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August 2011 | Outsourcing Blog | BPO Industry Updates and Articles

Addressing Talent Concerns in the Outsourcing Industry

by: Karen Cayamanda

Wednesday, August 24, 2011 | Comments (0)

Category: Outsourcing News

Philippine Outsourcing Industry

The Philippines produces about half a million graduates on a yearly basis. One may think that with this figure, the outsourcing industry will not have a hard time looking for workers to meet the demand. While there are a lot of graduates who are readily available for work, the challenge here is finding individuals who have the knowledge and skill sets needed for outsourced business functions. It is a well-known fact that what drives the outsourcing industry is talent. Quantity is not enough. What’s more important is to have a huge pool of workers whose skills meet the demands of the industry.

Seeing how important it is to have high quality talent and to keep the outsourcing industry a main economic growth driver, industry body Business Processing Association of the Philippines (BPAP) is working with various government agencies particularly in the field of education. There is a need to improve the curriculum and make students more proficient in the English language - one of the crucial factors needed to enter the business process outsourcing (BPO) workforce. Likewise, trainings programs are being implemented for the same purpose of honing the skills of workers.

It was reported recently that the Philippine government is teaming up with BPAP as part of the efforts to address talent concerns and eventually help the industry in reaching its revenue goal of $25 billion by 2016. The initiative is called Training-for-Work Scholarship Program and it will be launched this year and in 2012. This aims to train 58,000 scholars, and 37,000 are guaranteed to get jobs. This program will need P350 million in investments. According to Department of Budget and Management Florencio Abad, this is something that the government should take into account, considering the revenues that the industry can bring.

The Philippines is now considered the top call center destination and it is inching its way up when it comes to non-voice services. Through these initiatives, the outsourcing industry is with high hopes that the country will meet the ever increasing demand for highly skilled workers and remain globally competitive.

Six Guide Questions in an Outsourcing Deal

by: Ronald Escanlar

Monday, August 22, 2011 | Comments (0)

Category: Outsourcing Research / Trends

What to Ask in Outsourcing Deals

A company may find itself in a bind if it shortlists two outsourcing service providers that have equal skill, knowledge and experience in the outsourcing industry. Outsourcing advisory firm Alsbridge has drawn a set of six guide questions that can help a company decide and select a provider that will help them move forward into a successful outsourcing partnership.

Alsbridge has formulated the six guide questions from a recent interaction with a client:

Has the service provider created a comprehensive transition plan? Transition from the present operation to the outsourcing service provider’s delivery group should be as smooth as possible, taking into account the issues and challenges that can hinder an efficient transfer. Seek advice from those experienced with transition processes – the information gained can provide an insight into the time involved in managing the transfer. A service provider’s transition plan must include a timeline of six to eight weeks of knowledge transfer.

This transfer may involve staffing and recruitment, hierarchy, workflow, metrics, service level agreements, and finally, a certification for an “all systems go” from the provider. Be wary of plans that are either too exacting or too vague – ambiguity may be a sign of inadequate information on the part of the provider.

Did the provider behave well before and during contract discussions? Profit is undeniably a motivation in any outsourcing deal, but there should be a more valuable motivation in pursuing an outsourcing relationship rather than focusing on cost efficiency. First impressions last, and these may also define the outsourcing relationship. Long-term outsourcing deals are based on equitable arrangements - a win-win situation between client-company and service provider.

Is the provider experienced enough to reliably deliver? In making reference calls, it will be helpful to write a common script. Through a common set of questions, answers can be quantified and compared, profiling the service provider’s relationships with other clients. Visual aids, such as tables and graphs, can be used in evaluating the reference calls.

Are the right people assigned to your account? Issues and challenges in the outsourcing relationship must be resolved in a timely manner. The Client Manager and Delivery Manager are the people to focus on – are they capable enough to ensure that the outsourced operation runs efficiently? Interactions with the provider’s management team and its operations staff during due diligence and site visits are invaluable, since these situations provide an insight into the service provider’s internal management processes.

Is the contract price too competitive to resist? A service provider with a lower contract price may spring surprises during transition. They may claim additional charges for items not covered by the agreement, and may even offer additional services for additional fees. Some service providers still use this bait and switch approach in signing up clients.

Is the service provider a cultural match for your company? An honest relationship will drive more than cost efficiency in an outsourcing relationship. If the service provider ensures a sincere atmosphere in your communications, chances are, they will be able to pull through a difficult situation and help beyond what is expected. As much as possible, ensure that the service provider’s corporate values and culture are parallel to your own.

Global Outsourcing Momentum 2011

Outsourcing advisory firm TPI has released its Momentum Market Trends & Insights 2011 Verticals Report, which surveyed outsourcing trends in 27 vertical and 68 sub-vertical industries last year. The study found spending for outsourcing across the surveyed industries rose by 5%, but spending per industry was highly variable.

The following are the report’s highlights:

Outsourcing spending among Forbes Global 2000 (G2000) companies has increased. Over $72.1 billion was spent by G2000 companies last year for outsourcing services, amounting to a 5% increase. Manufacturing and Financial Services accounted for the most spending, but the Retail sector had the highest growth rate at 37%. The growth was attributed to increased IT spending as new retail business models emerged.

Increased outsourcing deals among G2000 companies. Overall outsourcing penetration among G2000 companies rose by 3% as more companies signed their first outsourcing deals last year. Twelve out of 27 vertical sectors had at least 20% penetration.

