Outsourcing: May 2008 Archives

Some offshore outsourcers that want more IT work from companies in the U.S. are expanding their operations in the US, with the latest example being Brazilian Vendor Company.

The said company, which has about 7,000 employees and $300 million in annual revenue, currently provides outsourcing services primarily to companies in Latin America. The vendor company has just 50 employees in the U.S. now. But by 2010, it intends to have as many as 800 workers in development centers in Atlanta, New York and the Miami area, said Dalton Luz, company's vice president of corporate affairs.

In April, the company received an $80 million investment commitment from Mitsubishi Corp., and Luz said the financial infusion is increasing its ability to expand internationally. He added that most of the people who staff the planned U.S. offices will be hired locally.

Brazil's total outsourcing market is about $8 billion annually. But the offshore component--meaning services delivered to companies based outside of Brazil--amounts to only about $700 million. By comparison, it added, India's offshore market reached about $40 billion last year. It says in forecast that the offshore business in Brazil will increase to $1.25 billion within two years.

Although Portuguese is Brazil's dominant language, English is also widely spoken there. Other factors that may make the country an attractive offshoring location for U.S. companies include the relatively similar time zones and the low cost of IT labor in Brazil.

Outsourcing vendors based in India are also moving to expand their presence in the U.S. In March, an India company based, said it was opening a development center in Milford, Ohio, that eventually would employ about 1,000 people. And last July, rival company announced plans to set up four development facilities in the U.S., starting with one in Atlanta that likewise could have 1,000 employees over time.

Maybe, this simply means that companies from the said countries having lack of IT skilled workers because they are much more interested having IT workers from the US, and because maybe they know that this IT workers from the US are more well trained IT professionals. But I'm not saying that it's true, I'm just pointing out the instances that possibly can happen in the future, hopefully not.

 

Let us discuss first what Payroll Outsourcing is. In business, payroll is a vital part. The government requires you to collect tax and National Insurance (NI) under the PAYE system, process constitutional maternity pay, and calculate occupational pension contributions. These tasks can be somewhat complicated. Incorrect or late payment of the employees and other requirement failures are imposed with penalties.

Hiring a payroll service provider lets you outsource a whole range of activities, ensuring that everything is done correctly and efficiently. It allows you more time to concentrate on core business activities, and less time worrying about bureaucratic formalities.

Advantages

Time and effort are saved. Outsourcing allows staff to focus on core business issues.

 Payroll outsourcing makes compliance with tax rules and government regulations easier and more effective. No need to try and keep up to date with complex changing legislations.

One of the most cost effective outsourcing areas. Scale efficiencies of payroll service providers make them very efficient. Fees are generally lower than most of the other accounting services.

No need to worry about holiday covers for payroll.

Can eliminate payroll training costs for both legislation and software

 Reduces need to invest in payroll-related software or technology upgrades

Increased security against data losses since personnel information is backed-up with payroll   providers' system.

Disadvantages

 Perceived loss of control, changes in your payroll must be communicated to your service provider.

 Less flexibility on how payroll is produced, and how reports are generated, especially for companies with complex accounting requirements.

Before a company decides to outsource their payroll, they need someone to help them resolve the following questions:

·         What is the accuracy of payroll outsourcing vendor?

·         What is the timeliness of payroll outsourcing vendor?

·         What changes will have to be made in the way we collect and update payroll data?

·         How fast will payroll outsourcing vendor correct payroll errors?

·         How will payroll outsourcing vendor handle late payroll data's?

·         What do we do with the staff and equipment that we used before outsourcing?

·         Who will manage the payroll outsourcing vendor?

·         What performance measures should we put into contract with payroll outsourcing vendor?

·         What penalties should we put into payroll outsourcing contract?

Most successful companies have websites to promote their products and services. Websites provide an even greater and global market that could rake in greater profits. Websites are capable of doing business for you even when you sleep. Sounds cheesy, but not at all.

 

Online businesses do not thrive on their own way. Somebody has to work on it. Product reviews and samples will be helpful in turning potential customers to clients. Once customers are pleased with what they get from you, chances are they turn to you again for yet another product or service. Online inquiries and requests must be responded to efficiently and professionally. This will give customers the feeling that you value them and that you take time for them.

 

Since customers are the bloodline of your business, treat them as business partners and friends. Be informal, address them by their first names - this will give them the feeling that you take them personally. Send them occasional gifts and freebies, or plain but warm thoughts via email.

