Today outsourcing is a widely discussed topic of the world economy. However, it is no new concept. What is new, is the nature of outsourcing. The process that initially started with outsourcing of manufacturing process has now turned to business process outsourcing.
Outsourcing is an act of transferring a part of its workload by a firm to another for doing the business on its behalf. It may take place within the boundary or over the boundary. Cross-boundary outsourcing is called offshore-outsourcing or simply off shoring. Today what is being discussed all over the world in the name of outsourcing is offshore-outsourcing of business processes.
Outsourcing started initially during the 1960s in the hands of multinational companies (MNCs). Though the history of MNCs lies as far back as sixteenth century, they started appearing prominently in the arena of world economy only after World War II. By 1960s these MNCs so expanded their business that they started opening their foreign branches. The main objective behind this was to obtain cost advantages by producing different parts of a product in different countries. To reach the goal, production were being scattered over different branches in such a way so that each part of a particular product can be produced with the least-possible cost. This form of outsourcing is an example of outsourcing of manufacturing process.
The word outsourcing appeared first in 1979 in the pages of ‘The Journal of the Royal Society of the Arts’ where an American auto executive wrote, “We are so short of professional engineers in the motor industry that we are having to outsource design work to Germany” (Hashmi, 2006). Designing of a product is actually an example of business process. Business process outsourcing started its journey more or less from this period. However, this change in the nature of outsourcing could be clearly felt only from 1990s.
Three Ws of Outsourcing
What, Why and Where.
We have already discussed about first W in the previous section. Let us now explore the reasons behind recent phenomenal growth of outsourcing. To explore the answer to this question it should be remembered that outsourcing is basically a kind of division of labour .If it is so then the first advantage of outsourcing should naturally be reduction of cost.
By outsourcing firms can reduce their cost in various ways. First of all, they can often reduce their number of employee and thereby reduce labour- related costs, such as recruitment, supervision, and other administrative costs . Secondly, by outsourcing the business activities, in which they are inefficient firms can save costs. Thirdly, while outsourcing firms always try to find out low-wage locations. This practice enables them directly to reduce labour cost.
Among other advantages mention may be made first to the improvement of quality of production. By quality of production we like to mean the qualities from management to customer service as well as the quality of the product. Since by outsourcing firms can put down non-core activities from their shoulder they become able to concentrate more on core activities. It no doubt improves their efficiency on core activities. Moreover, since by outsourcing non-core activities are transferred to persons specialized in the job, this part of the production is also performed with much more efficiently than before. Thus, by performing both core and non-core activities in a better manner quality of production can be improved through outsourcing. Secondly, outsourcing takes off the burden of many legal or statutory compliances (Ramesh, 2005). Thirdly, outsourcing helps a firm to obtain stable pricing which, in turn, allows the firm to budget operating expenses and capital purchases more accurately while potentially preventing the likelihood of surprise expenses.
On the issue of third W, we shall discuss in the next section.
Indian BPO Industry
Indian BPO industry has its first appearance at the fag end of twentieth century, sometimes during 1999-2000. Immediately after its emergence, the industry started growing at a very rapid pace. The growth is discernable in terms of both employment and revenue earned. In the year 2002-03 the industry as a whole employs 0.18 million workers and earns 2.48 billion dollars. Both these figures got almost doubled just in a single year. In the year 2004-05 the industry employs 0.35 million workers and earns 5.09 billion dollars (Karnik, 2005).
The main factor behind this spectacular growth of Indian BPO industry lays with excessive preference of US multinational companies to Indian firms. This preference can be quantified with the statistics that during the period 2001-2005 five lakhs people had lost their job in US (Ikbal, 2005). Indian BPO firms, on the other hand, earn two-third of their export-revenue from US only
This excessive preference of the US firms to Indian firms draws attention of many. According to some, the basic reason lies in politics, not in economics. Beginning from 1960s many Indians started to settle in America. Over time many of them became prominent in the US poilitics and business. It is their direct influence which helped Indian BPOs to get contract from the US multinationals. This argument, however, is denied by most others. According to them, this argument may be partially true in the early phase of Indian BPO industry, but over time, they got contract on their own.
