Off shoring

 Off shoring relates to moving a business process by a

company from one country to another. Examples of such
business processes include human resources,
manufacturing or accounting.
 Off shoring is defined as the transfer of worker’s
productivity to abroad.
 Off shoring allows foreign companies to capture
economic values by creating markets, jobs, and
production of goods in other countries.

2–1
 OFF SHORING ARENA

Major jobs off shored are in the fields of:-

purchasing
information financial human
and
technology services resources
manufacturing

2–2
 TYPES OF OFFSHORING

• It is also known as physical restructuring, of established

Production products involves relocation of physical manufacturing
processes to a lower-cost destination. Examples are
Off shoring production of apparel, toys, and consumer goods in
China, Vietnam etc.

• The growth of IT-enabled services, off shoring is linked to

the availability of large amounts of reliable and affordable
communication infrastructure following the
IT Enabled telecommunication and Internet expansion
• It means to shift the actual production location of services
Off shoring to low-cost countries in a manner theoretically transparent
to end-users. Services include administrative services,
such as finance and accounting, HR, and legal;
 CONT….

• Once companies are comfortable with

services offerings and started realizing
the cost savings, many high-tech
product companies started offshoring
Innovation innovation work to other countries
Offshoring • Accessing the talent pools in foreign
countries has the potential to cut costs
or even shorten product lifecycles.
Developing countries like India are also
involved in this practice.

2–4
 Models of Offshoring

 Global Shared Services - Mass in sourcing, something

like captive centres, this is followed primarily to
combine internal operations to large centers.

 Hybrid Model- Known as “Dual Shore” - 30% work

onsite( requirement gathering, client interaction) and
70% offshore ( coding, testing and fixes).

 Multi-sourcing model- Having multiple off-shores to

get wide range solutions or “best-of-breed” strategy.

2–5
 Global Delivery model - also termed as blended
outsourcing, this model has advantage of backup
delivery locations in case of failures. Eg: TCS,
CTS, Accenture etc.
 Build-Operate-Transfer Model (BOT) -
company can create a shared services or
development center in offshore and manage it for a
limited period of time by signing a contract with an
offshoring corporation. This ensures quick time to
achieve stability in the project progress.

2–6
 Evolution of Offshoring

Evolution
 Initially offshoring started with blue collar jobs in early
70’s.
 By 80’s white collared jobs also started moving to other
countries.
 Development of Internet accelerated R&D and
manufacturing offshoring.

2–7
 Cause of Offshoring

 Reasons
 Competitive Pressure
 Access to skilled personnel
 Long term Benefits
 Lack of skilled labor
 Decrease in Work Age population
 Cost Cutting

2–8
 Economic Impact

 Skilled labor at cheap price will boost the economy in

developed country.
 Creation of new wealth and jobs in developing country.
 With the theory of comparative advantage, both countries
can enjoy greater total consumption and well being in
aggregate by trading with each other.
 Offshoring firms to lower costs and save scarce
resources.
 Capture domestic market and generate revenues.
 What goes around comes around - Developing countries
look back at US for more complex work.
 Economic benefits are also linked to improved political
relations.
How effective is offshoring?

2–10
 Value adds from offshoring

 TIME ZONE ADVANTAGE

Enables 24*7 operation.
Provides business opportunities to local economy.
Reduced downtime (maintenance during client off work hours).
Timesaving.
 SKILLED AND LOW COST LABOR
Education system focused on IT skills from early age.
Catalyzed by evolving industry, refined specialty in the area of
work.
Production of Quality Product from long time, i.e. trust is built.
Low wages and salary.
 QUALITY MAINTENANCE
Quality and Waiting Penalty Group (QWP)
Capability Maturity Model Integration (CMMI)
Six Sigma
International Organization for Standardization
(ISO Levels)
 SECURITY ISSUES
Intellectual and Proprietary Rights
Offshore Development Centers
Network Security Planning
Regular Audits
Recovery Planning
2–12
 Other Major Benefits:-

 Focus on core activities(Innovation,Research and Development).

