IT Outsourcing

Kyle Wilson Andy Vu Ian McCulley BA471 1/13/06

Topics Covered
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Definitions and types of outsourcing. Pros & Cons. Which countries are the major players? How big is this outsourcing and why? Is it growing? Which jobs are being outsourced? Companies & process involved and why? Trends and future outlook.

BPO: Business Process Outsourcing.techtarget. Offshore: the exporting of IT-related work from the home country to other countries.Definitions  Outsourcing: an arrangement in which one company provides services for another company that could also be or usually have been provided in-house.com/) . the long-term contracting out of noncore business processes to an outside provider to help achieve increased shareholder value. Offshore simply means "any country other than your own. Onshore: (also called domestic outsourcing) is the obtaining of services from outside a company but within the same country Nearshore: is the practice of getting work done or services performed in neighboring countries.     (http://searchcio.

Onshore Outsourcing Pros  Cons      Travel and communications are easy and less expensive Same country and culture Speak the same language Small differences in time zones Less risk of security issues   Not as large of talent pool Not as many options Price may be much higher because of same currency and standard of living .

Nearshore Outsourcing Pros  Cons     Travel and communications are easier and not very expensive Likely to be at least some commonalities between the cultures More likely to speak the same language Similar time zones   Possibility of higher prices Security risks Loss of domestic jobs (for the country outsourcing) .

Offshore Outsourcing Pros  Cons    Lower labor costs or tax savings Companies able to be more price competitive A wide variety of outsourcing companies to choose from     Home-grown IT talent might dry up Language barriers/cultural differences Security problems Different time zones Loss of domestic jobs (for the country outsourcing) .

resulting in an overall increase in the process capability of the organization. International set of documents on quality assurance.Minimizing Risk ISO 9000   The International Organization for Standards (ISO 9000 series).com/index. Written by members of a worldwide delegation.cfm/fa/articles. Three out of every four SEI-CMM companies that have reached level 5 worldwide are located in India.ISO9000-and-SEI-CMM-processes-and-standards-for-outsourcing) . CMM . Each level facilitates a layer in the foundation for continuous process improvement. (http://www.offshorexperts. SEI-CMM Model      SEI (Software Engineering Institute) established in 1984. Achieving each level of the model institutionalizes a different component in the software process.composed of 5 maturity levels. The CMM (Capability Maturity Model) of SEI is a framework that describes the key elements of an effective software development process.

Major U.000 to $12. Government: Outsourcing is so ingrained in the fabric here that the Indian government has a national minister specifically for IT. .S. The government favors IT foreign ownership and imposes no export taxes.000 IT graduates and 2 million English-speaking graduates annually.500.000 for technical staff. Costs: Labor costs have crept upward over the years but have been offset by falling telecom rates. Typical salaries range from $5. Reliability can be spotty outside the parks or in more remote areas. GE Capital and American Express have a very large presence and have set up their own centers here. maintenance. India produces 75.Major Players: India Labor Pool: India has many prestigious technical universities. Customers: Citigroup. financial processing. Expertise: Application development. but the Indian Institute of Technology stands apart as one of the world's best. while back-office salaries range from $3. Experts see India becoming a hotbed for more critical analytical jobs. Infrastructure: With redundant telecom and utility infrastructure. there is very good reliability within India's special IT parks.500 to $7. call centers.

000.   Government: Government exempts companies from export taxes. American International Group. finance.S.000 of them are focused on technology. Customers: Procter & Gamble. Infrastructure: IT parks that have sprung up over the past 13 years fuel the export industry. human resources.    . accounting and customer service standards and has low employee turnover.S. Expertise: Accounting.000 to $8.. Government's task force charged with development of IT and business process outsourcing (BPO) services.000 to $10. call centers.Major Players: Philippines  Labor Pool: The Philippines turns out 380. fees. but only 15.000 graduates annually.S. dues and licenses if they open in one of the country's IT parks. military bases left behind dependable telecom infrastructure. Costs: Lower labor costs than India. animation.000 annually and back office from $3. technical salaries range from $5. Abandoned U. is well-versed in U. The country has cultural affinities with the U. Citigroup.S. Major U.

