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March 2010 | Outsourcing Blog | BPO Industry Updates and Articles

The Philippines as Emerging KPO Hub

by: Karen Cayamanda

Thursday, March 25, 2010 | Comments (0)

Category: Outsourcing Research / Trends

Knowledge Process Outsourcing (KPO) Philippines

The Philippines has long been established as an ideal destination for voice outsourcing, due to the country’s large pool of English-speaking workers, affinity with Western culture, IT infrastructure, government support, and lower operational costs. The call center sector is rapidly growing - call centers are being established not only in greater Manila area but also in other cities and provinces considered as emerging locations which are suitable for voice-based BPO work. Also, it was reported that the call center sector posted US$5 billion in revenues in 2009.

After securing a place in the world of voice outsourcing, the Philippines is poised to tap the knowledge process outsourcing (KPO) sector and become an excellent alternative for KPO tasks. As recent trends suggest, the country is now emerging as an ideal destination for business processes that require specialized skills. In a research report published by outsourceportfolio.com, it is expected that revenues of the Philippine BPO sector would reach US$9 billion this year - from US$7.3 billion posted in 2009.

The report also shows that 52 percent of survey respondents think that it is safer to outsource to the Philippines compared to India. Eighty-one percent (81%) said KPO is a “high growth prospect”, although 54 percent feel that the lack of enough workers suitable for higher-value outsourcing tasks is a major problem.

It is a known fact that the outsourcing industry is one of the key drivers of the Philippine economy, especially during the recession, which is why the government is taking steps to make the country suitable for outsourcing work - both BPO and KPO. For instance, BPAP, the umbrella organization for outsourcing players in the country, recently launched a competency test designed for college students and applicants who wish to enter the outsourcing workforce, streamlining the recruitment process in the industry. Various locations outside Metro Manila are also being considered ideal outsourcing destinations due to better IT infrastructure, lower costs, and availability of skilled workers.

While the country produces a lot of graduates annually, many individuals usually do not have the skills needed in higher-value business processes. This will be a major stumbling block for the Philippines if it aims to be an ideal KPO hub. The results of the May elections may also have an impact on the state of the outsourcing industry.

There may be obstacles, but with the current growth rate and initiatives from the government, it is likely that the Philippines will be able to establish a strong hold in the global KPO sector.


BPO vs. Captive Center: Five Decision Factors

by: Karen Cayamanda

Tuesday, March 23, 2010 | Comments (0)

Category: Outsourcing Research / Trends

Extending Operations Through Captive Centers

Business process outsourcing (BPO) refers to the process of transferring the management and/or execution of a specific business process to a service provider. On the other hand, captive center refers to the extension of business operations on a low-cost offshore location, with the parent company maintaining full control over the business processes.

As with all other things, both BPO and captive center have their own share of advantages and disadvantages. These solutions will enable companies to reduce costs and focus on core competencies, but what are the things to take into account to ensure that you have chosen the right outsourcing solution?

Steve Kopp, Partner and Managing Director, CFO Services - Americas of TPI, the world’s largest sourcing data and advisory firm, enumerated five key decision factors when it comes to choosing between business process outsourcing and captive center.

1.    Internal bias - According to the report, highly customized processes, type of industry, and cultural aversion are factors that make companies avoid outsourcing business processes. TPI said that it is necessary to determine the level of internal bias by conducting an internal change readiness assessment.
 
2.    Scale to build a global service delivery model that rivals outsourcing providers’ cost and delivery structure

3.    Availability of capital -  A company which is considering to put up a captive center needs capital for buying or renting office space, infrastructure, consulting fees, tax fees, and human resources. On the other hand, there’s a transition fee involved when the company chooses to outsource. This is about 10 to 20 percent of the outsourcing fees for the first year.

4.    Time and patience - Establishing a captive center obviously takes a longer time than BPO. Financial payback will take about 24-30 months in setting up a captive center, unlike in BPO where you can expect payback in 15-18 months.

5.    Talent retention - In BPO, employees work for the service provider, whereas employees in a captive center are your own personnel. Employee retention is a business concern and must be taken into account to ensure that the company can still meet its goals and adapt to changes in the economy.

These five decision factors can be really helpful for companies that are looking at two different processes - BPO and setting up a captive center. Keep these in mind and seek help from people who have captive centers or outsourced processes.

 

Procurement Outsourcing Trends

Procurement outsourcing (PO), in simple terms, means transferring procurement (acquisition of goods and services) tasks to a service provider or third party to cut costs and/or enable the buyer to focus on its core competencies.

This year, it looks like IT outsourcing is not the only one that is likely to see improvement in outsourcing market activity. According to the Procurement Outsourcing Annual Report 2010 by global consulting and research firm Everest, PO activity will increase by more than 20 percent this year. The annual contract value (ACV) is expected to reach almost US$1.3 billion. This can be attributed to the increase in new contract signings and extensions this year, as well as the improvement in global economic conditions.

Here are Everest’s projections on the PO market:

•    End-of-term activity will pick up over the next three years involving a book of business valued at US$2.2 billion.

•    The small/medium-sized business (SMB) segment will see higher adoption levels of single-process PO contracts but will be targeted by suppliers offering new platform-based offerings, including Software as a Service (SaaS) as a delivery model.

•    Buyers will favor PO contracts that are either transaction-focused or sourcing-focused engagements, and most buyers will follow a phased approach with an end vision of source-to-pay (S2P).

