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Ensuring Successful Sole Sourcing

Sole sourcing gives outsourcing buyers the opportunity to negotiate, define, and purchase services from a single provider � thereby making it easier to keep track of performance metrics and mitigate risks. This has become more than a viable option as outsourcing providers expand their service capabilities across multiple platforms and, in many cases multiple offshore outsourcing locations � eliminating the need for multi-vendor approaches.

While sole sourcing can potentially decrease costs and enable a more efficient decision-making process, like any sourcing model, it comes with its own challenges. Outsourcing giant, Everest Group, outlines 3 steps that a buyer can take in order to ensure a successful sole sourcing partnership.

The first is to carefully define the buyer's objectives and the services required. This is also a critical step in ensuring outsourcing creates value and that strategies are aligned to help the client business grow.

Second on the list is establishing a framework that helps both parties know when the proposed solution is acceptable. Although process improvement and innovation are big factors that can potentially be the difference between a good contract and a highly successful one, cost-efficiency still rules the industry. As such, the framework will almost always come down to financial feasibility and profit margins.

Lastly, a foundation must be laid for the two organizations to productively govern the implementation and ongoing execution of the solution. This will help ensure that both the buyer and supplier not only possess the drive to produce increased performance, but know exactly how to forge a productive working relationship.

F&A Outsourcing Poised to Regain Traction after Recession

According to the Finance & Accounting Outsourcing Annual Report 2010 by global consulting and research firm Everest Group, 2010 will be a stronger year for F&A outsourcing (FAO) compared to the previous year.

It is predicted that the annual contract value (ACV) this year will reach about US$3.7 billion - a 20 percent increase from US$3.1 billion posted in 2009. This increase in global expenses is taken as a sign that the low activity in FAO, which involves outsourcing capital budget and internal audit, processing of payroll, and general accounting, is now over.

Compared to 20 percent annual increase from 2006 to 2008, FAO had seen a slow growth rate of only 11 percent in total value of contracts in 2009. However, Katrina Menzigian, Vice President, Research, said FAO is expected to regain traction this year as the economy bounces back from the crisis, with new contracts and scope expansions. �We foresee increased adoption across industries and geographies to continue. Beyond the United States, we expect contract signings in the domestic Asia-Pacific market as well as Rest of Europe to rise.�

Here are other key findings in the report:

FAO market growth continues to see strong adoption across manufacturing, consumer packaged goods, retail and high-tech sectors. Telecom and pharma are emerging sectors with the highest growth rates.
The financial services sector saw stronger activity than expected last year, and pent up demand will contribute to growth in 2010.
Asia Pacific started to emerge last year, capturing 35 percent of new contracts.
Adoption by the mid-market was unable to sustain momentum garnered from 2006 to 2007 primarily due to the economic climate and lack of proven, successful FAO solutions.

New deals, contract renewals, and scope expansion show that 2010 is bound to be a much better year for the FAO market than 2009. As the economy continues to recover from the economic turmoil, it is with high hopes that FAO will register a growth rate which is similar to the rate seen before companies felt the impact of recession.

Common Mistakes of New IT Outsourcing Buyers

Contract negotiator Julian Millstein enumerates the five most common reasons why novices in IT outsourcing fail to get it right in the article �The pitfalls of outsourcing� published at computing.co.uk:

Outsourcing is an easy endeavor. There is more to it than just paying a service provider to take on some of your IT processes. Time and effort are needed in order to have a better understanding of how the entire outsourcing process works, what to do in case security concerns come up, and how it affects your overall operations.

The outsourcing provider will fix everything. It's wrong to say that the service provider will fix your �mess� without affecting or having to change how you do business. As Millstein points out, �... although they [IT outsourcing providers] are generally better at the given function than you are, the way they solve your particular problem, the solution they bring to the table, will by its very nature change the way you do business.�

The buyer fails to provide a baseline. Performance metrics must be established during the contract negotiation. Providing a baseline will enable you to accurately measure or review performance.

The only reason to outsource is to save money. While cost reduction remains to be the top reason why companies opt to outsource, problems may still arise even if you're satisfied with cost savings. What you think you have saved now may mean nothing after several years as salaries increase and turnover takes a toll on the outsourcing process.

It's easy to manage the outsourcing relationship. Outsourcing means, in its simplest form, transferring business processes to a service provider. However, this does not mean that it is a one-way street - the buyer transfers tasks to another company to reduce costs as the latter does the work. It is important to establish a good and efficient relationship so both parties will reap the benefits of outsourcing.

To increase your chances of achieving a successful IT outsourcing deal, avoid these pitfalls and seek advice from those who have extensive knowledge and experience about the process.

Warning Signs that Mean Trouble in your Outsourcing Deal

During the global financial crisis, many companies put outsourcing contracts on hold to focus primarily on ways to keep the business going, while some opted for contract renegotiations. With all the factors to take into account when it comes to closing or renegotiating outsourcing deals, how would you know that you are on the right track?

In the article �A dozen danger signs that your outsourcing contract is on the rocks�, Linda Tucci brings together some insights of different experts on the mistakes commonly committed as well as misconceptions in outsourcing deals.

Lack of innovation and productivity gains - According to Thomas Young, partner and managing director with the CIO Services-Infrastructure at IT consulting firm TPI, documentation is the key to a successful outsourcing contract. When it comes to continuous improvement, Young said that productivity gains which are greater than 3-4 percent need investment from both buyer and vendor, and it should be explicitly stated in the outsourcing contract.

Cultural differences - Culture clashes may not result to a good, long-lasting relationship between buyer and vendor.

Optimizing price but failing to focus on quantity - When a company aims to reduce costs, it usually tends to ignore the quantity / consumption of services. According to Young, "when I tell clients to take costs out, I tell them to focus on the Qs [quantity]."

Neglecting governance and contract �maintenance� - Young said that failing to create a good contract that is flexible enough to adapt to changes in business and technology is a big mistake committed by companies. In a constantly evolving industry such as outsourcing, it is crucial to have a well-written contract that provides room for any changes.

The Shift Towards Outcome-Based Outsourcing

The global outsourcing industry has been typified by outsourcing deals based on quick-fix cost-cutting solutions that don't always consider long-term process improvement. As the economies of major outsourcing players recover, buyers and vendors are presented with an opportunity to divert focus on ways to create value instead; writes Kathleen Goolsby of the Outsourcing Journal.

The key factor towards maintaining a successful relationship, both personal and professional, is trust. Attaining that trust depends on a healthy system of communication. For the outsourcing industry, this means increasing the level of transparency and information-sharing are key catalysts in attaining an outcome-based approach. The shift towards outcome-based outsourcing is described by Genpact's Mohammed Haque as �a journey that can take at least 18-24 months to implement� due to the requirement of a complete data assessment of the buyer's landscape.

Advancements toward value-creating platforms require attaining a more in-depth understanding of a customer's industry. Haque explains that it is "extremely important that the buyer understand the level of risk the provider must take to help the customer achieve the desired business outcome. This will only work if it is a complete partnership type of relationship and if there is strong governance and relationship management. And senior leaders on both sides must work together."

Upon getting a good grasp on the needs of a buyer's business context, it then remains to align service level agreements (SLAs) to meet desired strategic goals. To further solidify the commitment of both parties to a value-adding partnership, industry experts advocate employing a model in which the responsibilities for risk mitigation and maximizing returns on investment are shared.

