Executive Summary

Outsourcing is the buzzing word now-a-days; means subcontracting of works to aired third
party service provider. It’s becoming more & more popular day by day because it is offering
less cost & high quality service and many other operational, technological & financial benefits.
And Information Technology Outsourcing (ITO) is the most booming area of outsourcing which
is precisely three forth of the total outsourcing industry.

All the research organizations, specialists & futurists are sure about the fast forward move of the
Information Technology Outsourcing. Most of the fortune 1,000 companies are tending to go for
outsourcing. In developed world nearly half of all businesses use offshore providers, and two-
thirds plan to send work overseas in the near future. So, the future of this business is very bright.

IT Outsourcing is very much advantageous as a small business than many other businesses. It’s
easy to finance. It has advantage on tariff, transportation, infrastructure & location, availability of
workforce, HR hiring & training cost, and legal requirements. Besides, it gets tax exemption,
govt. incentives & stable government support. Moreover, it can use the women workforce
rapidly & has a high success rate. So, it is the perfect time for our entrepreneurs to grab this
business which costs little but earns a lot.

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Objective
Outsourcing is the act of assigning part of a business process to a third party on a repeated basis.
It differs yet is similar from Proper Employment and Out-tasking.

The outsourcing process has the aspect of employing a third party to perform an assigned task
without the liabilities from "labor laws." This third party may be within the same country as you
or be from a country a thousand or tens of thousand miles away from you. With this, you can
easily terminate your relationship with such party without immediate legal precautions from the
"labor laws" if they fail to meet your standards. If they meet your standards or if you are satisfied
with their performance, you can again engage a contract with them to do another assigned task,
preferably of similar nature.

The outsourcing process enables to enjoy having a reliable "regular employee" without the hassle
of answering to the boundaries and rules set by the "labor laws." You can continuously assign
tasks to this third party and expect results from them as you would be expecting from one of your
regular employees. However, if you feel that they are not able to perform such assigned tasks and
meet your standards, you can easily terminate your relationship with them.

Outsourcing therefore has two primary objectives:

 To get better results for the same or slightly higher cost.
 To get labor at reduced cost but get the same or slightly better results.

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Methodology
Industry has a long tradition of subcontracting for products and services. The subcontracting,
currently called sourcing or outsourcing by IS organizations is a natural evolution of this
subcontracting tradition. The primary functions of a modern Information Systems organization,
except for strategic planning, can be either performed in-house or outsourced to development,
processing, networking or consulting providers/vendors. The evaluation of these
providers/vendors is usually based on some type of cost-value analysis. A basic method for such
cost-value analysis is the computation of a worth index. Since almost all outsourcing proposals
are required to provide a technical and managerial proposal and a separate cost proposal, the
worth index is computed as:

Worth Index = (Technical Score + Managerial Score) / Life Cycle Cost

This paper includes a detailed methodology for computing the technical score, managerial score
and life cycle costs for a Worth Index using both RFP and RFQ approaches. The Worth Index
methodology presented in this paper is applicable to functional sourcing opportunities in six
areas: the full IS organization (excluding strategic planning), IS development projects, IS data
center production, and IS technical support, telecommunications, and architecture planning
support.

 Outsource Primary Market Research & Secondary Market Research

Companies have always relied on research when it comes to making important business
decisions. The entire research effort revolves around two basic needs - the need to take good
decisions that bring positive results and the dire need to avert risk. Meet these critical needs and
create a favorable environment for increased profitability with market research.

Secondary market research makes deductions based on readily available information and
researched data. This brings in a convenience that you need not spend time on data collection and
processing. Primary market research is a full-fledged research wherein the entire research
process is freshly conducted in an elaborate manner for primary research.

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Introduction
The trend in outsourcing continues to grow – both in the number and value of outsourcing
transactions and in the variety of services which are outsourced.

The pressures which lead organizations to outsource show no signs of slackening and cost
savings remains a major incentive. However, other factors are increasingly influencing the
decision to outsource – access to innovation, increased speed to market, and service quality are
proving equally as important as cost savings.

