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Although the concept of business process outsourcing continues to instill much fear and loathing in Western nations and remains a constant area of attack for politicians, little is heard about the actual cost-saving advantages that accompany this controversial practice.
For most companies, the primary goal of offshoring is cost reduction. Early adopters in the communications industry have reported initial savings of 20-30 percent, with additional savings expected as operations increase in efficiency and scale.

Some companies in other sectors, such as financial services, report cost savings in excess of 40 percent. Based on operators' responses to the survey, the report calculates operators will save at least US$14.5 billion annually from offshoring by 2008.

Exceptionally low wage rates and increasing education levels make it possible for companies to hire offshore workers who are even more qualified than their existing staff - and still save money. The result is an alluring combination of lower costs and higher quality, with growth in data applications expected to further drive the need for workers with superior technical qualifications.

For example, call-center staff supporting broadband technology requires greater technical proficiency than those handling voice services such as call waiting. Reduced time to market is another key benefit. And by taking advantage of time-zone differences, companies can create a 24-hour working day, allowing them to accelerate development of product offerings and technology applications.
Time to market will be increasingly important for operators as the intensity of competition ratchets up. For most companies, the economics of offshoring are simply too powerful to ignore. Offshoring has the potential to improve the competitiveness of the entire global communications industry, driving down the overall cost structure, and leaving those companies without offshore capabilities struggling to compete.

Offshoring is already a common practice in other industries, particularly financial services, professional services, and high-tech manufacturing with the communications industry following quickly. Companies generally use offshoring for business processes that are standard, routine and mature, while keeping innovative and high-value activities at home.

Supporters of outsourcing say that shifting jobs such as call center positions to India actually benefits developed economies because it enables firms to reduce costs and in turn the prices they charge domestic consumers. Those in favor also claim that creating new jobs encourages a wider increase in trade between the two countries in question.

It is no secret that labor costs are the biggest source of savings, with wage rates in developing countries as low as one-tenth the rate of an equivalent resource back home. Additional savings come from reduced overheads, including lower costs for recruitment, national insurance and real estate. Some of the savings are inevitably lost to increased management overhead, communications costs, start-up costs and other administrative inefficiencies. Yet most companies still report net savings of 20-40 percent.

In the US and Western Europe, for instance, call centers typically employ recent graduates and casual workers often competing with fast food outlets for staff. Those relatively unskilled workers can earn an annual salary of nearly $20,000. Yet in India, a university graduate capable of carrying on a technical conversation can often be hired for a quarter of that amount. Staffing call centers with workers who are both affordable and technically competent will be increasingly important as communication applications become more complex.
Among the offshore contenders, India is currently in a class by itself. Relatively speaking, it has highly educated workers with strong English-language skills and a solid work ethic.

Because it has been in the offshoring game the longest, it has deep experience and a top-notch infrastructure making it easy for companies to get their offshore operations up and running quickly.

 

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