies around the world are outsourcing and they are increasing day by day. Thus outsourcing had become part and parcel of every business, weather it is with in the same country of in a different country. The freedom of the organization to concentrate on its core business had made outsourcing more beneficial. Outsourcing has benefited both the outsourcing company and the supplier as the company can reduce the costs, improve quality of business and provide extra services to customers. The supplier also has
many benefits like he is able to earn good money, expand his business and improve technology. All the three types of outsourcing BPO, HRO and KPO are expected to have good future particularly KPO which requires high skilled workers will have a bright future as its ability to solve issues on behalf of client makes it more beneficial.
Survey on current trends in HR Outsourcing
Data being collected through this questionnaire is purely for academic research and will be kept confidential. (Please put “X” against an option to select it.) Name of Organization: Location: Which sector your organization belongs to?
Manufacturing Sector IT Sector ITES / BPO Sector Retail Sector FMCG Sector Government Organization Any other, Please mention
For how long has your organization been in service?
< 3 years 3 years – 5 years > 5 years
What type outsource?
HRO BPO KPO
Which of these services are outsourced by your organization (Select all services being outsourced)? HR service Providing Temporary staff Recruitment & selection Training & Development Managing Payroll systems Managing benefits Conducting Employee Any other surveys service Complete HR function being outsourced, please mention below. Which of these factors are major reasons for outsourcing services? (Please rank them from 1 onwards in order of decreasing importance.)
Cost savings increased capacity Lack of internal staff / capabilities Access to better systems and technology Other factors (Please mention)
Which of these are major risks associated with outsourcing services? (Please rank them from 1 onwards in order of decreasing importance.)
Mismatch of cultures Security of Database Financial stability of chosen vendor Justification of cost-benefit calculations
Other factors (Please mention)
While outsourcing more than one HR services, which of the following approach do you utilize? (Organizations which don’t outsource HR services skip this question.) Consolidating all HR services under one vendor Employing different vendors for different HR services according to specialization While outsourcing services, which of these parameters are most important parameters for vendor selection. (Please rank them from 1 onwards in order of decreasing importance.)
Name of Service Provider (Proven Track of Services Contract factors (Please being offered Options mention) has
Do you think that outsourcing services achieved its purpose for your organization?
Which metric do you use for measuring the effectiveness of outsourcing services? (Please select all the measures being used.) None Cost saved due to outsourcing
Service level improvement Increase in employee satisfaction Other factors (Please mention) Any comments trends… on present outsourcing
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