Article 20 Global Market for Outsourcing Article 20

Article #20 Global Market for Outsourcing Article #20 IT and IT Enabled Services By: Shailendra C. Jain Palvia Presented by: Rachel Kha

Objective ü To explore the global market for outsourcing IT and IT enabled services ü See the benefits to outsourcing ü Understand all functions that can be outsourced

Previous Work • 1996 -Lacity-1989 $4 billion business • 2001 -Casale-2000 $56 billion per year-IT Functions • 2002 -Vijayan-2005 made $160 billion in the US • 2003 -Hoffman-has reduced corporate IT expenses by 20% to 50% • Global Insight-by 2008, – IT off-shoring will account for roughly $125 billion in additional US GDP annually – $9 billion jump in US exports and a net increase of 317, 000 jobs – amount is expected to increase to $250 billion by 2015

Previous Work Continue • 2003 -Gartner Dataquest-estimated the global market for Business Process Outsourcing would reach: – $131 billion in 2004 – $131 billion in 2007 – Growing at a compounded annual growth rate of 9. 5% • 2005 -Minevich-IDC estimated that the global BPO market was expected to grow to $1. 2 trillion in 2006 from $300 billion in 2004 – expect about 25% of US spending on application development, integration, and management services to go to offshore providers • 2005 -Gross-IT outsourcing by U. S. firms may itself create new IT related jobs here in the US

Outsourcing Country Statistics 1. 2. 5. 7. 8. 11. India (7. 3/10)-(3. 4/4 cost; 1. 6/3 envn’t; 2. 3/3 people) Canada (6. 2/10) Philippines Ireland Australia China Brazil Mexico Hungary Czech Republic Russia

Breaking the Stereotype Is Outsourcing really BAD? Benefits: 1. Cost Savings of $. 58 for ever dollar spent on jobs in India 2. American jobs outsourced to China have generated more demand for American products 3. Created jobs in other sectors 4. “Reverse Outsourcing”/ “Backsourcing”-foreign firms have outsource back to US 5. IT outsourcing by US firms may itself create new IT related jobs here in the US

No Independent Study Reported in this Paper • Conceptual Paper – It proposes a model but no tests or theories, thus no results • Functions that can be Outsourced

Areas of Work Outsourced • Information Technology (IT) • Accounting • Human Resources • Research and Development • Customer Relationship Management and Call Centers • Tax Preparation • Radiology Analysis and Medical Tourism • Film and Cartoon Production

Information Technology • First to be outsourced onshore/offshore – IS Development, IS Maintenance, IS Operation – Entire IT function • All company computers and data centers • PC maintenance and support • Acquisition and maintenance of the IT infrastructure-hardware • Systems software • Telecommunications networks

Accounting • Expected to grow at a 9. 6% compounded annual growth rate • Top $47. 6 billion in 2008 • Ex: US accounting firm helped an Indian start-up firm

Human Resources • Benefits: – – – Saving money Focus on strategy and core business Improving compliance Improving accuracy Lack of experience in house Taking advantage of technological advances

Human Resources Continue • Other functions outsourced – – – – – 401 (k) administration employee assistance/counseling retirement planning help pension administration temporary staffing background checks training and management development programs executive development and coaching health care benefits administration employee benefit administration Payroll risk management executive staffing employee relocation Human Resources Information Systems selection/training/implementation Recruitment executive compensation and incentive plans policy writing administration of compensation/incentive plans wage and salary administration

Research and Development • Survey 2003 – 50% of R&D groups in the auto, high-tech, aerospace and defense industries had no interest in outsourcing IT support – 12% were outsourcing IT projects related to R&D – 4% said they do any outsourcing of this function • Benefits – Reduced costs – Minimize business risks – Hasten market entry of products • Example from Author-India vendor

Customer Relationship Management and Call Centers • Benefits: – Client companies do not have to invest customer relationship management services and infrastructures with expensive inhouse IT and service departments – Lower costs • Companies aren’t too certain about intrusting their customers to a third party • Good companies – Customer and client relationship should be seamless – Vendor should not offer a one-size-fits-all packages • It should reflect the profile of the customer, not the reverse

Tax Preparation • Spending on tax should increase by 9. 3% per year over the next 5 years • Benefits: – – Cost reduction Improved turnaround time Increased productivity (returned in less than 48 hrs. ) Allows more time for CPA firms to offer more value-added services – Tax outsourcing can serve as a catalyst for business transformation (enabling a firm to outsource other accounting functions, such as bookkeeping) • Ethical concerns in regard to off shoring tax document – Follow four rules in AICPA Code of Professional Conduct

Radiology Analysis and Medical Tourism • Benefits -Ease the shortage of radiologists and increasing work loads • Technology now allows the internet transmission of crystal-clear radiological scans • Now contracting nighthawks-radiologists from Israel, Australia or Switzerland where it is daytime • Issues with credentialing, licensing, accuracy of the readings, liability, and public perception • Strict requirements that all teleradiologist be US trained, licensed, and board certified

Radiology Analysis and Medical Tourism Continue • Issues: USA has no jurisdiction outside its borders – The hospital would be liable but the radiologist is under no obligation to come to US for trial • Tourism increasing due to “medical tourists”traveling to India, Thailand for affordable First World health care. – Mc. Kinsey & Co. estimated that India’s medical tourist industry could yield up to $2. 2 billion in annual revenues by 2012 • Hospitals in India and Thailand are just as good if not better-ISO 9001 certified

Film and Cartoon Production • Jaddoworks. com – Indian outsourcing hub for animation cartoons • Indian animation industry is a $550 million industry – expected to grow at 30% annually – reach $15 billion by 2010 • Ex: Sindbad: Beyond the Veils of the Mists – first full-length Indian animated 3 D film using “motion capture” – Film was finished in 18 months instead of the usual 2 years of more – Only cost $14 million instead of $40 million

Conclusion Functions that are easy to outsource: Information Technology (IT) Accounting (expanding)—India Human Resources Tax Preparation—still ethical concerns Radiology Analysis and Medical Tourism—still liability issues—India and Thailand Film and Cartoon Production—India Hard to Outsource: Research and Development—dealing with extremely sensitive data-India Customer Relationship Management and Call Centers

Implications for Service Managers • Many functions can be outsourced • Choose based on type of job • Ensure that all is considered before deciding to outsource • Customer Service • Standards • Accents • Quality • Accuracy • Legality, Jurisdiction • Culture