Posted by: Marius Constantinescu
Lately, the upper management from all companies has been under a lot of pressure from shareholders to cut down costs by outsourcing. Stories of other companies’ success in dramatically cutting down costs have also helped the frenzy, overshadowing the unsuccessful stories. No matter if the current process has be running successfully for years at a relative low cost or we are talking about a brand new project, if there are chances to save more, why shouldn’t we also try it? - this is the question.
Why outsourcing? From a historical perspective, not such long time ago the global economy was mainly driven by the consumption fueled by developed countries markets and customers. This was a relative low percentage compared to global population, so the need to open new markets/customers and lower the production cost was the obvious answer in order to increase the profits. The main candidates would be countries with large population, mainly the emerging economies Asian countries: China and India. But in order to open these new markets, another major show stopper had to be resolved first: the big difference between the high price costs of the products/services compared to the relative low income of these new potential consumers from these emerging economies.
The outsourcing was the answer to both problems: move the production/support to these emerging developing countries and this will first lower the price cost of products/services by taking advantage of cheaper work force and secondly in time this will increase the income level of these countries population until the point they become themselves consumers of these products.
While China was the preferred country for outsourcing production manufacturing, it did not succeed in attracting services due to the fact that the majority of the people did not have English language skills. This might be different in the future as now Chinese pupils take compulsory English lessons from third grade in primary school all the way to college. India had a great advantage of a highly educated fluent English speaking nation and was chosen for outsourcing first the support & customer service. This was just the beginning as the savings attracted almost everything from development, testing, R&D up to full implementation of projects and recruiting services.
RCIB Group Consultants recognize that each case scenario is different and there are a lot of factors to be weighted in when management looks at the possibility of outsourcing a specific process/project. Is this a mission critical project/service, what is the targeted reliability, what is the vendor’s track of record for similar implementations, how much will company save overall, how much control will have during the whole process etc.
There may well be equally compelling arguments against any sort of outsourcing arrangement, but in the end, the upper management will need to carefully factor in the short and long term cost and benefits as well as the risks always involved before embarking upon the outsourcing course.
If you want to find out more, please visit us at: http://www.rcibgroup.com/.