As the value of transactions has increased, so too has the range of outsourced services. Most non-
core services which organizations have traditionally provided internally – IT, finance and
accounting, HR and property management - are now commonly outsourced. The locations from
which services are provided have also changed – the attraction in outsourcing to offshore
locations such as India has soared.

Reports show that the fastest growing sectors are business process outsourcing and business
process management. For many large IT suppliers outsourcing and process management are one
of the few areas to have flourished in the difficult market of recent years.

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What is outsourcing?
Outsourcing involves the transfer of the responsibility for carrying out an activity (previously
carried on internally) to an external service provider. The service provider in turn provides
services back to the customer against agreed service levels for an agreed charge. In many
outsourcings the transfer of the activity involves the transfer of staff and assets (see the
employment section below).

Outsourcing is often characterized as having 3 distinct phases:

 The customer transfers the existing service to the service provider
 The services are provided by the service provider
 Termination/expiry, which may involve either

Benefits of Outsourcing
 Lower cost
 Skilled Expertise
 Time zone difference
 Focus on core competencies
 Increased productivity and Efficiency
 Distribution of risk
 Improving customer service
 Geographical Benefits
 On Time Delivery
 High Standard of Quality
 Efficient Project Management
 Government Support

Outsourcing, in its early days, seemed possible only by larger companies which farmed out many
low-end business processes. Since then, outsourcing has become more of a norm than an option.

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Apart from the cost savings, outsourcing is seen as a strategic move that can allow businesses to
gain a competitive advantage.

It certainly has opened up opportunities for organizations to utilize skill sets and expertise that
they normally would not be able to access without large investments. It has also become a savior
to startups and small businesses which have to work with modest capital.

At the lower end of the spectrum, outsourcing back-end jobs such as data entry/ processing,
customer support, payroll processing etc. have helped organizations save a staggering amount of
money. Now, there are service providers across the globe who specialize in simple back-office
services to high-end services like manufacturing design and legal outsourcing, to name a few.

1.1 Lower costs

Lower costs are perhaps the prime benefit of offshore outsourcing. You can get work done at a
fraction of the cost that you would have to spend locally, while getting better quality as well.
Because of the differences in pay and standard of living that exist between Asian and Western
countries, labor costs are much lower in Asia. On an average, you can expect about 60% cost
savings if you outsource to countries like India.

1.2 Skilled Expertise

Finding skilled resources is one of the biggest challenges faced by companies today, not to
mention the investment required to train employees and the attendant infrastructure required,
which can rapidly drain funds. Outsourcing frees companies from these hassles by providing
access to skilled resources at lower costs, with the additional benefit of not having the burden of
managing them directly.

1.3 Time zone difference

Because of the time zone difference between Asian countries and the West, you can get your
work done while your business closes down in the evening. This is especially beneficial for
companies in the service industry that need to provide round-the-clock customer support.

1.4 Focus on core competencies

As a company grows, administrative functions also grow. Managing back-office operations and
administrative functions takes the time and energy out of any organization. Outsourcing frees
companies from having to manage non-core functions, and puts the focus back on their core
competencies. Entrepreneurs and enterprises alike have benefited from outsourcing repetitive
and mundane tasks, and have had more time and opportunity to grow their business.

1.5 Increased productivity and Efficiency

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Outsourcing not only brings cost advantages but can also improve the efficiency of business
operations. If your business goals are properly aligned with the deliverables in outsourcing,
productivity and efficiency are bound to increase. Outsourcing providers with the right expertise
and experience can actually help streamline business processes and contribute to the bottom-line.

1.6 Distribution of risk

When certain functions are outsourced, companies also distribute or do away with the risks
associated with running that particular function. For instance, if payroll management is eating up
your operational time and money, outsourcing it to a payroll services provider gives you the
freedom to focus your concentration on other core activities of the business.

1.7 Improving customer service

Customer service is paramount to any organization. Through outsourcing you can service your
customers faster, provide better quality and decrease turnaround time.

1.8 Geographical Benefits

Bangladesh ITO centers enable to serve its customers globally, right now we are in a very cost
effective position, because according to 2009 our neighbor India, HR cost increased 100%. And
companies are looking for new options, so we are in a good geographical position also for
outsourcing.

