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Goods were traded across the borders, while services were produced and consumed at the same location. Not long ago, It would boggle one’s imagination to think that services can be outsourced; to quote Paul Samuelson, a Nobel laureate in Economics, “You cannot export a hair cut”.
Welcome to the new era, where in services can be disaggregated and its large part outsourced. Welcome to a world where a 24x7x365 global supply chain is emerging. The global real time collaboration is changing the way we live in. This paradigm shift did not occur out of the blue, but evolved in a transition over decades: from manufacturing outsourcing in the 80s, IT services outsourcing in the 90s to Business Process Outsourcing in the new millennium as practiced by global companies like, Dell, GE, Citibank, AOL, HSBC.
Recent market surveys indicate that almost 80 percent of companies expect to increase their investment in outsourcing. Though the Cassandras may belittle these claims by citing plethora of problems that have plagued sourcing relationships, the claims are plausible. The evidence suggests that the outsourcing marketplace is maturing, and that both clients and vendors are becoming increasingly adept at addressing the vital issues to facilitate a lasting symbiotic relationship.
A characteristic of a matured market, the increasing sophistication among the buyers, is witnessed in the outsourcing market as well. The buyers are more choosy and demanding in structuring and negotiating their deals. They are going beyond the criteria of costs to assessing what differentiated service the provider can give and price performance combination offered. The clients are driving a hard – but fair – bargain with vendors.
Vendors are also getting savvy. They have understood that undercutting the prices of competition to the extent of making the deal unviable will hurt them and the industry. Their hopes of making up the upfront losses with margins over the period of relationships have turned out to be pipe dreams
The following trends have been witnessed in outsourcing:
While cost savings is still an important objective, it is not the dominant factor. The factors such as focus on core business, improving service and gaining access to the outside expertise outweigh.
Important criteria to select an outsourcing partner is proven track record and guaranteed service levels.
The outsourcing company seeks to get the best as 85% outsourcing are competitively bid. Therefore the market for outsourcing is highly competitive.
The customers normally keep the contracts medium term. Common duration for outsourcing contracts is three years.
The companies do encounter substantial opposition within for outsourcing. Data Security and Privacy play a predominant role in swinging a decision.
There is an increasing trend towards entering into multiple outsourcing contracts. But the benefits of having several outsourcing partners are yet to be seen.
With multiple outsourcing coming into picture, the fourth party aggregator is also arriving at the scene. This is a company which sits between the outsourcer and the customer.
Market researchers predict that spending on IT outsourcing services will continue growing in the next few years topping $100 billion by 2005.
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—About our writer:
The author held various positions in the leading Public Sector Undertakings. At the time of leaving the Public Sector, he held the position of General Manager in the areas of Corporate Planning, Marketing Policy and Corporate Communications. He is now advisor to the CEO of a Herbal Pharma company 'Natural Remedies Private Limited'. He has written extensively on various aspects of Economy, Management and Technology. His articles have been published in leading Indian Business Newspapers. He has also written short stories, which have been published in magazines and E-zines. He is an engineer with Post graduate qualifications in Industrial Management. He has also received training from the University of Leeds, UK in the area of Public Enterprise Management. He has done Strategic Planning with Industry Associations, Indian Institute of Management and Management Development Institutes.
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