According to Haque, only 5 to 10 percent of outsourcing arrangements today utilize outcome-based pricing � the other 90 to 95 percent of outsourcing arrangements are based on time, materials, or a fixed fee. However, he predicts that within the next five years, outcome-based outsourcing contracts will grow to 40 to 50 percent.

RP's Game Development Sector and the Lack of Enough Manpower

The Philippines has long been known as a location of choice for voice-based work. Call centers abound not only in Greater Manila area but also in nearby cities and towns. The outsourcing industry soon expanded, including non-voice BPO work in its service offerings. Even during the tough financial crisis, the Philippine outsourcing industry had showed resiliency and it was one of the few industries which raked in revenues that greatly helped the economy.

There's no doubt that outsourcing has become a major income generator for the country, and it doesn't stop at call center functions, IT services, and medical transcription. Another promising field is game development, the youngest branch of the industry.

The different factors that make the Philippines an ideal BPO location still apply when it comes to the game development sector. There is no question about talent. Filipino game developers are creative, highly skilled, and innovative. Aside from English proficiency and low operational costs, the immersion with the Western culture is advantageous for game developers in the sense that cultural compatibility makes it easier for them to appreciate and comprehend the games from the West.

What keeps the country from tapping a large part of the game development outsourcing market is the lack of enough trained game developers to meet the demand. In an article entitled "Philippine game developers ready for big players?" by Nestor Arellano, Ranulf Goss, President of the Game Developers Association of the Philippines, said there were about 50 employees in the sector back in 2004. Five years later, more than 600 comprised the game development workforce. "We're the fastest growing industry in outsourcing right now, but definitely we need more manpower."

While there are game development courses being offered in the Philippines, there is no formal training available. For the country to become a game development outsourcing hub, it is crucial to provide the necessary training for those who want to work as game developers.

The country must find ways to beef up the workforce for the game development sector and make BPO players aware that Filipino game developers have the right skills and talent. If the country has enough manpower to meet the demand, this young sector may soon put the Philippines on the map of global game development outsourcing industry.

Factors towards a Successful Sole Sourcing Approach

In a nutshell, sole sourcing refers to the process or practice of working with only one supplier or service provider. This is an option for buyers wishing to achieve their goals faster without having to deal with a multi-supplier process.

In an Everest Group Whitepaper entitled �Sole Source Outsourcing: Ensuring a Successful One�, the global research firm cites these seven factors that will lead to successful sole-source approach to outsourcing.

1.    Develop the relationship. This is important even in multi-supplier approaches. Since both parties will be investing a lot of time and money in the outsourcing deal, it is crucial to establish a healthy and effective relationship in which both the supplier and buyer know each other's goals and are committed to make the relationship work.

2.    Engage senior leadership. A sole sourcing approach relies on the trust and goodwill at senior executives of the company. People at the highest levels of the organization should be the ones to carry out the decision-making process, specifically when it comes to service delivery and terms of the agreement.

3.    Involve the board. For many board members who are used to a multi-supplier approach, presenting a sole-source situation may raise some concerns such as whether it is the best and most cost-effective solution for the company or not. Do not leave the board of directors in the shadows. Present the sole-source approach early in the process to give the board some time to evaluate it.

4.    Don't boil the ocean. Before signing any outsourcing deal, make sure you have an accurate and robust business case, reasonable pricing and achievable scope, and a Masters Services Agreement (MSA) that focuses negotiations on terms which are most relevant to outsourcing.

5.    Develop a robust business case. Have a well-structured business case that can be easily explained and understood. Aside from stating the base case model, the business case must be clear and comprehensive. It must also take direct cost and business impacts, as well as strategic risks into account.

6.    Compare to ensure value. To have a successful sole sourcing approach, �parties must adopt a sophisticated external comparative analysis process to ensure fairness of value sharing.� The buyer must make sure that the supplier has the capabilities to match the scope of services to be delivered.

7.    Focus the contract and negotiations on truly important factors. The buyer must set specific milestones and end goals. The contract will also include scope targets and metrics in measuring the success of the proposed solution and the outsourcing relationship.

While a sole-source approach may not be suitable for every organization, Everest notes that if it is well-designed and executed carefully, the sole-source approach can be the most cost-effective and time-saving solution for many companies.

Global Outsourcing Shows Signs of Recovery

Results from the Market Vista: Q4 2009 report by global consulting and research firm Everest indicate that the global outsourcing market is seeing signs of recovery.

Everest's study findings include the following (compared to the Q3 market report):

Twenty-six percent of deals signed in fourth quarter were held by business process outsourcing (BPO).
IT outsourcing (ITO) comprised 71 percent of transaction activity.
The annual contract value (ACV) increased 72 percent to about US$4 billion, mainly due to mega-deals with ITO and BPO components.
About one-third of deals signed in fourth quarter came from BFSI (banking, financial services, insurance) and MDR (manufacturing, distribution, retail) verticals.
The BFSI vertical comprised one-sixth of the overall market ACV, while ACV from the MDR vertical increased 44 percent.
Buyers in the United States and Europe increased global transaction activity, making up 75 percent of total transaction deals signed in fourth quarter.
Significant increase in ACV was seen in the United Kingdom.
Captive activity sets two-year high mark, with deals from MDR and BFSI verticals, and 40 new announcements, led by India (14) and remaining parts of Asia (18).
Tier-I and Tier-II locations contributed equally towards overall offshore delivery.
Ten acquisitions and 39 new alliances were reported in M&A.

While several mega-deals resulted to significant increase in ACV, Eric Simonson, Managing Principal of Research, said there are still companies that enter small deals.

These evidences show that things are looking up for the global outsourcing market. It may be a slow start, but what's important is that we are seeing steady growth across the world - from US and European buyers to emerging trends and outsourcing locations.

Top 5 Tips for Effective Renewal of Outsourcing Contracts

When it comes to renewal of outsourcing contracts, Debora Card, Associate Partner at outsourcing advisory firm TPI, said the key is to be prepared before negotiating with the supplier. �Effective contract negotiations leverage comes from developing viable alternatives that are financially, technically, and tactically feasible and desirable; and from being ready, willing and able to execute against them.�

Here are Card's top five tips to get the most out of contract renewal:

1.    Start early. If you start renewal planning early, you will have ample time to think about whether to outsource to a different service provider or move business process/es back in-house. For single-process transactions, Card said you need to work on renewal planning about a year before the contract expires. For multi-process transactions, start 24-36 months before expiration.

2.    Do your homework. Take a closer look at the current market and see if the relationship you have with your service provider is at par with industry standards when it comes to pricing and service level agreement. Know what alternative suppliers can offer and find out which can provide a better and more efficient solution for your business.

3.    Realign with reality. It is likely that there are expectations which are not met. This can happen to both parties. In renewing the contract, make sure to realign expectations and responsibilities. These can involve changes in pricing structure and services offered.

4.    Remove the fog. Have a crystal clear agreement. According to Card, parties commonly disagree on two primary areas: scope of services and management or governance. Be clear on your expectations so you will get what you contract for and avoid conflict in the future.

5.    Play out your hand. After analyzing the current market, evaluating the alternative providers, and determining your expectations, it's time to communicate with your supplier. Make sure to document what you want to get in terms of pricing structure, scope of service, and management. It is also important to let the supplier know about your timeline for service delivery.

Don't wait until the last minute. Be fully equipped with the right information about the existing environment and viable options before your existing contract expires.

Diversification of the RP BPO competitive landscape

As new outsourcing locations and technologies emerge, the competitive landscape of the outsourcing industry is becoming more and more diversified. With an increasing amount of countries realizing the benefits of outsourcing on both the buyer and vendor front, it's hard to keep track of who the Philippines is competing with; as a survey by PricewaterhouseCoopers showed.

