How to Maximise your Outsourcing Location
18 September 2006 Kesh Sharma
For many years, India has been the tried and tested offshoring location, particularly within the BPO market. Kesh Sharma, Director of Magellan Consultancy Services, explains why companies often choose to go for this option without first conducting a thorough competitor analysis.
The mix of low costs, skilled graduates and government incentives, as well as a booming market have ensured that India is the location which executives will automatically turn to when considering an offshoring project.
After all, no-one gets fired for offshoring to India. Indeed, the criticism offshore outsourcing has received means that it is unsurprising that those charged with awarding contracts are opting for the safest bets both in terms of supplier and location.
However, with the emergence of global service delivery, otherwise known as multishoring, India can no longer reign unchallenged.
Multishoring is a trend that mirrors the evolution of IT outsourcing. Gone are the days of 10-year deals being awarded to the traditional global outsourcing providers. The reality of IT outsourcing now is shorter contracts, with a number of specialist suppliers.
Similarly, multishoring enables companies to secure best-of-breed outsourcing solutions, thus tapping into specialist skills sets and maximising the merits of each offshoring location.
You can have different suppliers, in different locations for different functions. As multishoring takes off, what we're seeing is a trend towards suppliers opening operations in different locations to give companies the option of a multi-shore strategy but with the security of a single supplier contract.
So the question for end users is how to maximise this new global outsourcing model. This article will provide four topics for end users to consider in the global environment: process; risk; costs and scale.
WHAT TO OUTSOURCE
The first thing to consider when deciding on which offshoring location to choose is which process should be outsourced. Firms outsource many different elements of the business (including administration, HR, payroll, IT etc.), which creates a market for certain countries to focus on specific areas of outsourcing, for which they develop an expertise. China, for example, has developed an expertise as an offshore location that is particularly strong in terms of administration.
When considering which process to outsource, it is obviously important to investigate the particular areas of expertise developed by certain countries, but there are a number of other elements that need to be considered when deciding where to offshore certain processes.
Initially it is crucial to decide whether the processes are better executed nearshore, offshore or onshore. In order to decide this, it is important to consider whether face-to-face contact is an important part of establishing the particular outsourcing relationship.
FURTHER OUTSOURCING CONSIDERATIONS
When outsourcing higher-level BPO there is likely to be a greater need for tight management of the supplier, which will not be as pertinent when outsourcing simple administrative work. It is difficult to manage a supplier working in a completely different time zone, so this too has to be a consideration.
Similarly, the question of the first language of the supplier location needs to be considered. This is particularly prevalent when customer contact is outsourced (particularly call centres).
Magellan would advise never to offshore call centres, as customer perceptions of offshore call centres are very negative.
As the needs and desires of the customer are at the centre of all businesses, when outsourcing a call centre it is better to either have the call centre in the UK, or a nearshore location with a cultural and linguistic empathy, for example Ireland.
Aligned with this is the need to have dialogue with the client, as customers are becoming increasingly frustrated with scripted call centres. Cultural empathy also has a direct bearing on which process to outsource, as some processes, particularly HR, need to be outsourced to a supplier and a location that fully understands the culture and the needs of the staff.
WHERE TO OUTSOURCE TO
When considering which locations to outsource to it is also important consider the relative risks involved. Offshoring to India is tried and tested, and therefore the risk is comparatively low compared to that with other outsourcing locations.
However, with such a large percentage of the market outsourcing to India, to gain a competitive advantage it may be wise to consider two options:
- Simply outsource processes elsewhere in an attempt to break from the traditional mould
- Use India as one supply location as part of a global strategy whereby elements in which India excels, such as knowledge process outsourcing, will be outsourced to India, but other processes will be nearshored, onshored or offshored to other locations
In terms of costs, India and China remain amongst the cheapest options, yet the tax-free incentives schemes offered by Dubai, for example, are leading to a far greater competition regarding cost in the global market place.
Although the most low-cost locations do not always have the skills necessary to complete the higher-end aspects, using these locations for simpler (possibly administrative tasks) and combining them with slightly higher-cost, but more-skilled (because of large numbers of skilled graduates) locations could be the ideal mix.
CHASING THE SUN
Having workers in different time zones, working throughout the day and night, can maximise different offshoring locations. To be able to have work completed overnight can be particularly advantageous, although once again the difficulties of managing the project arise.
Offshoring is working on a much larger scale than previously, and the 'chase the sun' approach can maximise this new larger scale approach.
In conclusion, the new global environment is offering opportunities aplenty to end users. With the emergence of global service provision, end users have the world at their feet and the multishoring 'pick and mix' approach can maximise this.
By capitalising upon several offshoring locations, possibly in tandem, end users can accrue a low cost offering with the particular skills that are required. India is still a vital cog in the outsourcing wheel, but taking the risk and going elsewhere can sometimes reap massive benefits.