 Reduced Waiting Time.
 Accelerated Process Cycles.
 Fragmentation of supply chain enables side by side development.
 Elimination of recruitment costs, liabilities of employees.
 Flexibility - Eliminating hiring and termination costs.
 Increased GDP for both countries.
 Better Technology and Infrastructure.
 Benefits from Profits.
 Meaning of Outsourcing

 Outsourcing is a strategic decision to give a task or

activity to an independent contractor who determines
how best to do the task or activity.
 The firm and the independent contractor become
partners and may establish a long-term relationship.
 Examples of outsourced activities: IT, HR, Legal
services, Manufacturing, R & D.
 Outsourcing transactions are done in the market.
 Human Resource Outsourcing

 Human resource outsourcing is a human resources

solution that allows a company to obtain the services of
a third party company to deal with its human resource
HR functions.
 HR Outsourcing is basically the allotment of specific
HR activities to a more specialized third party service
provider
 Done in order for business owners to stay in route to
their more important goal of growing their business and
to cut down costs.
 Definition

 Human resources outsourcing is when a company gets an

outside party to perform some or all of their HR
functions.
 In the SHRM study, 33 percent of HR professionals who
participated believe their company will increase their use
of outsourcing within the next five years.
 Reasons

 Tightening labour markets and competitive product

markets – pressure to reduce head count
 Cut costs
 Add value
 Do more with less
 Upgrade, but not upsize
 Downsize, but not downgrade
 HR itself is becoming the target of belt tightening
 Shed routine administrative tasks and focus on talent
management
 Which Functions/Sub-systems to Outsource

 Recruitment – preliminary screening and short listing

 Training – Training Needs identification, content
development, delivery, logistics, third party evaluation
 Performance management - on line – automation
 Compensation – pay roll and compensation surveys
 Safety - inspections
 Welfare – transport, security, catering
 Labour contract – contract employees doing the job
which was earlier done by regular employees
 Which function not to outsource

 Decision making in each of the sub functions

 Leading change and transforming the organization
 Outsourcing may not be appropriate when:-

 The task is a core activity critical to strategy or

technology.
 Task is highly interdependent with core activity due
to technology or work design.
 Task requires great deal of firm specific human
capital or access to proprietary information.
 Tasks where the employees work in close proximity
to regular, core employees and are similar socially
to them
 Strategic Outsourcing

 Beyond cost control.

 Specialization and expertise.
 Focus on quality, technology and service delivery.
 Outsourcing to best of class, best of industry.
 Problems with technology
 Types of Human Resource Outsourcing

• Business process outsourcing (BPO) is defined as a

BPO subset of outsourcing that involves the contracting of the

operations and responsibilities of a specific business
process to a third-party service provider

PEO • A professional employer organization (PEO) is a firm that

provides a service under which an employer can
outsource employee management tasks, such as employee

Provider benefits, payroll and workers' compensation, recruiting,

risk/safety management, and training and development.

• Recruitment Process Outsourcing is a form of business

RPO process outsourcing (BPO) where an employer transfers

all or part of its recruitment processes to an external
service provider
 Risk of HR Outsourcing

a)Trust
b) Confidentiality
c) Dependency
d) Spillover risks
e) Relative proficiency
f) Strategic capability
g) Commitment
h) Flexibility
Advantages
• Cost reduction & savings
• Financial and operational
flexibility
• Need to focus on few
things
• Access to quality, expertise
& better management skills
• Staffing flexibility
Disadvantages
• Need greater coordination
flow with agencies
• Reduce organizational
learning by depleting skill
base
• Loss of control
• Adverse effect on morale
and motivation
• Job insecurity
 Outsourcing vs Offshoring:

 When a company outsources, it buys from a third party

a part or service it used to produce itself. This does not
necessarily mean that the product is outsourced abroad,
although it can be. For instance, General Motors, a US
company, can outsource production of a certain car part
to a Chinese company. The Chinese company, in turn,
can outsource production of various components of that
part to various other Chinese companies.
 Outsourcing vs Offshoring:

 When a company offshores, it shifts the location of a service or

production of a part to a location abroad. This can include
companies who outsource to foreign companies - for example,
GM offshores production of a certain part to a Chinese company,
and the Chinese company outsources (but does not offshore)
various components of the production to other Chinese companies.
However, offshoring also includes companies who transfer
production or services to a location abroad without outsourcing
the job. So, for instance, if GM opens a factory in China, and
shifts production of a car part to the factory in China, it is
offshoring but not outsourcing - it is still an American company
running the factory rather than a Chinese one.