The survey lists the locations that have stepped up to the plate to rival the Philippines' sunshine industry and the respective outsourcing services they specialize in. Just to give you an idea of how diversified the competitive landscape is, here is what has become quite an exotic list of rival outsourcing locations:

For contact center outsourcing services, Makati Manila and Cebu are challenged by Bangalore, Chennai and Mumbai in India; Beijing, Dalian and Shanghai in China; Sofia in Bulgaria and Budapest in Hungary; Barcelona and Madrid in Spain; as well as Bogota in Colombia, Buenos Aires in Argentina, and Lima in Peru.

For Finance and Accounting Outsourcing (FAO), Makati and Manila will have to contend with Bangalore, Chennai and Mumbai; Beijing, Dailan and Shanghai; Sydney, Australia; Munich, Germany; Zurich, Switzerland; as well as Bogota and Buenos Aires.

For Human Resources Outsourcing (HRO), Makati and Manila stand against Bangalore, Mumbai and Hyderabad, India; Beijing, Shanghai and Guangzhou, China; Taipei; Singapore; Munich; as well as Bogota, Buenos Aires and Sao Paulo (Brazil).

For marketing and sales outsourcing, Manila competes with Bangalore, Chennai and Nashik, India; Dalian, Shanghai and Shenzhen; Kuala Lumpur, Malaysia; Taipei; Munich and Frankfurt in Germany; as well as Bogota and Sofia.

For legal services or Legal Process Outsourcing (LPO), Manila faces Bangalore and Chennai; Sri Lanka; Bogota and Medellin, Colombia; London, UK; and Prague, Czech Republic.

There are outsourcing services on the PwC survey in which the Philippines has yet to make a competitive bid; such as procurement outsourcing in which Bangalore, Chennai and Delhi; Dalian, Shanghai and Shenzhen; Munich; as well as Bogota and Sofia dominate.

The survey reveals that India is the only location to offer the full spectrum of outsourcing services. The Philippines joins India and China as the only outsourcing nations that have developed multiple �most popular� cities; the ones in the Philippines being Manila, Makati and Cebu.

Mistakes Companies Make in Outsourcing Deals

In a study on different outsourcing deals, researchers at the University of Tennessee learned several mistakes that companies make when it comes to outsourcing deals. Kate Vitasek, UT lead researcher and supply chain consultant, said buyers will only get what they contract for, and service providers will only do what is indicated in the legal agreement.

UT researchers identified ten mistakes that are commonly committed by companies in making outsourcing deals:

1.    Penny wise and pound foolish - Having a perception that outsourcing is purely a cost-cutting measure may lead to two end results. According to Vitasek, it can be that "providers will get tired of constant bidding exercises and will decline to compete for the contract�, or "a low-cost bidder will encounter serious operating losses that curtail services and eventually force termination of the contract."

2.    Precise to a fault - The problem with placing precise and clearly defined requirements is that it does not allow enough room for creativity. The statement of work may even become unrealistic, resulting in waste.

3.    Hangers-on - �When employees suspect that outsourcing is on the table, they stake their claim to work that's likely to stay in-house, like managing the IT service provider.�

4.    Transaction trap - An outsourcing deal that is purely transactional has its downside - opportunities for improvement on the part of service provider will be overlooked.

5.    Counterproductive incentives - Giving incentives to achieve a certain level of performance from service provider may be contradicting to what you actually want to get. The provider may end up improving just a little in order to gain the incentive. "Rather than establish the highest level of savings achievable, the provider will offer up savings in small increments over time."

6.    Honeymoon effect - Both parties put their best foot forward at the start of the outsourcing relationship. As time progresses, productivity levels decline.

7.    Ruthless negotiator - It is important to think that outsourcing can be beneficial for both parties. It is also crucial to overcome the perception that the service provider is the only one that gets the good part of the deal.

8.    Rudderless deal - According to Vitasek, outsourcing relationships eventually do not succeed due to lack of metrics to keep track of the service provider's performance.

9.    Measurement minutiae - Placing metrics to monitor everything is not good either, as companies usually fail to keep track of their own metrics.

10.    Hands-off management - "If you don't use the measures you have to make improvements, you should not expect [positive] results," Vitasek said.

Outsourcing Technology: Trends Shaping the Future

There are several innovations in outsourcing technology that experts predict will dramatically change the landscape of the outsourcing industry; as Beth Ellyn Rosenthal writes in her article, �Changes in BPO: How Technology Is Changing the Landscape�.

The article gathers insights from executives of major outsourcing providers, resulting in a list of several technology-dependent trends that are set to have a significant impact on BPO partnerships in the next 5 years:

Emergence of end-to-end solutions

This is made possible by the fusion of IT and BPO. Abid Ali, Vice President of Tata Consultancy Services (TCS), refers to this as "IT/BPO synergy", which some say could far exceed the savings from labor arbitrage.

Use of analytics

According to F&A IBM General Manager, Don Schulman, the advancement of analytics will enable buyers "to leverage insights into their suppliers and customers that they've never had before, allowing them to better align business decisions to their overall strategies at a much faster pace."

Platform/process as a service

Process optimization as a service is something that Abid says �meets the customer's need to upscale processes to industry best-in-class norms in preparation for growth�.

Verticalization and globalization

According to Abid, the economic recession is peaking the interests of buyers in �vertical solutions� - the outsourcing of core processes and not just non-core.

New supplier selection criteria

IBM's Schulman believes that service level agreements will become much simpler due to consolidation of the BPO industry with buyers already having built relationships with outsourcing providers.

Changes in process ownership

Schulman refers to this as the increased focus on end-to-end processes that will more effectively improve business performance in contrast to focusing solely on cost savings from labor arbitrage.

Outsourcing and the Publishing Industry

Outsourcing is not a new phase in the publishing industry, but many publishing companies are still not open to the idea of transferring some of their operations to external providers. After all, outsourcing is a risky business. It can be the ideal solution for companies that want to stay competitive and cut costs. However, for many publishers, there is usually a need to check the quality of outsourced processes in-house. Also, in an industry that follows tight schedules, rework and/or delay in meeting the requirements will have an impact on the overall process of the company. These are some of the reasons why outsourcing is not always favored by the industry.

To know more about the situation and the challenges being faced by the industry, ValueNotes, a leading provider of business intelligence and research, conducted the Publishing Survey 2009-2010 among buyers and vendors in the publishing industry. Specifically, the survey aims to determine the publishers' perception of outsourcing, publishing operations that they outsource, and their satisfaction levels.

Key findings include:

� Cost pressures and lack of in-house capabilities are drivers for outsourcing.
� Sixty-four percent (64%) of respondents said they still have faith in their service providers and they will continue outsourcing.
� Content and production are the publishing operations that are usually outsourced/in demand.
� Sixty-six percent (66%) of buyers choose India as the outsourcing location.
� When it comes to cost savings, buyers achieve/are aiming to get 15-25 percent, while providers perceive 25-40 percent.
� More than 75 percent of buyers think considerable improvement is required in outsourcing, while 16 percent do not approve of outsourcing.

Shifting work to a service provider results to reduced costs and allows publishers to focus on core competencies and experiment with new products and offerings, but like what the survey findings indicate, the entire outsourcing process must first be improved before it can be considered a crucial strategy for the industry.