The strengths of the Indian BPO industry that help them to get most of the US contract can now be discussed. First of all, we should mention the large pool of English speaking people of India, approximate number of which is no less than 300 million, larger in number than entire population of countries like Great Britain. Since English is an international language persons engaged in BPO must know it for communicating with foreign customers. Secondly, quiet a big reservoir of skilled IT (information technology) professionals also adds a point in favour of India. In fact, today India is enjoying the benefit of thrust given by the then Prime Minister Rajib Gandhi in the middle of 1980s on the development of IT sector. The third factor, which gives Indian BPO sector an obvious impetus, is its favourable demographic profile, with nearly 60 per cent of its population between the ages 15-59, and more than half below the age of 25 (NASCOM, 2006). This is important because IT jobs require physical and mental fitness. It is not so easy a task to work before a computer for a long time, preferably at night, without sufficient fitness. The fourth factor to which attention is especially drawn is the location of India in comparison to the USA, the biggest customer of India. India is situated in the perfect time zone to attend the US customer, which facilitates the industry to network seamless 24 x 7 (Sikdar et.al, 2005). Fifthly, the largest network connection in the world has given Indian BPO industry a tremendous booster. In fact, in the year 1999, when the Government of India lifted her monopoly control from international calling facilities BPOs started emerging in Indian soil. Last, but not the least, India’s main advantage lies in its low wage rate. In comparison to western countries, wage rate in India is lower by 70-80 per cent (Rao, 2005).
Our Observations
At present it is of no doubt that the Indian BPO industry is growing at a very fast pace, the contribution of this sector in Indian GDP is also very high, but does everything go right with this industry? Unfortunately, the answer is not positive.
When a firm outsources his primary concern lies with the protection of its data. Indian firms are recently facing a problem in this area. Incidents of leakage of confidential matters of clients from Indian BPO firms are often taking place in recent years. It comes as a serious threat to the Indian BPO industry. One of the main reasons behind this is the presence of maximum number of temporary workers in this industry. According to an estimate, rate of retrenchment in Indian BPO firms is very high, nearly 30-40 per cent (Mehta, 2005). Moreover, workers themselves take this job as a temporary one. Because of this temporary nature of employment, workers do not feel any responsibility towards their job and therefore do not hesitate to disclose confidential matters of clients. If this trend continues, the balloon of rapid growth will take no time to burst.
However, this is only one side of the episode. On the other side, a social problem is creeping up. In BPO firms those who are employed are mostly teenage people. They entered into service immediately after completing their Higher Secondary studies. As a result, large chunks of good students are skipping their higher education. The society has to suffer for this practice in near future. Moreover, with the expansion of BPO business a new culture, termed as ‘call-centre culture’, is emerging out. It is actually a mixed culture, which is developing in the call centers. The working environment of these call centers are full of fun with lots of parties, lots of gatherings (McMillin, 2006). The workers celebrate festivals of their home country as well as of their clients’, they usually do enjoy holidays of both the countries. By this way, a hotchpotch culture is developing which, in future, will certainly spread over our entire society. It is apprehended because call centers are expanding from first class cities to second and third class cities as well and as a result, the argument that the new culture is confined to big cities only and there is little chance of it to spread over our entire society is becoming obsolete day by day. If this apprehension proves to be true, a social unrest will develop in near future. So everything goes well with rapid development of BPO industry seems to be unlikely. We must be alert of this potential danger.
References:
- Hashmi, Mobina (2006); Outsourcing the American Dream? Representing the Stakes of IT Globalisation; Economic & Political Weekly, Vol. XLI No 3.
- Ikbal, Badar Alam (2005); Outsourcing and Indo-US Trade Co-operation; Yojana, October.
- Karnik, Kiran (2005); Future of Indian BPO Industry; Yojana, October.
- McMillian, Divya C (2006); Outsourcing Identities: Call Centres and Cultural Transformation in India; Economic & Political Weekly, Vol. XLI No 3.
- Mehta, Sunil (2005); Data Protection: A New Challenge to Outsourcing Industry; Yojana, October.
- NASCOM (2006); NASCOM Knowledge Professionals Factsheet.
- Ramesh, T (2005); Outsourcing- A New Wave of Business ; The Management Accountant, September.
- Rao, P Mohana (2005); Business Process Outsourcing (BPO)-The Search for Cost Effectiveness; The Management Accountant, September.
- Sikidar,Sujit and R.K. Raul (2005); Business Process : An Analytical Study; The Management Accountant, September.