Current International Trends in the Outsourcing Process

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Current International Trends in the Outsourcing Process

Introduction

This research ought to identify the current International trends in the outsourcing process along with its various subsets. The reason why the BPO industry is progressing and expanding is due to Innovation, technological advancement, and competition internationally. Increasing competitiveness from new outsourcing destinations along with the pressure on businesses to operate cost-efficiently is the driving force that this sector is accelerating. The work of the service providers of Business Outsourcing is to utilize new technological advances to face challenges in the market meritoriously, goods and services enhancement, cope effectively with talent shortages and keep operating costs minimum. Moving ahead, the industry is undoubtedly delivering positive results regarding market growth and reduction in regulations.

The Current Trends that will be emerging in a few years:

Innovative Technologies are Emerging- Emphasis on Automating the process, Focus on Social Media Management Tools, Investments in Cloud Computing
Multitasking to surmount talent shortage- The term BPO was linked with call centers some years back. This obsolete concept is now substituted with human resources, accounting, coding, web designing, etc. A large number of BPO companies are investing in innovative technologies in the companies that are supplying them.
Startups becoming BPO Customers- Since the amount of money to appoint talented professionals is less with small-level businesses, they often look overseas for cost-effective labor. Companies like Slack, Klout, and AppSumo used the talent outsourcing model to construct effective business plans. Both BPOs and Startups have developed interdependency and such a trend is going to be much more noticeable in 2019. To provide talented staff at lower costs Startups are depending upon BPOs, to carry out various tasks such as trading and recruitment. However, this again benefits the BPOs in enhancing work quality, working on new technologies, and generating larger profits.
Sustained development in the Topmost countries that are Outsourcing- India, Malaysia, Philippines
Fresh Destinations identified for Outsourcing that Emerging in 2019- Bulgaria, Romania, Egypt, Mexico,

Colombia

The Body of the Article

In the current scenario, the Companies are opting for outsourcing their businesses by contracting their operations and responsibilities of business functions that are non-primary to the third-party service provider. Outsourcing is important for every business, regardless of its size or location. It includes various procedures like transaction processing, data conversion services, data entry services, product data entry, e-book data entry services, inventory management, web research, etc. Outsourcing guarantees transparency at a higher level which is required by businesses to keep their clients happy. Outsourcing is a function that syndicates the investing, logistics, contract management, and their complexities.

Outsourcing is viewed as involving the contracting out of a business function – commonly one previously performed in-house- to an external provider. Offshoring is the act of outsourcing a function to a foreign country while retaining ownership. Outsourcing will allow a company to more effectively utilize its assets by allowing its labor force to focus on their core competencies, whether they be manufacturing, design, or consulting, and outsource those functions which are not to another company that has already proven to be an industry leader, such as information technology, end-user support, accounting or data management

Outsourcing helps agencies reduce expenses. The responsibilities of the company are outsourced to an already established enterprise with all the resources, and the problems of hiring and education is prevented. It helps the company to Focus on Core Business. It leads to better employee productivity and allows them to make better and greater informed business decisions. Buying an authorized version of the latest software and other technologies may be very costly that’s why with outsourcing that can be saved and they can get access to the latest updated technology. The BPO industry has provided employment to loads of proficient kids and has unmarried-handily modified the GDP of diverse small international locations.

This research has discussed best practices for companies choosing to outsource which were:

1) Determine the business’s core competency and non-essential business functions for outsourcing, 2) Identify potential outsourcers and initiate trial contracts, 3) Evaluate vendor’s performance, 4) Continue partnership with close oversight and feedback channels. However, it hasn’t addressed changes occurring on a global scale. At the turn of the century when companies outsourced or offshored to a foreign country, there were only two major destinations; China and India. Over the last decade, several new players have entered the global market as major players e.g. Philippines, Malaysia, Columbia, Poland, Malaysia, and Costa Rica. These new markets for outsourcing/offshoring activity fall into three categories, 1) Business Process Outsourcing, 2) Research & Development outsourcing, and 3) Production outsourcing.

Business Process Outsourcing: this is a subset of outsourcing that involves the contracting of the operations and responsibilities of back office business functions (or processes) to a third-party service provider. These can entail customer support, human resource, or accounting activities. It is primarily used to refer to the outsourcing of business processing services to an outside firm, replacing in-house services with labor from an outside firm. Comparative Advantage: the ability of an individual or group to carry out an economic activity, such as production, at a lower cost and more efficiently than another entity. Core Competencies: activities or practices, such as product development, determined by a company as critical to its long-term success and growth. Core competencies are typically based on skill or knowledge sets rather than products or functions. They provide a return on investment and act as a barrier for other companies trying to enter a particular market. Many manufacturers choose to focus on core competencies and outsource production, or activity-based, tasks. Many OEMs decide to keep their high-level engineering and design work as internal competencies, particularly as these might apply to new products and highly complex products.