Tips for Selecting an Outsourcing Advisor

The outsourcing industry is huge, complex, and constantly evolving, so the steps to take in order to have a successful outsourcing operation usually entail a lot of research, time, and effort. Bear in mind that companies are more cautious now more than ever when it comes to entering outsourcing contracts. In times like this, having a legitimate third party that will prod you in the right outsourcing direction is very crucial when establishing and maintaining a relationship with other BPO players.

There are a lot of outsourcing advisors nowadays, claiming that they will guide you in every step of the way, but what do you need to look for in an outsourcing advisor? In the article �Outsourcing Advisors: 6 Tips for Selecting Right One�, Stephanie Overby enumerates six tips to keep in mind when choosing an outsourcing advisor or consultant:

1. Identify what you want to achieve. �Select an advisor that will help you achieve that goal. Some advisors excel at holding vendors' feet to the fire on prices, while others specialize in other areas,� said Richard Matlus, research advisor for Gartner IT Services and Sourcing.

2. Bigger is not always better. Hiring a large and popular advisory firm may come with a hefty price, and it does not necessarily mean that it will be able to get the job done. Do not choose an advisor based mainly on how large or well-known the firm is.

3. Get personal. Establish a good relationship with your outsourcing advisor.

4. Take a good look at the references. Knowing what clients say about the outsourcing advisor you're considering will give you some insights on the kind of service/advice the firm can give.

5. Test the tools / methods used. The outsourcing advisor must be able to apply their tried-and-tested approaches to what your business needs. These must also be flexible enough to accommodate specific requirements.

6. Determine where their interests lie. You and the outsourcing advisor must be on the same page in every step of the process. According to Phil Fersht, former AMR analyst, "[outsourcing advisors] must be focused on your best interests, not theirs".

Outsourcing 2009: A Global Retrospective

Outsourcing in 2009 will be remembered as having among the most compelling stories and most significant game-changing trends. As we welcome 2010 and the challenges ahead, it is important that we also review the preceding year and highlight some of the twists and turns that contributed to the maturity of the ever-complex outsourcing and offshoring industry.

2009 will be most remembered for what has littered the content of almost every business-related blog that was posted throughout the year: you guessed it, the global recession. Prior to the low season that hit in around Christmas of '08, the outsourcing industry had been developing initiatives geared towards innovation and quality high-end services. At the time, the Philippine BPO industry had established itself as the fastest growing in the world � with its Knowledge Process Outsourcing subsector experiencing 200% growth. The weight of the recession meant that affected businesses needed to have more for much less - as a result, cost-effectiveness came marching back to the forefront as the main driver for prospective buyers in the industry.

The stagnation in growth was aggravated by the billion-dollar Satyam scandal early in the year which delivered a huge blow to global confidence in the outsourcing industry. It also signaled rival outsourcing destinations to start closing the gap on India's position as the leading outsourcing destination.

The environment of uncertainty and hardship caused existing outsourcing relationships to either downsize or become severed altogether. At the same time however, the industry saw new entrants that had previously not considered outsourcing an option. CPG, retail, logistics and media and entertainment are examples of industries previously alien to outsourcing.

2009 saw captive centers wane as businesses realized the benefits of third party services, its low costs, and administrative capabilities. The demand for a higher level of control and risk management resulted in innovations on the part of providers in both service delivery models and technology. A product of this is the development of Software as a Service (SaaS) which has caught the industry by storm.

Service providers and governments rose to the challenge in 2009 as businesses began to see the benefits of outsourcing in both good and bad times. This resulted in the births of new locations in tier 2 cities worldwide as well as the geographic expansion of providers to meet the globalized agendas of outsourcing buyers.

In a nutshell, we could say that the recession and barrage of challenges in 2009 (not the least being anti-outsourcing initiatives in the US and Europe) necessitated many new innovations that has provided an exciting new platform for growth in 2010.

Six outsourcing hotspots for 2010

A tumultuous year in outsourcing in 2009 concludes and a new year in the form of 2010 will see a host of emerging developments from the previous year bear full fruit. 2009 marked a year in which leading service providers transitioned towards being global-centric outsourcing providers. As each major outsourcing city has its own specializations, we will increasingly see buyers packaging services to multiple locations or supplementing existing relationships with new ones in emerging markets. Here is a list of six offshore destinations to look out for this year:

China

According to Equaterra consultant, Vibhash Ranjan, China will likely be the favorite outsourcing destination of neighboring Asian countries � particularly in Japan, if it can improve on language skills. Although a promising IT services location, China is plagued by a lack of English proficiency and IP protection concerns among others.

India

India's heritage companies will likely aggressively expand to offshore locations, notably in the US and UK. Look for providers to continue to relocate work to tier 2 cities such as Pune and Chennai. India's share of the outsourcing market will continue to be dominant in 2010.

Africa and the Middle East

South Africa and Egypt are both locations to look out for here as they work together to market their outsourcing services. IT developments that connect East and West Africa with the rest of the world will make way for developing markets like Ghana and Kenya.

Latin America

This continent will likely garner deals from large multinationals this year (namely from nearshoring in the US) as service providers expand � making acquisitions in Mexico, Argentina and Brazil.

The Philippines

TPI Momentum managing director, Melany Williams believes the Philippines will surpass India in terms of outsourcing growth rate. However, it will face fierce competition from Singapore and Malaysia for IT and BPO services.

The United States

This is a strange inclusion as it is not traditionally an offshore outsourcing destination, but it remains a competitor to the aforementioned locations. Analysts predict an increased interest in prospective BPO or IT centers in low-cost locations in the US. Alsbridge consultancy CEO, Ben Trowbridge, believes that given the unemployment rate (over 10 percent), �qualified resources are willing to work for lower wages�.

IAOP: Top 10 Outsourcing Trends to Watch Out for in 2010

Despite the impact of the global recession that companies are still facing today, this new year brings forth a new wave of anticipation for companies willing to outsource and those that expect a higher BPO demand.

A lot of countries are joining the BPO bandwagon, and buyers opt to outsource for reasons beyond cost savings. At the onset of 2010, it is interesting to determine and predict the different factors that may set the trends in the world of outsourcing for this year. In an industry such as outsourcing which is constantly evolving, companies can certainly look forward to a year with new names in the list of outsourcing locations, advanced technological tools, and an increase in social awareness and responsibility, as predicted by the International Association of Outsourcing Professionals (IAOP).

Here's the list of the top 10 outsourcing trends that companies can watch out for this year:

1.    Delayed deals get the green light - Last year, the global economic downturn had compelled many companies to halt outsourcing deals. IAOP predicts that these will push through this year.

2.    Desperately seeking value - In an attempt to recover from the financial crisis, it is predicted that outsourcing players will aim for better relationships, innovation, and flexibility in order to improve total business value.

3.    Flexibility to get out of contracts - Companies will seek shorter-term contracts versus long-term deals.

4.    Uncertainty leads to consolidation - Service providers all over the world will go for consolidation or acquisitions to keep the business going in these uncertain times.

5.    Outsourcing hiring return - IAOP predicts an increase in the number of new graduates who will enter the BPO workforce.

6.    New outsourcing destinations emerge - What used to be an industry with the usual locations such as India, the Philippines, and China will now see the emergence of other outsourcing hubs such as Central and South America.

7.    New destinations differentiate themselves - In relation to no. 6, there will be stiff competition in the outsourcing industry. That is why players must innovate and think of ways to set them apart.

8.    Tooling up with technology - Cloud computing is one of the technological advances to watch out for this year.

9.    Social responsibility - It is predicted that outsourcing companies will strive to be socially responsible and will evaluate the effects of outsourcing to people and the environment.