“Buyers are now poised to expand sourcing-focused contracts into transactional services. Contracts that exploit the synergies between Finance and Accounting Outsourcing (FAO) and PO, especially in the procure-to-pay areas, will see increased market traction,” said Katrina Menzigian, Vice President, BPO Research.

As the economy recovers from the crisis, 2010 is likely to be a better year for the global outsourcing industry. Let’s just hope that recovery will continue and significant results will be seen throughout the year.

 

Outsourcing Spending to Increase as Economy Recovers

by: Karen Cayamanda

Wednesday, March 17, 2010 | Comments (0)

Category: Outsourcing Research / Trends

Global Outsourcing Industry to Spend 7.3% More

Results from the recent Gartner survey show that 85 percent of organizations expect that their outsourcing spending, specifically on IT services, will increase or stay the same this year as the economy bounces back from the crisis. Of the 1073 survey participants from different companies and organizations across the US, Europe, and Asia-Pacific, 76 percent are confident that the economic conditions will improve in 2010.

Gartner added that the overall mean outsourcing spending is estimated to increase by 7.13 percent, though it may differ in other countries. For instance, India expects a 17.4 percent increase, while Japan predicts a 1.5 percent decrease.

According to Gartner vice-president Allie Young, the economic crisis had an effect on the decision-making process of companies. "The impact of the global economic recession in 2008 through 2009 has been significant, in some cases radically changing a vertical market or a company's competitive position. Buyers of services have been impacted in many areas, making them more cautious regarding IT spending," Young said. While the economic uptick will result to an increase in outsourcing spending, Young noted that service providers must remain flexible in adapting to economic changes and focus on cost-effectiveness.

This is definitely good news for service providers. In the Philippines, the business process outsourcing industry expects rapid growth in the first six months of 2010 as companies plan to expand their operations. BPO firm StarTek, for instance, is planning to hire 1000 workers as part of their expansion plans in the country.

Moreover, this growth is seen not only on voice-based work but also back-office functions and higher-value outsourcing services. It is reported that the Philippine outsourcing industry is now tapping services that require managerial skills, analysis, and decision-making functions. With the way things are going, companies are confident that the impact of recession will eventually be a thing of the past and continuous growth will be seen in the global outsourcing market.

 

Wikipedia defines corporate social responsibility (CSR) as "a form of corporate self-regulation integrated into a business model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure its adherence to law, ethical standards, and international norms". In other words, it refers to how companies manage business processes to maximize positive impact and reduce risks to society and the environment.

Service providers focus on CSR to win outsourcing deals

In a recent electronic survey by the International Association of Outsourcing Professionals (IAOP), 71 percent of respondents think that CSR is becoming more important in outsourcing contracts. The study further shows that small and medium-sized service providers aim to increase CSR activity, and 70 percent of outsourcing buyers and providers said they will increase their CSR efforts in the next three years. According to IAOP Chairman Michael Corbett, "If companies want to win in outsourcing deals, they have to be focusing on CSR practices that are good for people, the community, and the environment."

Here are other key findings of the IAOP survey:

  • Many service providers focus on corporate social responsibility encompassing activities in HR, community involvement, and environment.
  • A significant number of buyers may take the CSR capability of a service provider into account when it comes to making an outsourcing decision.
  • For buyers, employee practices, specifically fair operating practices and human rights, are more important CSR criteria than consumer, environmental, and community involvement.
  • India was considered as the world's most popular developing region that buyers outsource to as a social responsibility.


Much has already been said about CSR. Some may say that part of it is philanthropy, while others may see it as something done to make a better impression. While businesses from different parts of the world have varying perceptions of CSR, it all comes down to implementing work and employee practices that are not only good for business but also lead to positive effects to humankind and the environment.


A lot of buzz has been created about virtual captives sourcing model (also known as “hybrid captive and “synthetic captive”). For those unfamiliar, a “captive” operation is generally known as a subsidiary company, typically set up offshore to reduce risks and minimize operational costs. The virtual captive model seeks to bridge the world of third party outsourcing with the benefits of a captive operation – but does it succeed?

Benefits of a virtual captive operation


Among the main benefits, and yet, what is strangely argued by some as the main pitfall of virtual captives, is the sharing of responsibility between the client and the third party provider:

 “In the virtual captive space, which is one of the hybrid models---one clear issue which has not been resolved in the market, is the division of accountability between a buyer and the supplier. If it is a pure third party contract, supplier will have the mandate not just to deliver the process, but to also make improvements in the process,” comments Everest Group Research Director, H. Karthik.

Karthik may have a point, but this also means that all that must be done in order to remedy this pitfall is to simply establish a clear foundation on the division of accountability prior to the deal – as is done in any outsourcing contract. Among the most popular examples of the model is the seven-year deal Wachovia made with Genpact in 2005. By personally training its staff and ensuring that their offshore employees had a solid grasp of company culture and its standards for excellence, Wachovia was able to minimize retention and help ensure production efficiency. This was possible because of another main selling point of virtual captive models -  the level of control that a client company is given in a addition to the responsibility that the third party has over process improvement. Hence, the name “hybrid captive” - because it seeks to combine the best of both worlds. Karthik's argument is valid insofar as the initiative on both sides to define accountability is not taken. Is not the point of wanting to set up a captive operation negated if the added level of control a virtual captive offers goes unutilized?

 


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.

Steps to a successful sole sourcing partnership

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.



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