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
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.