Outsourcing: The process of taking internal company functions and paying an outside firm to handle them. The process of outsourcing part of your business operations to another company is known as subcontracting.
Offshoring: Offshoring is different to outsourcing, offshoring means moving elements of your companies operations overseas while keeping them within the company.
However, in this section the IB requires you to focus on how ICT has helped international outsourcing. Therefore, I am not going to look at the outsourcing of basic catering or cleaning, but rather things like IT support and call centres.
The reasons companies outsource can vary, but may include:
To reduce costs
To improve quality of service
To access and benefit from outside expertise
To avoid training costs
To focus on core business
To improve choice
To reduce risk (less investment, less direct employees)
Avoid pay health insurance, pension contributions, etc. for workers
In order for cities, regions or countries to become attractive locations for TNCs to outsource, they will have to fulfill numerous requirements including:
Improving internet speed, capacity and reliability
Improve language skills of workers especially in English
Improve IT skills and understanding
Train workers in culture and customs of potential customers home countries
Ensure reliable telephone connections
Offer 24 hour service - important the contracting company is in a different time zone or even hemisphere.
Offer a high quality service cheaper than potential customers can provide themselves
Global Services Location Index™ (GSLI)
"A.T. Kearney's Global Services Location Index™ (GSLI) offers a snapshot for both business leaders who must choose among a growing number of offshore locations, and the policy makers who seek to influence their decisions.
Established in 2004, the GSLI analyses and ranks the top 50 countries worldwide as the best destinations for providing outsourcing activities, including IT services and support, contact centers and back-office support. Each country’s score is composed of a weighted combination of relative scores on 43 measurements, which are grouped into three categories: financial attractiveness, people skills and availability, and business environment."
The index is very interesting because the top 10 places are all filled by countries that you would describe as developing or emerging. All ten of these countries score well because of their financial attractiveness - this basically means that they can offer the cheapest services. Countries like the UK and US score much better on people skills and availability but because of their high costs, don't make the top ten. In terms of costs, Vietnam actually comes out as the financially most attractive but is let down by its people skill level and business environment.
India is located in South Asia and according the 'Global Services Location Index' is the most attractive location in the world to locate global services, including IT. Although New Delhi is the capital of India and Mumbai its financial centre, it is actually Bangalore (Bengaluru) that has become its most important IT centre. Bangalore has a population of 8.4 million and is known by some as the 'Silicon Valley of India'.
Bangalore is found towards the south of India. It has a new international airport (Bengaluru International Airport) that opened in 2008 and it has quickly become India's fourth busiest airport. The city is also in the process of building a 42km (41 station) rapid transit system and the city is also connected to the Indian national railways system. The city also has an extensive bus network and an improving road network.
In recent years Bangalore has become India's most important centre for hi-tech industries. The government has aerospace, defence, IT, software and telecommunication research facilities based in the city. This has meant that Bangalore has enjoyed sustained growth nearing 10% per annum and now has India's third highest GDP per capita. As well as enjoying domestic investment, Bangalore has also enjoyed FDI.
Bangalore's BPO clients now include; Reuters, HSBC, Dell, JP Morgan and Citi. Their ITO clients also include Microsoft, Google, Yahoo, Cisco, Samsung, Motorola and Intel.
Bangalore has managed to attract FDI and become home of IT outsourcing for a number of reasons including:
Most Indians speak English either as their first or second language
India has a growing number of high skilled graduates
Indian workers are prepared to work unsociable hours (night shifts to coincide with working hours in Europe and US).
Indian pay is lower
They have strong historical links with UK and other commonwealth countries
They are a democracy
Bangalore is home to some of India's best universities e.g. Indian Institute of Science
India has improving transport and communication links
India is an emerging market
Reputation and growing success
Geographical location near to Europe, Middle East and East Asia
BPO: Business process outsourcing which basically means backroom operation like human resources, customer services and accounting.
ITO: Information technology outsourcing includes things like IT support, programming, collation of data and data analysis.
Top Outsourcing Cities - 2008
Despite its success as become the most attractive location for IT outsourcing, India does face many problems in maintaining its position. Potential problems that India may face in the future include:
Saturation of its IT capacity meaning internet speeds slow
Demand for increased wages from its employees
Increasing costs in terms of rent, electricity, etc. (inflation)
The call for TNCs to return their operations (especially call centres) to their home countries. This is because many customers get annoyed speaking to people who are sometimes using their second language and don't understand the culture or the problems of the customers country.