1.9 On Time Delivery

Every Bangladeshi ITO firm giving on time delivery according their agreement and producing
superb result.

1.10 High Standard of Quality

Bangladeshi ITO firm always maintaining high standard of quality and have so much layer of
quality assurance.

1.11 Efficient Project Management

All the project managers working under international standards and they are capable to handle
any project or a whole lot under a project.

1.12 Government Support

Bangladesh IT enabled industry now getting huge support from the government. Government
making rules that are attracting foreign direct investment. Some of IT enabled firms has 10 years
tax holiday.
So Bangladesh has a great opportunity to earn foreign exchange from this industry and it can be
a first choice of IT outsourcing hub in the world if government should take more initiative and
take more diplomatic steps.

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Disadvantages of Outsourcing
 Loss Of Managerial Control
 Hidden Costs
 Threat to Security and Confidentiality
 Quality Problems
 Tied to the Financial Well-Being of another Company
 Bad Publicity and Ill-Will

2.1 Loss Of Managerial Control

Whether you sign a contract to have another company perform the function of an entire
department or single task, you are turning the management and control of that function over to
another company. True, you will have a contract, but the managerial control will belong to
another company. Your outsourcing company will not be driven by the same standards and
mission that drives your company. They will be driven to make a profit from the services that
they are providing to you and other businesses like yours.

2.2 Hidden Costs

You will sign a contract with the outsourcing company that will cover the details of the service
that they will be providing. Anything not covered in the contract will be the basis for you to pay
additional charges. Additionally, you will experience legal fees to retain a lawyer to review the
contacts you will sign. Remember, this is the outsourcing company's business. They have done
this before and they are the ones that write the contract. Therefore, you will be at a disadvantage
when negotiations start.

2.3 Threat to Security and Confidentiality

The life-blood of any business is the information that keeps it running. If you have payroll,
medical records or any other confidential information that will be transmitted to the outsourcing
company, there is a risk that the confidentiality may be compromised. If the outsourced function
involves sharing proprietary company data or knowledge (e.g. product drawings, formulas, etc.),
this must be taken into account. Evaluate the outsourcing company carefully to make sure your
data is protected and the contract has a penalty clause if an incident occurs.

2.4 Quality Problems

The outsourcing company will be motivated by profit. Since the contract will fix the price, the
only way for them to increase profit will be to decrease expenses. As long as they meet the

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conditions of the contract, you will pay. In addition, you will lose the ability to rapidly respond to
changes in the business environment. The contract will be very specific and you will pay extra
for changes.

2.5 Tied to the Financial Well-Being of another Company

Since you will be turning over part of the operations of your business to another company, you
will now be tied to the financial well-being of that company. It wouldn't be the first time that an
outsourcing company could go bankrupt and leave you holding-the-bag.

2.6 Bad Publicity and Ill-Will

The word "outsourcing" brings to mind different things to different people. If you live in a
community that has an outsourcing company and they employ your friends and neighbors,
outsourcing is good. If your friends and neighbors lost their jobs because they were shipped
across the state, across the country or across the world, outsourcing will bring bad publicity. If
you outsource part of your operations, morale may suffer in the remaining work force.

Outsourcing in Bangladesh

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Outsourcing refers to a company which contracts with other companies to do their marketing
jobs which would otherwise be performed by their in-house employers. It reduces the cost of the
company and helps to expand the market. These jobs are handled by separate companies that
specialize in each service, and are often located overseas.

There are many reasons that companies outsource various jobs, but the most prominent
advantage seems to be the fact that it often saves money. Many of the companies that provide
outsourcing services are able to do the work for considerably less money, as they do not have to
provide benefits to their workers, and have fewer overhead expenses to worry about.
Outsourcing also allows companies to focus on other business issues while having the details
taken care of by outside experts. Many outsourcing companies use modern advanced technology
that a company might not be able to afford. Moreover, outsourcing is an effective way if a
company wants to expand as it can use outsourcing in various countries and build a foundation in
those countries.