Home Shoring: also known as home sourcing, is the transfer of service industry jobs to electronically connected home-based employees. Home shoring is essentially turning office jobs into work-at-home jobs. Home shoring may or may not involve outsourcing, which is contracting for work to be done by a third party outside the company. If a company employs its own home-based workers, then home shoring is not outsourcing. Offshoring: shifting a business function from one country to another. For a business, this can entail moving product manufacturing, service centers or operations to a different country. Offshoring is often used to reduce the cost of business, with the company seeking to move parts of operations to countries with more favorable economic conditions. Outsourcing: often viewed as involving the contraction out of a business function – commonly one previously performed in-house – to an external provider. In this sense, two organizations may enter into a contractual agreement involving an exchange of service and payments.

Production Outsourcing: is a subset of outsourcing that involves the contracting of the operations and responsibilities of manufacturing business functions (or processes) to a third-party service provider. These can entail customer support, human resource, or accounting activities. It is primarily used to refer to the outsourcing of business processing services to an outside firm, replacing in-house services with labor from an outside firm.

Research & Development Outsourcing: is a subset of outsourcing that involves the contracting of the operations and responsibilities of research and development business functions (or processes) to a third-party service provider. These can entail customer support, human resource, or accounting activities. It is primarily used to refer to the outsourcing of business processing services to an outside firm, replacing in-house services with labor from an outside firm.

Trends in Business Process Outsourcing

Business Process Outsourcing is defined as activities that are instrumental to an effective business model but are often in a support role to the business’s core competency. Examples are human resource management, payroll, and general accounting, as well as the commonplace IT and customer support functions in the form of call centers. The shift in business process outsourcing, that is non-manufacturing or research and development jobs, from India to the Philippines may have been influenced by the affinity between Filipino culture and Western culture. However, to assume this is the sole driving force behind such a massive shift in jobs and resources would be premature and incorrect. India has become saturated with business process outsourcing and has naturally progressed economically as its labor market matures. The Indian labor force has developed a competitive workforce that is able to handle more complex and critical functions that demand a higher wage. The Philippines offers a similarly attractive business environment for business support functions as India, but due to the recent entrance of the Filipino labor force, has not had the same labor cost increases as popular outsourcing destinations such as in India. As demand increases for such services, the cost of such labor supply will increase, leading to an increased cost of outsourcing of business process functions, like in India’s labor market. This maturation of the Indian labor force can be seen in its solid grasp as the number one destination for research and development research, typically large software development research, almost double the number of outsourced jobs as the runner-up, in the United States. India was not alone in its maturation of the labor force. China, which was once considered to be mere ‘the world’s factory, has seen its labor force develop not into Research & Development like India, but into the services industry. China is now the 5th ranking destination for business support services just behind Poland, a rise from the 13th position in 2008.

In addition to maturing labor forces driving business process outsourcing from well-established countries like India, a historical reversal of Shared Services Center from large campuses into more agile and competitive specialized centers. Previously offshoring or foreign outsourcing companies would house various business functions under the same roof. This means that human resource, accounting, and call centers would be located on the same campus. However, companies now are ready to embrace the opportunities offered by different locations to take advantage of the skills and costs found in different labor markets. This has resulted in a more decentralized outsourcing/offshoring practice as a labor force demonstrated its core competency.

Top ranking destination countries by estimated jobs in business support services – 2009(08)

Trends in R&D Outsourcing

The global trends in Research & Development outsourcing have seen a decline due to the inherent nature of R&D research. R&D activities are typically investments with a long pay-back period. Because of this characteristic, companies put holds on longer-term investments until they are confident in a sustainable economic recovery. Companies seeking to reduce their uncertainty risk have scaled back their R&D research in foreign countries. India is still the number one destination in 2009, but the U.S. has seen a surge, rising from sixth place in 2008 to second place in 2009. It is important to note that only stand-alone R&D activities were looked at in, and on-site R&D to support local production was not accounted for. Similarly, to the production sector trend, during times of economic uncertainty companies who outsource choose to do so closer to home or in more secure markets. This was a contributing factor to why the U.S. jumped up from sixth to second place in the rankings of top destinations for stand-alone R&D jobs. This risk aversion applies to any business function that requires large capital outlays. For Research & Development research, this requires a large initial investment of capital with potentially no return.