10.    Political shifts - Service providers and buyers will have to comply with government regulations in an effort to build better relationships.

New year, new things to look forward to. It is with high hopes that this year will be more fruitful and interesting for outsourcing companies all over the world.

Outsourcing may have biggest year ever in 2010

As a result of the global economic slowdown, the outsourcing sector's growth was not as brisk compared to the previous years. Earlier in the year, the CICT pegged industry growth at a cautious 35% this year, conservative considering that the local outsourcing industry was averaging an annual growth clip of well above 40% in the past.

And with customers and locators feeling the pinch of decreased customer demand, the economic pinch put a damper on growth in 2009. However, industry expert and the author of award winning outsourcing blog Phil Fersht of www.fersht.typepad.com says the industry is poised for a huge comeback in 2010. This is because appetite for BPO services will undoubtedly rise and will rise strongly through the recession.

In a blog entry titled 2010 Predictions for the Outsourcing Industry, Fersht outlined some of the outsourcing areas that may see a marked improvement next year.

�BPO will have its strongest year ever. As our soon-to-be released new survey is revealing, transactional finance and accounting BPO will have a resurgence in 2010, with additional interest in management reporting, and we'll also see a fresh wave or HR outsourcing, which has been quiet for a couple of years now, with new uptake in payroll, benefits admin and recruiting outsourcing. Procure-to-pay outsourcing is poised to accelerate, together with renewed focus in the analytics space across several verticals and horizontal areas,� he said.

As an emerging and preferred outsourcing hub, Philippine based BPOs may yet see a resurgence of demand for their services, and may also see opportunities within the new growth areas within the realm of outsourcing.

Fersht counsels companies to take a first mover stance and come out of the gates blazing to take advantage of opportunities in 2010.

�It's time to roll-out the new corporate agenda: quickly and aggressively. 2010 will not be a year for the timid, and we'll have a lot of frantic people trying to grapple with outsourcing - we'll see more political pressure, more negativity, more case-studies, more value propositions, more momentum and more energy than we've seen yet in this crazy industry,� he said.

This prediction from a well respected resource within the outsourcing industry bodes well for BPOs, and will be much felt in the Philippines, where outsourcing remains a sunrise industry. The country's highly qualified and skilled labor will be a good leverage to gain more contracts within the specialized realms Fersht mentioned above, leading to more job generation and the fast tracking of critical infrastructure projects critical to the outsourcing industry.

Virtual relationships becoming key for outsourcing projects

As more and more people turn to social networking sites and other online communications tools, the concept of project management is fast evolving with it. From a business perspective, the value proposition of free utilities is enormous, and companies are realizing that having an online presence is not merely a marketing tool but also an effective way of managing your relationships.

This trend is best illustrated by the outsourcing process. As companies find that it is cheaper and more cost effective to outsource non-core functions, new media tools are stepping up to fill that last mental barrier keeping companies from fully embracing an outsourcing strategy for growth: the absence of tactile, face to face communications. Now, with Twitter, Facebook, Skype, and Base Camp, collaborators from all over the world can converge on one project and do it more efficiently than shuttling between airports or burning the phone lines.

The beauty of the emergence of new media is that it gives companies who outsource non core functions control over how a project proceeds; in fact, it can be argued that new media gives people the ability to affect changes mid stream and in real time, a luxury that was absent a mere decade ago. For outsourcing companies, it also gives them access to a whole new set of potential customers, companies that have seen the wisdom of maintaining an online presence themselves.

Having said this, the increased reliance on new media to facilitate outsourced operations means companies and individuals must now forge and maintain relationships in the digital world. With the increased use of social networks, this 'virtual life' can also be fully harnessed for business purposes as catch basins for increased interaction between team members. With these new tools, no longer will a manager in the US constantly worry about not getting through to his foreign outsourced partner; new media has made communications a mere mouse click away, and this bodes well for the outsourcing industry because it gives potential customers a new comfort level when dealing with people they have never personally met.

Establishing a Good Governance Process

Although outsourcing is widely considered a cost-cutting measure, it is the ability of an outsourcing provider to work within the interests of their clients - and not just their own - that separates moderately successful partnerships from highly successful ones. It is for this reason that there is an increasing need for outsourcing to involve a framework within which the outsourcing partner must perform. This is what is called the �governance framework� and it is this that determines whether or not many outsourcing relationships succeed or fail.

Given the main goal of a governance process as one that ensures value-adding services and the preservation of the end-user experience, the governance structure should be built on the principles and guidelines behind the rules � and not just the rules themselves. The following are a few tactical aspects of good governance espoused by ERP management outsourcing firm, OneNeck:

Service Level Agreements (SLAs) � as this is the foundation of your services package, it should clearly define process, service levels, checks and balances, and the reporting mechanism for your outsourcing agreement.

Quality of Service reporting (QoS) � ideally you will be able to define your own metrics for QoS allowing you to establish the standards of which your agreement will be measured against. This will also involve time frames, the reporting process, and problem resolution structures.

Face-to-face meetings � as rapid as developments have been for online communication, it will never really be able to substitute frequent meetings in person. Paying a visit to the outsourcing partners offices and assessing the quality of the workplace and infrastructure can go a long way for fostering the trust and transparency that successful outsourcing relationships demand.

Flexibility � unforeseen changes and difficulties are often the downfall of outsourcing partnerships. The outsourcing vendor must therefore be flexible enough to keep up with the changing needs of customers, especially with regard to expansion of services. Flexibility is the main factor involved in the longevity of an outsourcing relationship.

Benefits of Having a Sourcing Advisor

Outsourcing is constantly changing and evolving. As more companies discover its potential and what it can do for their businesses, the entire concept of what outsourcing is sometimes becomes a tangled web of information. For companies which are just testing the waters, information overload on what to do and what to avoid can be confusing. They may even end up shying away from it.

So what can companies do to ensure they are on the right track? They can do their own research or hire a competent outsourcing or sourcing advisor, a consultant/guide who helps companies in developing the right outsourcing deal. In an industry that involves an increasingly complex landscape of service providers, someone who has adequate knowledge and experience in the industry will prod you in the right direction.

Sourcing advisors play an integral part of your outsourcing endeavors. They can provide insights and present market analyses that will help you in making decisions. Sourcing advisors will be there in every step of the way. Whether you are a service buyer or provider, a sourcing advisor has the right capabilities that will help you establish a good outsourcing relationship.

In an article entitled �7 Ways an Outsourcing Advisor Can Save You Money� by Stephanie Overby, she said that while joining the outsourcing bandwagon without external help will already enable you to reduce costs, having a sourcing advisor may save you money in any or all steps of the outsourcing process. She enumerates the seven ways a sourcing advisor can do for you that will let you cut costs:

1. Rigorous and relevant Requests for Proposal (RFPs)
2. Pricing intelligence
3. Access to innovation
4. Vendor knowledge
5. Focus
6. Presence of an upper hand in negotiations
7. Preparedness in transition and governance

It is a good thing to work with someone who is knowledgeable on the industry that you want to venture into. With the help of a good sourcing advisor, not only can you reduce costs - you will also be able to create the right outsourcing deal for your company.