Skilled workers who maybe currently underemployed (many call centre staff will have degrees and masters) finding better employment as economy grows
Information flows
Outsourcing: The process of taking internal company functions and paying an outside firm to handle them. The process of outsourcing part of your business operations to another company is known as subcontracting.
Offshoring: Offshoring is different to outsourcing, offshoring means moving elements of your companies operations overseas while keeping them within the company.
Offshore boost for finance sector - BBC article
Offshoring risk to thousands of council jobs - BBC article
Call centre: This is a centralised location used for the purpose of receiving or transmitting high levels of phone calls.
Are Call Centres the Factories of the 21at Century - BBC article
Outsourcing
Increasingly companies (including schools) outsource specific operations. Operations that are commonly outsourced include:
However, in this section the IB requires you to focus on how ICT has helped international outsourcing. Therefore, I am not going to look at the outsourcing of basic catering or cleaning, but rather things like IT support and call centres.
The reasons companies outsource can vary, but may include:
In order for cities, regions or countries to become attractive locations for TNCs to outsource, they will have to fulfill numerous requirements including:
Global Services Location Index™ (GSLI)
"A.T. Kearney's Global Services Location Index™ (GSLI) offers a snapshot for both business leaders who must choose among a growing number of offshore locations, and the policy makers who seek to influence their decisions.
Established in 2004, the GSLI analyses and ranks the top 50 countries worldwide as the best destinations for providing outsourcing activities, including IT services and support, contact centers and back-office support. Each country’s score is composed of a weighted combination of relative scores on 43 measurements, which are grouped into three categories: financial attractiveness, people skills and availability, and business environment."
(http://www.atkearney.com/index.php/Publications/global-services-location-index-gsli.html#)
The index is very interesting because the top 10 places are all filled by countries that you would describe as developing or emerging. All ten of these countries score well because of their financial attractiveness - this basically means that they can offer the cheapest services. Countries like the UK and US score much better on people skills and availability but because of their high costs, don't make the top ten. In terms of costs, Vietnam actually comes out as the financially most attractive but is let down by its people skill level and business environment.
Outsourcing - India
India is located in South Asia and according the 'Global Services Location Index' is the most attractive location in the world to locate global services, including IT. Although New Delhi is the capital of India and Mumbai its financial centre, it is actually Bangalore (Bengaluru) that has become its most important IT centre. Bangalore has a population of 8.4 million and is known by some as the 'Silicon Valley of India'.
Bangalore is found towards the south of India. It has a new international airport (Bengaluru International Airport) that opened in 2008 and it has quickly become India's fourth busiest airport. The city is also in the process of building a 42km (41 station) rapid transit system and the city is also connected to the Indian national railways system. The city also has an extensive bus network and an improving road network.
In recent years Bangalore has become India's most important centre for hi-tech industries. The government has aerospace, defence, IT, software and telecommunication research facilities based in the city. This has meant that Bangalore has enjoyed sustained growth nearing 10% per annum and now has India's third highest GDP per capita. As well as enjoying domestic investment, Bangalore has also enjoyed FDI.
Bangalore's BPO clients now include; Reuters, HSBC, Dell, JP Morgan and Citi. Their ITO clients also include Microsoft, Google, Yahoo, Cisco, Samsung, Motorola and Intel.
Bangalore has managed to attract FDI and become home of IT outsourcing for a number of reasons including:
Seven Reasons Why Bangalore Still Tops The Offshoring League - Silicon.com
Bangalore Remains Outsourcing Capital of the World - InformationWeek
The Rise of the Bangalore Tigers - BBC article
Bangalore is best Indian City Says Survey - BBC article
Innovation Hotspot Grows in Bangalore - BBC
BT Opens Indian Call Centres - BBC article
Multinationals lead India's IT revolution - BBC article
BPO: Business process outsourcing which basically means backroom operation like human resources, customer services and accounting.
ITO: Information technology outsourcing includes things like IT support, programming, collation of data and data analysis.
India Dismisses Outsourcing Fear - BBC article
Call me: Tech powers Philippines call centre success - BBC article