Global Trade Features - The Global Outsourcing Market - The National Outsourcing Association - Read More
Martyn Hart, Chairman of the NOA explains................................................
The outsourcing market continues to thrive, even within a turbulent economy, and businesses from all over the globe are looking to cut costs, streamline their processes and work more efficiently. As a result, organisations are looking to service providers based in regions throughout the outsourcing landscape to provide them with expertise, quality workforces and ultimately, cost savings. As market activity increases, so do the number of locations offering outsourcing services. Of course, the same major players, such as India, are as prominent as ever, however there are a number of emerging destinations that are offering attractive prospects to the outsourcing market. First it is worthwhile taking a quick look at India, the country is, after all, still the leading force in offshoring. India has long been the nation of choice for British and American organisations to offshore their IT and business process service provision. Tax breaks, a cost effective workforce and excellent currency exchange rates meant that in terms of cost cutting India was second to none. However, in recent years it hasn’t been such smooth sailing for India. 2008 saw the combination of inflation and currency appreciation have an impact on the Indian market, with the Rupee almost reaching a ten year high against the dollar. Soaring demand for services also meant that there was a significant increase in local salaries. This saw the cost of offshoring to India rise, making other low cost destinations just as desirable to end-users. India has also had its fair share of bad press. The Mumbai attacks did nothing for its political image and the Satyam saga raised concerns about corporate governance. However, despite this, one of the best indicators of India’s success is to look at the performance of its large IT services companies. Companies like Wipro, TCS and Infosys have taken the world IT stage by storm and have been going from strength to strength, increasing their client portfolio and offering innovative outsourcing solutions. It is unlikely that their client base will reduce dramatically as a result of a loss of confidence, the price and the service they are offering are just too good. Overall India is still thriving within the outsourcing market. However, not everyone likes seeing their processes go so far away. In the last few years countries in Eastern Europe, such as Russia, Estonia and Romania have joined the outsourcing fray, launching propositions to the UK market. Distinct advantages such as highly educated workforces and close cultural alignment are cited by organisations sending their processes to these destinations. These countries have developed a reputation in high-end IT development. Romania is one of the Eastern European outsourcing success stories. On 1 January 2007, Romania joined the EU, which has further boosted the economy and improved Romania’s attractiveness as an outsourcing location. Although it is mainly Central European states that have sent work to Romania, the UK is catching on to Romania’s competitive advantage and more companies are considering Romania as an offshoring destination. Since 2000, Romania has attracted increasing amounts of foreign investment, becoming the single largest investment destination in Southeastern and Central Europe. According to a 2006 World Bank report, Romania currently ranks 49th out of 175 economies in the ease of doing business, scoring higher than other countries in the region such as Hungary, Poland and the Czech Republic. Trade is mostly centred on the member states of the European Union, with Germany and Italy being the country's single largest trading partners. With organisations facing media and public backlash when it comes to offshoring processes, near shore destinations may become the regions of choice for newcomers to the outsourcing market. Outsourcing and offshoring has traditionally been associated with large organisations looking to streamline. SMEs have been particularly hesitant to offshore processes, choosing instead to use onshore suppliers. However, there has been a recent surge in offshore destinations offering outsourcing services specifically for the SME sector. One such destination is Sri Lanka. Destinations such as Sri Lanka have a cream of the crop workforce, are as competitive on price as the more common locations as well as being SME friendly. Directors of smaller organisations can feel safe in the knowledge that a big name brand is not about to sweep into these destinations and suck up the best graduates, leaving only a less than adequate, unmotivated, labour pool. Sri Lanka is a good fit when it comes to UK SMEs. There still remains a great deal of synergies the ex UK colony has retained. The education system mimics that of the UK, the country has a similar legal system and English is the language spoken within businesses. Focusing on finance and accounting in particular, Sri Lanka, has the second largest number of CIMA qualified graduates, second only to the UK. The government is also investing a great deal into improving the country’s infrastructure and making the destination as attractive a possible to foreign investors. Substantial cash grants, tax breaks and whole ownership opportunities all give Sri Lanka a competitive edge. Sri Lanka is however a destination that may raise some eyebrows. It has just emerged from a bloody civil war which may cause some hesitation amongst organisations looking to set up shop in the country. Although the bulk of the civil war was held in areas outside Colombo, a move to invest in the country may result in a public or media backlash. Despite this, there have been some significant businesses looking to work in Sri Lanka. HSBC, Aviva and Microsoft all have a presence and are capitalizing on a fresh, well educated, workforce whilst still enjoying similar costs to India. As one can see, the outsourcing landscape is continuously evolving. As more destinations join the mix, end users will need to have to ensure that best practice is always followed throughout the procurement process. Choosing the right supplier and right destination is imperative to ensuring a long term, beneficial outsourcing arrangement.
Contact The National Outsouricng Association at www.noa.co.uk
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