A Look at Project Based Outsourcing

The rapid development of the outsourcing industry has given rise to multiple variations of service providers � offering end-to-end services within multiple disciplines delivered across varying parts of the globe. Selecting a service provider increasingly depends on the service delivery method or the sourcing model that is appropriate for the buyer's outsourcing needs. In an article regarding such, Infosys expressed that each model will offer a host of advantages that will be applicable only to specific situations. Let us have a closer look at one such situation in which service providers are given full responsibility for an outsourced project: Project Based Outsourcing

Project based outsourcing is an increasingly popular sourcing model among clients as more and more buyer organizations develop sourcing maturity � efficiently assessing needs, setting expectations, and applying outsourcing as a tool for strategic enterprise-wide improvement. Project based outsourcing dictates that the service provider manage all tasks involved in an outsourced project until the agreed upon outcome is achieved or a certain deliverable is received. Such will require that the service provider possesses the manpower with necessary skills to accomplish tasks involved. The service provider will also provide project management expertise in order to run the project. The client will thus not need to be involved in day-to-day operations but will rather focus on the final outcome of the project.

Vendor management mechanisms in this case are reliant on end-to-end project outcomes and ensuring quality levels in each task. The vendor/buyer relationship is the cornerstone of project based outsourcing. The buyer will only need to benchmark and monitor outcomes as the responsibility of the project rests solely on the vendor.

The client's loss of control over day-to-day operations can be both a pro and a con in project based outsourcing. This will require a better understanding of the offshore model on the part of the client and a assurance of operational management capabilities from the part of the vendor.

Overall, project outsourcing highly depends on clearly defining requirements and specifications of the project from the start. When successful, project outsourcing can provide a high level of productivity at lower costs. Documentation, programming, testing, quality assurance and detailed design are all entrusted to the vendor � requiring advanced skills and a high level of expertise in the relative field of the project being outsourced.

Factors to Consider in Choosing a Service Provider

With the rising number of companies discovering the advantages of outsourcing, and as the current global recession compels affected companies to outsource in order to stay afloat, the number of countries that offer outsourcing services increases. In the Global Services-Tholons study entitled �Top 50 Emerging Global Outsourcing Cities�, there's India at the forefront, followed closely by the Philippines in the list of Top 5 offshore nations. Countries from different parts of the world are also emerging as great outsourcing destinations. This makes selection of the right service provider more difficult and time-consuming.

Do not fall into the trap of many outsourcing vendors promising way more than what they can actually do. In an article �How to Choose an Outsourcing Provider�, Randy Vetter, Director from Alsbridge, Inc., discusses the factors buyers can bear in mind when it comes to finding the right service provider for them:

Take a closer look at the company profile. The provider's experience in the world of outsourcing will give you insights on the company's industry knowledge and capabilities. Also, know the clients that utilize its services.

The service provider's management style must be aligned with the buyer's requirements. Also, it should be flexible enough in such a way that it can deliver by adapting to the buyer's working environment.

Buyers which are looking for outsourcing partners may also want to consider these factors:

deep delivery capability
length of the provider's experience
relevant and positive references
financial stability
innovation
investments in research and development
quality achievement

Establishing a good outsourcing relationship and maintaining it will always be a challenge. The first step would be to find a service provider that understands the buyer's business goals and has the capability to meet them. Finding the most suitable provider may be difficult, but once the buyer has created an effective working relationship with its outsourcing partner, the set goals will soon be met and the advantages of outsourcing will be realized.

Crowd Sourcing as a Key Business Trend in the Future

In a nutshell, crowd sourcing is a type of outsourcing that involves transferring a certain business task or process to a group of people (crowd). What makes it different from the usual form of outsourcing is the fact that the company makes use of the service/s of an unknown group of people, or even an individual. A typical crowd sourcing process goes something like this: a company informs the public online about a problem, people will submit their solutions, the company will choose the best and most suitable proposition, then gives incentive to whoever had formulated the chosen solution.

According to Alexandra Cain in her article�Outsourcing on Steriods�, crowd sourcing is �revolutionizing the economics of doing business�. What used to be done in-house can be outsourced to a company or someone else from any part of the world. Obviously, this form of outsourcing has become popular because it allows companies to cut costs and focus on their core competencies, but there's more to crowd sourcing than cost reduction and having more time to take on core functions. Since the company presents what it needs online for everyone to see, it can have access to a vast group of people with varying talents and capabilities. Also, crowd sourcing enables companies to gain feedback and suggestions straight from the public. In this way, companies will have insights on which products/services would appeal to consumers.

Of course, crowd sourcing has its own share of drawbacks. For one, it is not applicable for every company. This is usually a great solution for those looking for ideas on creative projects - a website design, logo, slogan, name of a new product or service, etc. Another pitfall of crowd sourcing is difficulty in coordinating with supplier/s throughout the entire process. Language barriers and time difference are some of the factors that can affect the smooth flow of the project.

As crowd sourcing becomes a useful process for an increasing number of companies, it is poised to emerge as a major business trend in the future. The key is to weigh the pros and cons before venturing into crowd sourcing. It is also crucial to bear in mind that cost reduction is and should not be the sole factor on deciding whether to crowd source or not.

Top 5 Tips for Successful Offshore Outsourcing

Outsourcing any range of services to offshore service providers is a risky process for a number of reasons. It is always important that a prospective outsourcing buyer consider the best methodologies and make decisions that consider their in-house context, the net cost savings, and whether or not a certain process can indeed be outsourced. According to outsourcing consultation firm, TPI, a 15 to 25 percent in net cost savings is enough for an organization to agree to outsource offshore. To maximize that window, however, will require careful planning and risk mitigation. Here are five tips to consider applying in order to ensure your outsourcing operation is a success.

1. Start small � This is especially true if this is your first time. Starting small will limit risks and allow for easier quality control. Be sure to start with services that are easily manageable, well-known, and not critical to the business' well-being.

2. Clearly define your goals and reasons - There are many service providers online that will tout that outsourcing will allow you to save 30 to 40 percent and will allow you to focus on 'core competencies'. By knowing exactly why outsourcing is necessary, and by having a specific set of goals, buyers are able to assess how well service providers can help realize those goals.

3. Monitor the results � In order to do this, it is important to establish objective metrics and measure results against goals. These will determine performance results upon project completion.

4. Build an offshore team � services like MicroSourcing's offshore teams staff leasing model allow you to build an offshore team with the specific set of skills to automate one or more processes within your firm. This will involve training your offshore outsourcing staff and maybe even coordinating offshore visits.

5. Establish a clear engagement model � It is essential that a buyer knows exactly how both parties will work together and define the different roles and responsibilities to get the results needed. This will involve defining escalation paths, detailing a communication model, and establishing executive level relationships.

From Print to Web: Challenges Faced by the Publishing Industry

At this age when almost everything goes digital, more and more people prefer making transactions online instead of the conventional method of pen and paper, and as it shows no signs of stopping, even the publishing industry is now compelled to go with this digital flow. However, the transition to digitized content proves to be very challenging for an industry that depends for the longest time on print.

As the publishing industry forays into the digital world, publishers need to provide better content and offer something unique that will help them establish their brand online and eventually get steady revenues from the Web. The impact of the global economic crisis also adds up to the challenges being faced by the publishers. According to the paper entitled �Publishing: Driven by digital trends� from ValueNotes Outsourcing Weekly, the publishers have tried the trial and error method to overcome these challenges, and the way things are going, it is not clear if the industry can adapt to the transition.

To resolve existing problems, publishers can outsource in order to cut costs and/or increase revenues. The author of the paper explains that there is a difference in outsourcing as a cost-cutting measure and choosing to outsource due to inability of the publisher to sustain. This means good news for service providers which offer a variety of services that publishers need - copywriting, editing, proofreading, graphic design, etc. However, there are also challenges on their end. For instance, content can obviously be outsourced, but can service providers meet the content influx? Another factor to consider is the vendors' sustainability. Unfortunately, most say they can deliver way more than what they are capable of. Can they keep up to the demand of the industry?