Bangladesh is relatively a new field in outsourcing. But it has high potential. Due to the
increased production cost in China & India, Bangladesh has emerged as a lucrative outsourcing
market due to its low infrastructure and production cost and investment friendly legislation.
There are already more than thirty outsourcing companies in Bangladesh ranging from giving
software solutions, multimedia solutions, e-commerce and programming solutions all around the
world. Companies like Daffodil Software Ltd, Anupam Infotek Ltd, and Upload Yourself
Systems, Bangladesh Internet Press Ltd. are some of the companies that are doing outsourcing in
software and media solutions, graphics and animation solutions etc. There are call centers for
telecommunication companies and financial companies like banks and the customers can get
help within minutes from these call centers. Bangladesh can be an ideal ground for buyers as it
can deliver manpower to help in getting product information and in synchronizing between the
buyers and the company. There are many large foreign companies who want to expand and
Bangladesh outsourcing companies can play a vital role in the expansion of the company. India is
considered a giant in outsourcing, Bangladesh can also work side by side to help grow outsource
marketing. The companies that are outsourcing in Bangladesh can easily be reached by the
buyers from around the world and the scope of expansion will increase. As a result more buyers
can use the outsourcing in Bangladesh in addition to India.

Today outsourcing is a growing business. As time goes by it will become an indispensable part
for the buyers as well as the sellers. Bangladesh has already stepped into the outsourcing world
and it surely can become an important outsourcing country.

The Future of Outsourcing in Bangladesh

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The Bangladesh IT industry, despite being a new industry, represents a tremendous opportunity
to meet various IT needs of international companies around the world. In the last five years, the
IT industry of Bangladesh has shown a considerable growth with an average yearly growth with
an average yearly growth rate of over 40% in Software and ITES sectors.

Due to increased interactions with international IT community, the IT sector of Bangladesh has
already drawn significant attention and has been positively highlighted in different mediums
around the world. For instance, Gartner has listed Bangladesh as one of the top 30 global
outsourcing destinations.
The European Commission also has recently included Bangladesh as one of the top IT
outsourcing destinations in the world. Odesk Corp. one of the leading online marketplaces of
outsourced works has ranked Dhaka, the capital of Bangladesh, as the top 3rd city amongst the
global cities as an outsourcing destination. The strong human capital in the IT industry coupled
with growing support from the government and the geographical location of the country, clearly
paves the way of Bangladesh to be seen as a probable it hub in Asia.

Having this success in outsourcing today, with outsourcing being the top business trend, the
biggest question on everyone’s mind is: what will the future of the outsourcing industry look like
in the next 10 or 20 years? Though Bangladesh has managed to position itself as a major
outsourcing hub, questions about its future in outsourcing continue to surface in industry circles.
The dynamics of global business are changing, and outsourcing is no different.

3.1 Current and Future Trends that will affect the Outsourcing Market

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With the outsourcing industry emerging from the aftermath of the global recession, there are a
number of trends that give us a glimpse of the future:

Analysts are predicting that the industry will continue to fight short-term cost pressures, and that
there will be pressure on service providers for more flexible pricing contracts.
Buyers will seek more standardized solutions from their outsourcing engagements, so they will
have to differentiate themselves through performance rather than pricing. Hence pricing
structures will be stabilized to some extent.

Many small alliances, focused on increased operational efficiencies, better quality control and
reduced back-office costs, are being set up. This trend is going to continue.

Industry experts predict that Latin America and Europe will be the new outsourcing destinations
in the near future. Brazil and Russia will make their presence felt in the global outsourcing
market and China will continue to move ahead. The rising price of oil will put pressure on
companies to take advantage of technology and outsource work to remain profitable.
According to industry experts, consumption-based technologies that are delivered through the
cloud will grow, as they are cost effective. Some analysts predict that European carmakers will
start outsourcing their business. This would result in cars being developed by other companies
while being sold under their brand names. Big pharmaceutical companies will launch new drugs
in the market at a fraction of the current cost by partnering with India, China, and Russia in
molecular research and clinical testing so Bangladesh could be the next here.

3.2 Bangladesh role in the outsourcing industry

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Bangladesh continues to be the major destination for outsourcing because it has been able to
evolve with changing needs. BASIS (Bangladesh Associations for Software and Information
Service) the apex body of Bangladesh IT software and service (IT & BPO) companies , BCC
(Bangladesh Computer Council),BCS(Bangladesh Computer Samity) are working to grow the
sector. BASIS reported that Bangladesh share in the global outsourcing market is rising day by
day.