Government: Government is erratic and. Customer: Boeing.S.S. for now.      . Telecom infrastructure costs are higher than average. Infrastructure: Infrastructure quality and quantity decrease when outside of Russia's few IT parks. Costs: IT salaries range from $6. But a treaty with the U. The country hasn't yet developed back-office competence.000 to $10.Major Players: Russia  Labor Pool: The good news: Russia can claim the third largest population of engineers and scientists per capita. sticking by old tax laws and structures that don't benefit business. Major U. The bad news: Not many of them speak English. could change things down the road. aerospace engineering.000. complex software development. Expertise: Web design.

Customers: HSBC. Government: China's government has hampered growth due to trade policies and overregulation. The hope is that these issues will evaporate as China blends into the World Trade Organization. but China is building networks. Infrastructure: Infrastructure can be spotty outside major cities.S.      . intellectual property concerns linger.000 to $8. many of whom migrate west.000 graduates annually. Costs: IT salaries range from $3. almost as fast as the U. particularly telecommunications.000 annually.Major Players: China  Labor Pool: China's technical schools turn out 50.S. No real BPO competency. Microsoft. Expertise: Transaction processing. Major U. low-end software development and maintenance. Those who stay generally don't speak English.

Government: Low or no political risk.000. Infrastructure: Solid telecomm infrastructure. tech support. Government gives tax breaks on IT exports. means IT salaries are much higher than most offshore countries. Costs: Being a nearshore alternative to the U. Major U.S.S. NAFTA provides free trade market for IT services. Customers: Allmerica. Agilent.      . neighbor to the north</del> Has solid educational system. Expertise: Software development and maintenance. ranging from $25.000 to $50.Major Players: Canada  Labor Pool: <del>U.S. with a qualified labor force of more than 16 million. call center.

companies can save up to 50% by outsourcing call centers to Mexico. IBM.   Expertise: Spanish-language call centers.S.   Government: NAFTA has opened up free trade markets.S. Costs could be offset by unreliable infrastructure. Major U. Infrastructure: Solid inside the technology parks. General Motors.Major Players: Mexico  Labor Pool: Mexico provides U. software development. companies with millions of Spanishspeaking people to staff call centers. data center outsourcing.  . but Mexican government does not offer high level of incentives. Customers: AOL Time Warner. Costs: Low labor costs.

000 of them technical. Low or no political risk. Major U. making Ireland unattractive if primary objective is cost savings. 34. Infrastructure: Solid.S. Microsoft.Major Players: Ireland  Labor Pool: Relatively small. software development. Costs: Tech salaries range from $25. call centers.  . Customers: Intel.000 graduates annually.   Expertise: European shared-services centers. 5.000 to $35.   Government: Favorable tax laws and $330 million technologyeducation fund provide incentives. Dell.000.

human resources. and data analysis  The latter includes back office functions •  Similar to manufacturing. call centers.Leader of the Pack  India is the leading recipient of IT outsourcing functions • • Software development/maintenance Business process outsourcing Accounting. outsourcing will fall into a tiered structured and base-level work will go to rock-bottom-wage countries such as Vietnam and Uruguay • Payroll & data entry  Leaving countries such as India to advance and take on more complex development services • • Software Product .

000.000+ white collar jobs will be overseas. In 2004 there are roughly 130 million employed people in the United States >>> In India there are roughly 650.000 – 700. Engineers in India working on several innovative products • • • • • Microprocessor chips for high-speed wireless technology Aircraft engines Transport Systems Plastics Medicine .000 jobs consisting of software and business process jobs By 2015 an estimated $151 billion in wages will be outsourced and 3.Growing Popularity of Outsourcing     Pioneered by Citigroup and GE in the late 80’s.

GE.Continued…     Very large amount of intellectual property is being created for US companies all over India. India is quickly becoming the Silicone Valley of the US. Intel & Cisco Systems > 1000 patent applications with US patent office by 2004 Bangalore. Samples: • • • Molded toothbrush with flexible bristles Safety device for motorized two-wheel vehicles with shock absorption HIV fighting medicine . Texas Instruments.

technology and innovation.Continued…    India is becoming so successful. . India is the busiest hub for innovation and intellectual property in 2004 – “Year of the Idea”. One firm in India who specializes in the outsourcing of large corporations and companies is armed with over 1400 working engineers and over 200 R&D labs. Fortune 500 companies are seeking consultation and advice regarding patents.