 

Get the most out of technology without putting too much of a barrier on your part. Use email and instant messaging to communicate with both your staff and even customers. There are also other technologies such as VoIP that will keep you connected with each other no matter where you are. Online conferences can also be an option for you if you have partners from other parts of the world. This is time and effort-saving platform you can use, less the physical space and manual operations.

It always remain a mystery that despite undesirable travel advisories against the country, the chronic uprising of mutinies against the current administration, or the persistence of forms of political repression, internationally inclined businesses still continue to thrive in the Philippines. In fact, BPOs, call centers, animation services and the likes even show remarkable business performance. It seems like the overall industry of offshore outsourcing is not even shaken despite the presence of these political instabilities.  What could be the fundamental reason for this? Better yet, to answer this inquisition, it's more appropriate to review the conditions that initially establish the Philippine outsourcing industry for we might find something there that explain the source of its strength responsible for making it surpass all the odds that confront it. When and where did it start? What's the raison d'etre of Philippine outsourcing industry?

Actually, outsourcing is said to have emerged a few thousand years ago with the production and sales of food, tools and other household appliances. As soon as small communities and societies began to form, people with specialized professions began to trade with each other for goods and services. In effect it can be said that each worker was outsourcing some activities to others.

As the world evolves and human societies turned into nation-states, a sense of interconnectedness grows between and among them. In turn, they tend to help each other in a lot of ways. In the contemporary time, outsourcing became an engaged practice for companies, wherever in the world they are based, to seek back office assistance from pool of employees even outside their national territories. U.S. and U.K. are two of the leading nations where most companies, who preferred to outsource their operations, are based. On the other hand, India, China, and Philippines are examples of countries that serve as outsourcing destinations.

Outsourcing was not fully identified as a marketing strategy until 1989. However, in the case of Philippines, the practice of outsourcing is already practiced as early as the 70s dwelling on accounting services, animation, among others. It was just in the past decades that outsourcing acquires an identity of itself. And, with the revolutionary advances in information technology, outsourcing becomes increasingly evolved that it covers almost all fields from legal services, medical assessment, software development, to call center services and many others.

Hence, with these, it can be said that the factor which makes it responsible for Philippine outsourcing to flourish is not because of inherent characteristics peculiar to it rather because of a more broader idea that most business companies all over the world felt the need to outsource their operations in order to focus on core company concerns. The issue that concerns Philippines is why choose it as a viable option for offshore outsourcing. Despite the presence of some irregularities in the country, so long as the long term operations are not disrupted, then, it is still a sound decision to outsource in the Philippines. Political instabilities are outweighed by the bond that keeps nations throughout the world fundamentally linked with each other. The growing feeling of interdependence gives vigor to the outsourcing industry in general. For without this, business relationship between countries is not possible in the first place. 

Among all the countries in the world, Philippines is cited as one of the best place for outsourcing. Experts asserted that it is due to the counties well educated, language wise and IT-skilled workforce. As a third world country, a lot of business professional are uncertain how Philippines has attained its position in the outsourcing world, Yet somehow Philippines get away with it and became one of the hot spots to outsource.

Once recognized for its great agricultural land and over seas workers, Philippines are now indulging to IT business trend, and somehow became one of the favorite destinations for multinational companies in offshore outsourcing. Due to the country's high literacy and English proficient, Philippines is also suited for call-centers, Business Process Outsourcing (BPO). 

The land was once colonized by the Spaniards, and Americans, Philippines has turn it to its advantage, making it a culturally open society, a clear advantage over its rivals in the outsourcing trend. As a democratic country its people are more open to different influences from different cultures, thus making Filipinos adapt to foreign cultures easily. 

As a paradise for outsourcer around the globe, the country and its people will surely benefit from it. If questions are raise on how Philippines stands in the outsourcing market, its assets speaks for itself. No need to doubt or debate, Philippines is the best when it comes to outsourcing.           

Offshore outsourcing refers to contracting to companies in the foreign countries. It is simply the relocation of your business works; works that involves the non-core of your business to give your company a smooth operational process.

Offshore outsourcing is one of the well-recognize market in the business industry today. It is the best way for companies to acquire than hiring or expanding their company's manpower- which is more expensive. Over the years the levels of quality and efficiency have been increased substantially. This has been made possible through the advanced IT and Telecommunication system. And through the use of offshore outsourcing, a small business with limited resources can function like a large business 

The salaries may be tremendously increasing now but, if we compare the same costs in countries like US and Europe, it still will come to an answer that offshore outsourcing is still advantageous.