Overcoming the challenges faced by the publishing industry will depend on sustainability of the publisher and of the service provider should the former decides to outsource some of its business processes. If both parties manage to keep up then the dilemma of the industry will be resolved.

Philippine Outsourcing: Growth Amid No-Growth Times

During the height of the economic crisis, outsourcing industry experts, analysts, and service providers projected a boost in outsourcing and offshoring activity; and with good reason. An offshore worker can be hired 24/7 for the equivalent of barely a living wage in Western countries. The difference was simply too great to ignore and the global outsourcing market became littered with large BPO buyers that were willing to sacrifice a bit of quality (arguably) for the cost-effective offers that so many service providers flaunted. However, almost a year since the beginning of the crisis, the global outsourcing and offshoring industry does not seem to be growing any faster than experts predicted. Where is the growth that so many anticipated?

Top Indian outsourcing body, Nasscom (National Association of Software and Service Companies), predicted 4 to 7 percent growth this year � far below the initially predicted 16% from last year, and the 30% rise it posted regularly in the past. According to CIO analyst, Aprit Kaushik, 20 to 40% of the revenues of offshore outsourcing firms are tied to the financial services industry. Following its demise, companies have had to look for alternate vertical markets. Furthermore, buyers must now, more than ever, focus on not just output (e.g. large BPO deals highly reliant on process expertise), but the quality of that output and the �hidden costs� factor involved in each deal.

The shift towards downsizing traditional BPO deals such as IT and contact center work that revolve around large production volumes is one of the factors causing the slowdown of the outsourcing industry. Buyers have begun considering higher-end services like finance and accounting, and outsourcing smaller projects with lower risks; but require quality domain expertise. This is perhaps one of the main reasons, if not the reason that amid �no growth� times, the Philippines is posting double digit growth.

On a survey conducted by the Business Process Outsourcing Association of the Philippines (BPA/P), 65% of outsourcing clients indicated that prospects for their non-voice operations in the Philippines for 2009 are excellent to outstanding. A total of 188 respondents answered the survey. XMG Global predicts that the Philippines will close out the year at 21.7% growth; due mainly to the growth of the Philippines' Knowledge Process Outsourcing industry; which currently encompasses animation and graphics, finance and accounting, and HR-related services.

A Look at IT Outsourcing

Outsourcing has become a solution for many Western companies affected by global recession in order to keep the business going. Aside from reducing costs, outsourcing enables companies to focus on core competencies. Non-core functions are then transferred to developing countries that offer services at lower costs. In Paul Ingevaldson's article entitled �IT is Not the Mailroom�, IT is considered as a support department, and does not directly contribute in reaching the company's goals. Therefore, it is a �perfect candidate for outsourcing�.

Almost all business processes go through IT systems, and the company will not be able to meet its goals without IT. This may be the case, but for some companies, they opt to outsource IT processes in order to cut costs. Bear in mind that IT entails technically-skilled workers. If IT processes are outsourced, there is no need for IT people in-house. As a result, the company will have a hard time figuring out how the system works if something goes wrong.

According to Ingevaldson, companies which chose IT outsourcing to deal with the impact of global recession will be underperformers when the global economy bounces back.

It goes without saying that to outsource or not to outsource IT is a major business decision. While it does not have a direct contribution in meeting business objectives, the company will not be able to function effectively without it.

If the company chooses to outsource IT, be aware of communication problems that may arise especially due to the huge time difference. Also, make sure that IT is outsourced to a reputable service provider. This is the most important thing to consider. Take note that many providers tend to promise more than what they can actually accomplish, and the end result will not be in the buyer's favor. The vendor must be able to provide IT security credentials before signing the outsourcing contract. Compromising security just for the purpose of reducing operational costs will not do any good to the business.

Unforseen Costs and Flexible Outsourcing Contracts

Outsourcing any function to a foreign component always implies a loss of control; control over quality output, security, but also - due to unforeseen expenses - cost. Cost effectiveness, to date, remains the number one reason for companies to outsource. The Philippines, for example has earned the majority of its outsourcing contracts from recession-plagued Western countries such as the US. BPAP (Business Process Association of the Philippines) cited mergers, disruptions, corporate restructuring, cost containment needs, and business changes as the main factors contributing to investments in the Philippine outsourcing sector.

Many service providers will boast that the use of IT-enabled services and outsourcing is not just a cost-cutting measure, but the purchase of expertise at the highest standards in the process of achieving global competitiveness. This may well be true, but the numbers clearly indicate that contracts earned by offshore service providers have been primarily caused by companies either trying to weather a financial storm, or simply looking for lowered costs. Sourcing advisory firm, EquaTerra, for instance, indicated in their study on �Advisor and Business/IT Service Providers Pulse Survey� that 68% predicted the market trend for IT outsourcing will continue to rise due to �defensive� action plans of outsourcing companies:

"The bulk of outsourcing demand is still defensive, aimed at short-term cost-cutting and cost-containment strategies," said Stan Lepeak, managing director of global research.

Yet another study, this one from a YouGov survey commissioned by the NCC group, indicates that participants in IT outsourcing believe that they are exposing themselves to more risks (with 20% indicating as such). Yet the continued domination of IT outsourcing in the global outsourcing market is proof that perhaps buyers are willing to overlook these risks in favor of lowering costs.

In an uncertain environment, flexibility is a key factor; especially with regards to newcomers to the outsourcing market. As there are simply too many unforeseen costs that can come from technical difficulties, manpower changes, and communication barriers; buyers are increasingly looking at flexibility in outsourcing partnerships. A study by Olswang cites some of the well-established mechanisms for flexible outsourcing contracts: effective governance and change control, gain-sharing, market testing and benchmarking, break-clauses and other levers to retender and/or renegotiate.

The Philippines in �Top 50 Emerging Global Outsourcing Cities� Study

There is no stopping the outsourcing industry in the Philippines, not even the global financial crisis.

In the Global Services-Tholons study entitled �Top 50 Emerging Global Outsourcing Cities�, the Philippines has been ranked second, next to India, in the list of Top 5 Offshore Nations. China, Ireland, and Brazil also made it to the list.

The country first made its presence known in the global outsourcing scene as an ideal destination for voice-based services. Through the years, it has evolved into a hub not only for contact centers but also for non-voice BPO services including IT, back-office functions, as well as medical, legal, finance and accounting, and human resources outsourcing. Also, Western companies which are struggling to stay afloat during these rough times feel compelled to outsource business tasks as a cost-cutting measure, and are discovering the country as the ideal offshoring destination. That is why there is an ever increasing demand in the outsourcing industry.

In 2008, the BPO industry in the country had registered a total of US$6 billion in revenues, and employed more than 250,000 people. With an estimated revenue of US$7.3 billion by the end of 2009, it is predicted that the Philippine outsourcing industry will see continuous growth and will remain resilient in the current global economic downturn.

However, the report revealed that three cities in the Philippines - Pasig City, Quezon City, and Mandaluyong City - were removed from the list of top emerging outsourcing cities. This may be the case, but Manila-NCR is still included in the Top 8 Global Outsourcing Cities (ranked no. 4). When it comes to the Top 50 Emerging Global Outsourcing Cities, Cebu City reigns supreme for the second year running.

The Philippines' large pool of English-speaking and highly skilled individuals, affinity with Western culture, low labor and operational costs, and continuous support from the government are all major factors that make the country an ideal outsourcing destination. By looking at the findings of this study, there is no doubt that the outsourcing industry in the country will continue to flourish in the years to come.