456 12.Why So Big? Natural Resources & Mining 2003 1.203  Total Employment 90.667 18.359 30.757 25.046 19.389 –3.015 31.815 3.367 . Hospitality & Other Services Government 5.552 18.066 14.000 across the economy Foreign Workers > Lower Costs > Higher Productivity > Increased Income > Expand in the US and Abroad Source of table: Global Insight and North American Industry Classification System Construction Manufacturing Wholesale Trade Retail Trade Transportation & Utilities Publishing.506 4.393 12.860 Financial Services Professional & Business Services Education & Health Services Leisure.895 2008 1.043 32.604 –50.513   US companies sending work abroad yielded higher productivity that actually boosted employment by 90.182 75. Software & Communication –24.010 43.260 4.931 63.078 20.264 317.623 47.

and legal work. insurance claims. • Computer programming.    Any task that can be sent down a wire can be outsourced even some jobs where the finished product can be shipped. CEOs are not safe either!!! . radiology. How large is this going to be? Imagine the jobs today that actually require face-to-face interaction with the customer and you will begin to understand the impact this will have.Which Jobs Can Be Outsourced?  Wide variety of jobs – anywhere from low skilled to high. processing.

com/essay528. http://www.htm .Why Companies Outsource:           Focus in-house resources on core functions Personnel cost savings Improved quality of information systems services Increased flexibility Increased access to new technology Provide alternatives to in-house costs Stabilize information systems costs Technology cost savings Re-engineer process Reduce technological obsolescence risk.itmweb.

com/essay528.itmweb.htm .Which Sectors are Being Outsourced?      Information Technology Programming Logistics Human Resources Purchasing http://www.

Companies rely on their “core competencies” while trying provide better customer service and lowering costs.com/essay528.itmweb. strategic reasons yield better results than doing so for shortterm. tactical reasons. http://www. Most major companies are turning to outsourcing to stay competitive in the global economy.htm .Trends in Outsourcing      Companies are now outsourcing more functions than just IT. Companies now outsourcing for long-term. Even the government is starting to outsource “white collar” jobs.

Clearly define the scope and schedule of your project. Ideally.Process For Outsourcing 1. Evaluate a service provider like you'd hire a full-time employee. Make sure their previous work meets your expectations for quality and style. . Look for specific experience fit. which is crucial for projects like software development. 3. 5. Review portfolios and samples. 4. 2. your provider will have experience with your type of project. Don't choose a vendor based solely on price. Look for a good balance of value and quality. Be subjective and ask questions and for references. Make a clear statement of what you wish to accomplish.

Follow the progress and compensate along the way based on completion. 7. not a crucial one. Get it in writing. 9. Negotiate ownership of work up front.html .com/offshore-outsourcing-knowledge. Tie payment to clearly defined project milestones. http://solovatsoft. Specify a warranty or support clause to ensure continuing support. 8.Process Cont. First time with a service provider? Make it a small project. Be clear about who owns the result of the work. Start small. 10. Clearly communicate schedules and payments in writing. 6. Don't forget about support after the project is complete.

 http://www.mapsofindia. will depart to places like India.html . more than 3 million US white-collar jobs. to a $57 billion annual export industry employing 4 million people and accounting for 7% of India's gross domestic product.What is the Future?  By 2008. representing $136 billion in wages. with the IT industry leading the migration. In the next 15 years. IT services and back-office work in India will swell fivefold.com/outsourcing-to-india/future-for-outsourcing.

asp?artiid=1441 “Size of Outsorucing Doesn’t Justify Uproar”.html http://www.techtarget.com/india/ http://www.jobjournal.htm http://solovatsoft.com/Article/ArticleID/44623/44623. 2003 . 2004 http://www. June 13.com/outsourcing-to-india/future-foroutsourcing.Sources            http://searchcio.mapsofindia. 2004 “Best Countries for outsourcing”. PTI.ISO9000-andSEI-CMM-processes-and-standards-for-outsourcing http://www.windowsitpro.com/essay528.com/index.cfm/fa/articles.html http://www. August 27.html “India: The Big Outsourcing Hub of Patent Ideas” By Nona Walia. Times New Network.com/thisweek.offshorexperts.com/offshore-outsourcing-knowledge.itmweb. January 04.com/ http://itoutsourcingindia. By Lisa DiCarlo.

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