Bangladesh still stands out for its customer service and efficiency, so its future is bright. Today,
customers are not only looking at cost-effective solutions for their outsourced business but also
for skilled staff, enhanced productivity, service quality and business process excellence. About
60% of the population of Bangladesh is under the age group of 25 years. This group is very much
responsive towards technological advancement, eager to continue their own persona
development in the IT sector for improvement of their lifestyles vis-à-vis the nation. with its
large population and multiple-skilled people, Bangladesh would continue to be preferred for both
back-end and front-end outsourcing.

Opportunities for the Bangladeshi outsourcing Industry. The growth of Bangladeshi outsourcing
industry has been phenomenal. As markets worldwide are becoming knowledge-intensive,
Bangladesh has evolved to become the most preferred destination for knowledge services.
Knowledge Process Outsourcing may soon be the biggest revenue grosser in Bangladesh. To
make this Bangladesh need to skilled its manpower in language, Programming’s, creative works
and others jobs. Though Bangladesh has Chartered Accountants, MBAs, Doctors, Lawyers,
Research Analysts, etc., which may strengthens its position in the knowledge service industry.

Top ten Strategic Recommendations for Negotiating an Outsourcing Transaction

Despite the fact that it is often a hot potato in certain quarters at certain times (particularly in
election years), outsourcing, or as the industry prefers to refer to it now “global sourcing,” is here

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to stay and will likely continue to grow exponentially. The economic imperatives of sourcing are
undeniable: under the right circumstances, a business enterprise can engage an outside service
provider to perform an internal business or technical function or process at a much higher quality
level and at a lower cost.

Sourcing transactions are highly complex and should be carefully negotiated. It will take a good
bit of hard work to negotiate the service provider’s form agreement into a document that
appropriately balances the service provider’s interests with the buyer’s interests. Even though
they may not admit this at the beginning of the negotiations, service providers will usually
negotiate with you in good faith.

4.1 State Your Expectations Clearly

Never lose sight of the fact that you are sourcing to accomplish two overriding objectives: (i) to
have the sourced functions or processes performed at a higher level of quality by an experienced
service provider that is in the business of performing those functions for many customers, and
(ii) to have those functions performed more cost efficiently because the service provider has
much more scale and leverage (e.g. buying power) than the company outsourcing the function.
Every aspect of a sourcing transaction should use those two objectives as a touchstone for the
service provider’s obligations. Begin every services Agreement with a very clear and objective
statement of your company’s objectives as a buyer of sourced services.

4.2 Get Negotiating Leverage as Early as Possible

As noted above, service providers and their form service agreements tend to be quite one-sided
favoring the service provider. You should consider using your own form of services agreement,
assuming that it has been prepared by an experienced sourcing lawyer.

4.3 Nail Down Your Performance Metrics Clearly Up Front

There are two broad categories of performance metrics that you should insist your service
provider meet: first, broad, general performance quality standards and, second, specific, detailed
specifications.

4.4 Understand What Service Level Agreements (SLAs) Really Are

A buyer should always include in the sourcing agreement specific performance levels for the that
are known as “service level agreements” or “SLAs.” SLAs, and their associated
“credits/penalties,” are often the most heavily negotiated part of a sourcing deal.

Most buyers of sourcing services, and often non-sourcing lawyers, do not really understand what
SLAs are or what their function is in the sourcing relationship. SLAs are not performance
warranties per se but rather are benchmarks that trigger certain rights or credits to the client if
they are not met, or, increasingly, certain bonuses or service provider credits if they are
materially surpassed. SLA credits are typically more of a “slap on the wrist” of the service

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provider than a severe remedy for poor performance. Their goal is to entice the service provider
to do what is necessary to correct a flagging performance measure.

4.5 Often Ignored Transition services: Entrance and Exit of a service provider
At the risk of stating the obvious, transitional issues arise at the inception of the sourcing
relationship and at the end of the relationship. These issues, however, are ignored in service
agreements far too often.