Outsourcing and its Changing Pros and Cons

In a given discussion regarding the outsourcing industry, cities like Manila, Bangalore, and Malaysia would typically be under the microscope. The fact that such a discussion two to three years ago would be completely different today is testament to the speed at which the industry advances and the number of variables it involves. The debates regarding advantages and risks of outsourcing to one city or the other, for instance, is changing for two main reasons: the arrival of new outsourcing locations such as Cebu, and the development of multi-location strategies. Whether it be call center outsourcing, medical transcription, or content moderation, the effects of outsourcing jobs to foreign countries involve new innovations that are shaping the landscape of cities across the globe.

As the current economic crisis extends its blight throughout Asia, it has provided a catalyst to measures undertaken by affected nations to fortify outsourcing capabilities. Given the interdependence of today's global community amid an economic downturn, this has directly influenced decision-makers that weigh the pros and cons of outsourcing. Tier-2 and tier-3 cities within Asia are abuzz as outsourcing jobs to foreign countries continues to prove as the solution for many struggling businesses, namely in the US. Though many analysts have pinned outsourcing as a solution to uplift the standard of living, many who have lost their jobs to foreign countries wonder, how does outsourcing help America?

The negative effects of outsourcing jobs is displayed in Forrester Research's dim forecast of 3.3 million service jobs in America going offshore by 2015. As nations under pressure struggle, new cities are emerging to heed the calls for offshore services at lower costs; as displayed in Tholon's survey of the �Top 50 Emerging Global Outsourcing Cities�. China, which is among the Asian nations suffering the most from the global recession, has begun to provide tax breaks and subsidies to maximize the advantages of outsourcing to foreign countries. Shangai, Beijing, and Ho Chi Minh City all occupy spots in the top five on Tholon's survey. Meanwhile, plagued with terrorists attacks and scandals, India is under pressure to maintain its place as the top destination for outsourcing. Leading the emerging destinations list is Cebu � a city that, only three years ago, had but a few highrise buildings dedicated to call center outsourcing in its central IT hub. Boasting a significantly more affordable labor force, quality graduates, and a relatively relaxed coastal environment, Cebu is currently an outsourcing hotspot with advantages that cannot be ignored.

With more and more quality outsourcing destinations arriving on the scene, the advantages and disadvantages of outsourcing depend highly on what service is to be outsourced. Where once outsourcing jobs to foreign countries meant packaging all services to one city, service providers are now realizing the advantages of utilizing a multi-city model in which specific service lines are assigned to the most suitable locations. Upon weighing the pros and cons, the multi-city model may prove to be far more efficient. This means that there are now �global Business Process Outsourcing providers� that clients can consider, and, more importantly, local providers need to be able to contend with.

Six Warning Signs that a Service Provider is in Trouble

Twenty-five percent of existing BPO service providers will cease to operate in 2012. This is based on a recently published Gartner research which is part of the Special Report entitled �Assess and Manage Vendor Risks to Protect Your Business�. This can be attributed to the current economic downturn, lapses in outsourcing contracts, and not being able to adapt to standardized delivery models.

With these factors in mind, Gartner noted that BPO buyers must take caution before venturing into any new outsourcing contract, and should be aware of the six warning signs indicating that a service provider is not stable enough to maintain a long-term outsourcing relationship:

1. Unprofitable outsourcing deals - According to the research, �Some BPO providers are carrying unprofitable contract portfolios, largely stemming from too-much, too-soon pursuit of deals, without much thought as to how to transition them to a standardized, rationalized, profitable state of ongoing operations.�

2. Inability to get new projects - It is a good sign if the service provider has the ability to constantly take on diverse requirements of different clients.

3. Loss of major contracts to other service providers - Losing a �marquee� deal spells trouble on the part of the vendor. �It will always be prudent due diligence to seek and gain a reference from any current anchor clients to understand how committed they are to the vendor and their experiences in dealing with them.�

4. Inability to bid on new BPO deals because of lack of enough funds - Some service providers cannot take on new BPO contracts because of lack of enough capital. Moreover, the so-called �lift and shift� strategy in which a business process is moved offshore to reduce costs because of lower salaries will eventually create problems for service providers that rely on it because they still need capital for the resources required to do that outsourced task.

5. Exposure to banking / finance sector - With the current financial crisis, those service providers with revenues coming from the finance or banking sector will be in a tight spot. If the outsourcing partner has more than 85 percent of revenue from the banking sector, the buyer should know if this will affect their business operations.

6. Increasing levels of contract cancellation and insourcing - Gartner says that before signing an outsourcing contract, buyers must come up with a plan on what to do when contract ends. Moreover, contracts must be crystal clear, tackling not only the issues that may arise for the first year but also the steps to take in case the buyer decides to expand or have a new project.

During these tough times when outsourcing has become an avenue for companies primarily to cut costs, it is essential to pay close attention to your outsourcing partner. Know the warning signs and be constantly aware of what is happening in the BPO industry. Have a clear picture of what you want to achieve before signing any outsourcing contract.

Study Reveals Communication Problems and Best Practices in Outsourcing

Effective communication plays a major role in the world of outsourcing where people with different nationalities, culture, and interests work together to achieve their business goals. While it is now easy and convenient to talk to people overseas, thanks to advanced technology, problems are still being encountered because communication best practices are often neglected. This eventually hinders BPO players to establish and maintain long-term outsourcing relationships.

In the first of four-part Best Practices Series 2009 published by Outsourcing Center entitled �Four Communication Best Practices Often Overlooked in Outsourcing Relationships�, 56 buyers who participated in the study noted that communication problems arise from:

1. root cause analysis
2. not being able to understand the buyer's priorities
3. agreeing (or not) on the importance of �noise� or customer's feedback/complaints
4. service provider's failure to listen to the buyer

The key to having a successful outsourcing relationship is to reach a shared understanding of each other's goals. To achieve this, service providers and buyers must adhere to the four communication best practices that are often overlooked in outsourcing:

1. Service providers must take the �noise� into account. They pay so much attention on meeting the requirements that they fail to look into what customers think about the deliverables, so it is the buyer who ends up dealing with customers' complaints. Providers must understand that �noise� is significant in establishing an outsourcing relationship.

2. Create a communication plan for the period after the transition phase. The relationship usually runs smoothly at the start of the project when both parties understand each other's goals. The problem arises after the transition when the business operation expands and/or venture into new projects. Participating buyers said that providers are not able to identify which tasks are critical for the project and in accordance to the buyer's objectives. The best practice to overcome this is to develop a communication plan for the period after the transition phase so the service provider can determine which should be prioritized.

3. Outsourcing contract should be �crystal clear�. To avoid conflicts, there must be no room for vagueness or ambiguity when it comes to the outsourcing contract. If an issue arises, both parties must identify the cause of the problem and resolve it.

4. Mutual trust must be established. Buyer and service provider need to demonstrate that they truly listen and understand each other. For service providers, pay attention to the buyer's issues and make sure to resolve them. The same goes to buyers. Communication entails two or more parties, and having mutual trust is important to overcome the problem.

This study is a clear indication that communication is more than just talking to the service buyer or provider. It is about understanding each other's issues and concerns and coming up with solutions that will work for both parties. Culture and interests may vary, but shared understanding of objectives must be established in order to develop an outsourcing relationship that is both long-lasting and beneficial to service buyer and provider. The important thing is for buyers and service providers to keep the best practices in communication in mind to avoid problems.