Outsourcing momentum led by sub-verticals. Outsourcing activity shifted to sub-verticals as spending on outsourcing declined on the main verticals. Outsourcing spending in the Chemicals industry flat lined, but the sub-vertical Life Sciences increased outsourcing spending by 30%. The Business Service & Supplies industry plateaued, but its Finance Services sub-vertical increased by 15%.

Increased outsourcing activity in specific verticals has shifted the Hunting-Farming dynamics. Opportunities across the 27 industries being tracked by TPI are measured through the TPI Hunting-Farming Index. In the 2010 Farming Index, the Utilities and Retailing industries boosted their ratings from medium to high as outsourcing spending among these companies increased.

Vertical trends have been positively affected by the market’s fast growth. Outsourcing penetration has increased significantly among larger firms compared to small companies in majority of the industries surveyed. Most of the new outsourcing growth happened in companies ranked 501-1,000 in the G2000.

As markets recovered last year, the survey revealed which among the vertical industries surveyed offered the healthiest opportunities for investments. Outsourcing spending was indeed not constant across sectors, but the data will help in choosing the correct strategies for outsourcing.

US Credit Rating Downgrade and the Philippine Economy

by: Karen Cayamanda

Wednesday, August 10, 2011 | Comments (0)

Category: Outsourcing News

For the first time, Standard & Poor’s had lowered the US credit rating from AAA to AA+. Credit ratings indicate the opinion of the agency about the “ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time,” according to www.standardandpoors.com.

What does this mean? In these uncertain times, it could bring about serious effects to financial markets and businesses not only in the US but also in other parts of the world.

In stock markets, investors may panic over their shares, resulting to rapid selling of stocks. Some individual investors already did. As the US economy slows down, experts and business owners see some sort of a domino effect on various industries and aspects of the Philippine economy, though it may be too early to say what this situation may bring. Of course, one of the first to feel the impact would be the OFWs. According to Department of Labor and Employment Secretary Rosalinda Baldoz, they are now looking at the recent US situation and how it will affect the deployment of Filipino workers to the US. OFW remittances would be greatly affected as well if this gets worse.

BPO players to see effect of the US downgrade

How does this affect the outsourcing industry of the country? For an industry where the peso-dollar exchange rate plays a huge role, business process outsourcing (BPO) players will definitely see the effect of the US downgrade. Western companies may be a little bit more cautious when it comes to spending due to the current global economic situation. Since the US is the largest market of the Philippine outsourcing industry, this downgrade will surely be felt in one way or the other. However, the industry remains confident and optimistic and growth is still projected in the next few years. The game development segment, for instance, aims for a faster growth rate of 60-70 percent next year.

It may take time before the economy can really feel the effects of this situation, but the psychological impact is probably the worst right now. In times of uncertainty, company owners obviously become very cautious. Some even panic as they try to keep their investments safe and their business going.

Companies have yet to fully see the impact of this downgrade, but it is important to put the game face on and stay resilient. Now more than ever, it is crucial to stay abreast about what’s happening and be ready for anything.

Multi-sourcing Due Dilligence

A company may rely on an outsourcing strategy that combines the infrastructure and talents of multiple service providers across different countries. This strategy helps them avoid the disadvantages of relying on one outsourcing service provider.

However, a multi-provider sourcing strategy needs efficient coordination among business units, such as the finance, legal, and operations departments. According to outsourcing consultancy firm TPI, the success of such a strategy relies on an apt structure, best practices on multiple-provider service delivery, flawless invoicing and allocation systems, and high levels of service.

TPI advises companies to consider the following questions:

How is a suitable commercial structure created? Among the key factors in considering the right commercial structure are cross-border taxes and cross-subsidization. Either a central agreement covering all countries or a Master Services Agreement (MSA) with country-specific agreements may be used in service deals, but keep in mind that any deal must include clauses covering service delivery, legal and financial that favor your company.

Can the service provider deliver across multiple countries? Choose service providers that can deliver services in flexible agreements, with billing in local currencies. Ensure, too, that providers have the managerial and legal skills to craft agreements in multiple countries.

How best do we manage multi-providers? The best managerial approach in handling multi-providers is based on your company’s organizational culture, its internal capabilities, and the skill of its staff. There is no one “formula” that serves all. Even if providers are to be managed either through an outsourced service integrator (SI) or through a third party Governance-as-a-Service, ensure that your company strategy is included.

What is the best way to invoice across multiple countries? Issuing invoices across borders depends on your company structure. Several ways to issue invoices include a centralized system; by country to a single legal entity; by country to multiple legal entities; or a combination. Compare the cost of local invoicing and allocations against the impact of cross-border taxes and cross subsidization. It may be more advantageous to centrally issue invoices depending on the amount to be invoiced and the services delivered in-country.

How do we keep high levels of service? The best way to ensure high levels of service across multiple providers is to define service levels end-to-end across multiple providers. Domestic service levels is best managed locally, while service levels across borders can be globally managed, taking into account in-country service defaults and service credits. This combination may be the most flexible strategy in ensuring high levels of service across multiple service providers.

Managing multiple service providers does not need magic, but rather a disciplined approach in coordinating multiple providers across multiple countries and varying contexts. The key lies in having an efficient interaction among business units to ensure a smooth operation.