The services agreement should contain a detailed description of how the services will be
transitioned to the service provider at the outset of the relationship and the functions the service
provider and the client are to perform. A detailed transition plan may be appropriate. You might
want to ask that the timeframe for the transition schedule be extended for a certain period of time
(e.g. 45 additional days) without incurring additional charges from service provider.

4.6 Defining Services Precisely to Avoid Loopholes

The services should be defined in the agreement very carefully and very precisely. We estimate
that over 75% of executed service agreements do not define the services with sufficient
precision. As self-evident as this sounds, many sourcing relationships run into trouble because
the scope of the services was defined too narrowly, broadly or ambiguously.

4.7 Don’t Ignore the Importance of Service Provider Personnel

Sourcing relationships sometimes involve the movement of employees from the client to the
service provider. The Agreement should specify any of your employees to whom service
provider shall offer employment, if any, and certain required terms and conditions of
employment (e.g. credit for seniority purposes).

4.8 Give Due Attention to Relationship Management

Many sourcing relationships run into problems simply because the parties’ communications lines
break down. The Agreement should set up a very well-defined communications and dispute
resolution matrix.
Typically, clients and service providers are usually each required under the services Agreement
to appoint a project executive whose responsibility is to manage the sourcing relationship created
by the Agreement. A management committee comprising an equal number of client and service
provider employees is sometimes formed in order to handle certain administrative aspects of the
relationship and certain disputes that may arise.

4.9 Fees and Expenses – Plug Up Back Door Expense Gouging

Financial issues are one of the most treacherous aspects of sourcing relationships. Given that the
sourcing relationship is premised on there being cost savings and efficiencies for the buyer,
buyers should look closely for “back door” costs and other ways in which the service provider

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can drive up the cost of the sourcing relationships. This is not because service providers are
somehow nefarious – they aren’t. But they are in the business of maximizing their profits just
like your business so it is only natural that they will seek ways in which to maximize the fees
that they are paid. Having said that, it is perfectly fair and appropriate for a buyer of sourced
services to negotiate to eliminate as many back-door costs as possible.

4.10 Termination of Relationship

Sourcing relationships sometimes do not work out because of mere “bad chemistry” between the
client and the service provider. Sometimes this happens without any true breach by the service
provider. A client should not be forced into staying in a “bad marriage” with a service provider.
Increasingly, clients with negotiating leverage are being able to successfully negotiate an early
exit strategy, with relatively low early termination penalties (compared to earlier generations of
long-term sourcing relationships which imposed severe penalties on clients for early termination
of the relationship).

Conclusion

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In conclusion, outsourcing is a business strategy used by companies, for reasons such as the lack
of expertise, through the subcontracting of their business functions to outside organizations.
Outsourcing is receiving much response from companies all around the world these days, with
70% of European companies already using it for reason such as to seek cash infusion, reduce risk
and operating costs, etc.

Companies that offer services at low prices can be easily found. However, due to several ethical
concerns, some companies prefer the costlier route as the price difference could be deceptive
because the variation will only be in the initial cost. Compromise of customer data and vendor
reliability are one of the main ethical concerns companies tend to face, especially in offshore
outsourcing contracts.

Outsourcing is not the right tool for ever job but it is a good tool for the right job. There are a
couple of typical and traditional problems faced in outsourcing. Poor planning and less-than-
expected results are some of the problems faced by outsourcing players. There are solutions to
these problems however, there is no silver bullet and some situations can never be predicted.

All in all, the future of outsourcing appears to be fairly bright and positive. The information
technology era enables new outsourcing players to take advantage of the different stages of an
organization's value chain. Besides that, there are also clear signs indicating the broadening
confidence in the outsourcing industry, which would ultimately lead to more companies adopting
the business strategy over an increasingly wide range of business processes and functions.

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Reference
http://www.techworldbd.com/the-future-of-outsourcing-in-bangladesh/
www.somewhereinblog.net/blog/mdarifurrahman007/29170200
http://www.outsource2india.com/why_outsource/articles/benefit_outsourcing.asp
http://www.google.com/url?sa=t&rct=j&q=it+outsourcing+methodology&source=web&cd
http://www.mmmtechlaw.com/2011/11/10/top-ten-strategic-recommendations-for-negotiating

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