Project Outsourcing

The decision to whether outsource off-shore or on-shore varies across different industries and firms. Off-shore outsourcing has gained momentum in recent years and many managers have begun to evaluate its’ implications on the business operations and models. It is most prevalent in the following sectors:

Banking, Insurance and Finance: This sector takes a lion share of about 35 % in the total off-shoring contracts. 80 % of the world’s largest financial institutions are already working off-shore. Basic operations of finance and accounting like billing, tracking accounts payable/ receivable are transferred to countries like India to take advantage of their lower labor costs. This also helps professionals to concentrate on more value-added tasks to leverage their competitive advantage.

Telecommunication/ Technology: About 25 % of the companies that do not see managing their IT infrastructure and other IT dependent systems as a core competence generally choose to outsource this activity off-shore. The functions outsourced include help-desk, call centers and programming. Lower wages and high skills of Asian professionals are dominant factors in this decision.

R&D Services: In the BPO industry, R&D services, product development and engineering will enjoy above industry growth rates. In the healthcare sector, areas like revenue cycle management and clinical trials will be lucrative. About 13 % of US-based companies have opted for such agreements. Off-shore ventures help in cheaper product development and access to the require raw materials, but quality and control issues need to be monitored closely.

Retail Trade: The main motives for off-shoring retail trade include taking advantage of infrastructure, diversifying service portfolio, enhancement of service quality and having subsidiaries in the destination countries. As the world trade and services liberalize, the share is likely to go up from the current 7 %.

Manufacturing: Information technology development and trade liberalization has facilitated in moving production facilities across borders. Firms like Nike have moved to cheaper destinations like China to capitalize on the lower wage rates, not so stringent regulations and to improve focus on strategic imperatives. The share of 15 % in off-shoring contracts will increase in future because of stiff competition and need to keep a check on operating costs.

By choosing to onshore outsource, a firm obtains services from someone outside the company but inside the country. Processes which require stringent quality control, ongoing communication with supplier and company, high R&D are likely to be outsourced on-shore. On-shore providers can position themselves as process experts who develop unique services to cater to narrow, vertical markets.

Food Manufacturing: This is a dominant sector in on-shore outsourcing as companies look to the procurement of chemicals, raw materials from domestic contractors. These tasks are critical to the operations of firms and supply chain concerns may force the company to choose quality, local suppliers.

Human Resource & Legal Services: Training, legal services, executive coaching, payroll and health management are the usual functions outsourced by over 50 % of the companies in US, without a formal Human Resource department. Travel and training costs, understanding of local culture and laws may help in giving preference to on-shore service providers.

Apparel & Textile Products: These are the most dynamic sectors of especially the Asian countries and an analysis of their manufacturing, purchasing and processing will reveal that bulk of the supplies are acquired on-shore. This is motivated by abundant local supplies, affordable prices and supply chain management techniques.

Petroleum & Raw Materials: Extraction of raw materials and such natural resources is usually undertaken by the company itself or contracted to a trust-worthy company in the country. As most of the oil marketing companies specialize only in selling and marketing, exploration and refining firms form an important part of the value chain.

Muhammad Waqas