The main point of offshore outsourcing is that it provides companies with cheap labor and at the same time quality of service. It helps company to save lots of money as well as time. Having everything at hand will surely boost up your company.

I recently read an article that a UK based company offers professional payroll services for all sizes of employer. It provides everything a business needs in the outsourcing function. The company also provides fast, reliable, and personal services for an agreed fixed charge.

Well, this is great news for business companies that need payroll services because the job is outsourced to a competitive country like the Philippines.

Why Outsource your Payroll?

1. Payroll outsourcing removes the burden:
   In recent years, UK Payroll has become markedly more complex and time consuming. For some, on-line filing is already mandatory. Outsourcing payroll and related compliance enables you to concentrate on your core activities.
2. Payroll outsourcing minimizes the risk:
   It is difficult for smaller businesses in particular to engage, train, and retain suitably skilled staff and the penalties for PAYE failure can be severe. These result to wasted management time, employee dissatisfaction and vulnerability to Inland Revenue PAYE Inspections.
3. Payroll outsourcing gives you one less thing to worry about:
   By engaging a particular payroll Service Company, you gain the comfort and reassurance of a professional service.
4. Payroll outsourcing is often cheaper:
    In-house, payroll may only be a part- job for which a staff may lack training and support. Payroll outsourcing is inexpensive and for a good value.

Many companies recognize the substantial advantages that can be gained from payroll processing outsourcing. Safe in the knowledge that the payroll will be ready on time whatever the pressures are on the outsourced party, company business can devote precious resources in growing their core activities.

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The Dilemma of an Outsourced Service Provider

 

Outsourced service providers have mushroomed all throughout the world to serve client companies mostly from the UK and the US who are likely to prefer outsourcing to Philippines for many and varied reasons. Outsourcing Philippines however is not spared from several issues confronting it.

 

Outsourced service providers are also known as managed service providers who tackles services fro another company. Tasks and services rendered here include IT services, remote data backups, desktop and security monitoring, and technical assistance and are provided via the internet. Outsource service providers also manage client company's web hosting and maintenance of their websites.

 

 Most companies choose an outsource service provider that can best cater to the needs of the company. Client companies have the option to select manage services provider. And as a business itself, these service providers need to answer several issues and considerations. This is to ensure that as an outsourced service provider, they are able to thrive sufficiently and keep themselves secure of a good and bright future.

 

Below are the issues and considerations outsourced service provider must take into account:

 

Issue:

Outsource agreements that are flexible to change its technology platform over time.

 
Consideration:

Ensure that you're able to change your technology as your business grows. Otherwise, a customer could require one set of technology even as you provide separate technology for other customers. This doesn't mean that you have to disappoint customers' requirements for service levels and technology refresh over time. But it should allow you to meet these requirements in flexible fashion.

 

Issue:

Freedom to use services offshore or use subcontractors as a cost-savings approach.

 Consideration:

To reduce costs, your outsourcing contract should provide that you may relocate services and work with subcontractors of your choosing. The customer will require you to negotiate appropriate confidentiality provisions and may attempt to assert other limitations on these rights. The key to securing this right is to guarantee clients seamless, high-quality service.

Issue:

Other measures service provider needs to have to keep costs under control.

 Consideration:

If a "cost-plus" deal isn't an option, alternatives include per-service fee increases. In this event, the contract should also let you process change requests through an orderly change-control procedure. If there are increased costs, you should have the right to come to agreement with the customer on additional charges. Also consider attempting to get the customer to agree to shoulder some of the burden of unanticipated cost spikes caused by the customer not following agreed-upon procedures.

To the extent that the customer's delays require you to sideline valuable resources, you should consider putting appropriate cost-containment provisions in the agreement. For example, if a customer delay forces your personnel to work overtime, the customer should pay for any increased wages. In addition, the contract can allow for cost-of-living increases if appropriate.

Issue:
Ownership/ proprietorship of the work service provider did or has developed on customer engagement.

Consideration:
Your outsourcing contract should clarify which party owns work performed rather than leave this matter open to question or later negotiation. Vagueness could lead to conflict later on. You and the client should clearly define ownership of the contracted work, whether it's software, business processes or other intellectual property developed over the course of the contract.

Issue:
Service provider's protection against piracy of its best employees.

 
Consideration:
Good talent is always in demand. Your outsourcing contract should reduce the likelihood that the customer will try to recruit your employees by having an appropriate nonsolicitation and nonhire clause.