Top ranking destination countries by estimated jobs in R&D – 2009(08)

Trends in Production Outsourcing

In contrast to the business services sector of outsourcing, which saw remarkably healthy growth, production outsourcing suffered further decreases in 2009 compared to 2008. This was not surprising as new investment in production typically only precedes anticipated market growth. What we see is that in the BRIC countries (Brazil, Russia, India, and China), the decline was the most pronounced. This is in contrast to the U.S. and Mexico, which saw an increase in production investment in terms of jobs. Mexico was a very attractive destination, nearly on par in 2009 with China, and behind the number one ranked US. This can be interpreted as outsourcers, during times of uncertainty, shifting away from developing/emerging markets like the BRIC countries towards the Organization for Economic Co-operation and Development (OECD) member countries. The OECD contains such countries as Mexico, France, Germany, the United States, the United Kingdom, and Japan, which are perceived to be more stable for investment. These trends support the notion that during times of economic pressure, investment is placed into safe, predictable markets like the United States and countries that are intimately connected to them, like Mexico.

Top ranking destination countries by estimated jobs in production – 2009(08)

This chart below from a 2010 study surveying over 700 Chief Human Resource Officers shows that outsourcing and offshoring are still very pertinent topics with no signs of decreased outsourcing/offshoring activity.

New Phenomena: Home Shoring

Home Shoring is a new emergent form of outsourcing. Home Shoring sometimes referred to as home sourcing is best thought of as a combination of outsourcing and telecommuting. Home Shoring activities typically fall under the business process outsourcing sector. Home Shoring, which seeks decentralization of business activities in order to take advantage of different geography’s local labor talents and costs, follows a trend identified in the business process sector. It has major advantages over traditional business process outsourcing that stem from improved global communications networks. Home Shoring workers are based out of their own homes, and often supply their own computing and telephone networks, reducing the carrying cost of office space. This meant that Home Shoring for business allows companies to bypass many of the fixed costs that still plague offshoring and outsourcing. Stephen Loynd, a telecommunications analyst for IDC, of Framingham, Massachusetts said ‘the whole pie for outsourcing is growing, that means more work will be offshored but at the same time there will be more work that’s home shored.’ The virtual call centers that Home Shoring can provide by linking independent, geographically diverse, low-cost services are extremely attractive to companies

Sustained growth in Top Outsourcing countries-

1. India

The occurrence of new job roles such as mobile app development, cybersecurity, data science, and social media has made the economy’s dependence on call centers quite less. Robotic process automation (RPA) has started taking over jobs that are simple. Predicting the growth of RPA, the Indian BPO sector is re-skilling its workforce. NASSCOM believes that up till 40 percent of India’s IT-BPO staff will be enhancing their skill set over the succeeding five years. Upcoming skills anticipated to be in great demand consists of artificial intelligence, robotics, machine learning, and big data analytics.

2. Malaysia

BPO in the coming years will surmount Information technology outsourcing (ITO). The reason is the increasing interest of investors in Malaysia’s shared services market and thus, it will require domestic industries to be speedily accustomed to this demand.

3. the Philippines

The occurrence of the KPO (Knowledge Process Outsourcing) sector post BPO could cater to new demands of clients and provide more specialized activities like market research, equity research, web design, etc. Making it to be a sector to be looking forward to in the Philippines in 2019.

New Outsourcing Destinations Emerging in 2019-

1. Bulgaria

Bulgaria’s growth as a BPO nation is owed to Having the lowest salary amongst EU nations of around 235.62 Euros per month. Availability of workers speaking all major European languages. Having a large talent pool of developers with deep technical expertise.

2. Romania

Romania’s growth as a BPO nation is owed to the Fastest internet connection among EU countries. 54% of graduates have a background in science and technology. It has the second lowest salary of around 321.17 Euros per month

3. Egypt

Egypt’s growth as a BPO nation is owed to Government offering tax incentives to outsourcing businesses. Booming infrastructure including Silicon Waha’s technology parks. Skilled labor well-versed in European languages such as French, German, and English.

4. Mexico

Mexico’s growth as a BPO nation is owed to its proximity to Silicon Valley. The huge talent pool of around 500,000 IT professionals working in the BPO sector. Political and economic Stability.

5. Colombia

Colombia’s growth as a BPO nation is owed to Government sponsored technical training. Minor time zone differences between US/Mexico. Investment growth due to depreciation of the peso.