Issue:
Modular outsourcing contract to be provided by the outsource service provider to its customers.

Consideration:
A master document that references concepts or attachments is suited to the ever-changing reality of an outsourcing. For example, the term of your contract should be a stated number of years or a month after any transition period is completed rather than a specific begin and end date. If your transition effort runs late, the length of time for service delivery is effectively pushed back so that a provider won't find his term shrinking. Contrast this with a more limited, specific date-driven contract that isn't flexible enough to recognize the manner in which project plans may change.

As we know, outsourcing is a process of contracting another company or a person to do a particular function. Usually, the function being outsourced is considered non-core to the business. Outside firms that are providing the outsourcing services are third-party providers, or commonly called, service providers.

Although outsourcing has disadvantages to your business like for example, we tend to loose the managerial control. This happens because managing the outsourcing service provider is much harder as compared to managing one's own employees.

Also, we usually tend to skip the potential hidden costs of outsourcing which includes legal costs of putting together contracts, and it feels that outsourcing reduces the overall expenses of a business process. This is one of the major reasons why a lot of companies decide to outsource or favor outsourcing.

It is hard to predict all the hidden and missed out costs of outsourcing, causing overall costs to be underestimated. Also, outsourcing proves that it is a threat to the security and confidentiality issues of a company.

If the company is outsourcing a business process such as payroll, confidential information such as trade secrets will be known to the outsourcing service provider. Therefore, we should be very careful in choosing which business to outsource and which not to.

Outsourcing also may result to the possible loss of flexibility in reacting to changing business conditions, lack of internal and external customer focus and sharing cost savings, as well as, loss of internally produced talent is another problem associated with the outsourcing as it may slow down the growth of an employee by depriving him/her from the experience he/she would have gained by handling the business issue himself, then by passing it over to some other external party.

 
Outsourcing success depends on three factors, in all cases:

• Executive-level support in the client organization for the outsourcing mission; plenty of communication to affected employees; and the client's ability to manage its service providers.
• Outsourcing professionals in charge of the work on both the client and provider sides need a combination of skills in such areas as negotiation, communication, project management, the ability to understand the terms and conditions of the contracts and service level agreements.
• Above all, the willingness to be flexible as business needs change.

 For a conclusion, before a company decides to outsource its business process, make it sure that you must examine first all the factors carefully so that it does not happen that outsourcing becomes a reason for companies to regret in the future.

What makes the Philippines a viable option for offshore outsourcing? Perhaps, this can be best answered by the increasing numbers of foreign companies who chooses to contract with Philippine IT solution providers to develop their sites, create graphic designs, review bulks of legal documents, and any other thinkable service which can be left handled to the Filipino work force. But to make things a bit more firm and certain, outsourcing in the Philippines booms in a steadfast manner because of crucial factors that stems from the uniqueness and brilliance of Filipinos. Here are some defining factors which able the country to continually gain ground, and perhaps serve as tickets for it to outbid its competitors in outsourcing.

Language Advantage. U.S has been one of the leading countries whose companies prefer to outsource their operations. Luckily for Filipinos, Philippines had more shared culture with the U.S. among Asian countries. This is not just in terms of legal system or the admiration of western mentality, but primarily because of a more fundamental and basic connection, that is, when it comes to language. When compared with other outsourcing destinations in Asia, Philippines has a pool of workers who are more proficient in the command of the English language. Not just that, when interpreting legal documents from the U.S., Filipinos are better skilled in doing this because the educational and the legal system are heavily anchored in the said language. Hence, there is this instant understanding of the solution provider towards the culture of the foreign client. So, it can make the transaction progresses in a fluent manner, and the outputs be accomplished in a way that is sensitive to the character of the one who is being served. The Philippines is the third largest English-speaking country in the world, so it's not surprising to use this as an advantage over other competing countries in the dynamic world of outsourcing.

Trained and Skilled Labor Force. Government has been continually supporting the outsourcing sector by keeping a steady supply of talented workers through education and training. Service businesses which includes outsourcing is easier to set up and support than capital-intensive manufacturing businesses, and it can even generate more white collar jobs than the latter. Hence, fresh graduate students with degree holders can be best utilized under the IT and outsourcing industry. The cheaper labor wage compared to the increasing salaries of those who came from other outsourcing countries like India, even further the advantage of contracting with Filipino providers.

            These factors are just few of the many reasons why outsourcing continually flourishes in the Philippines. Though there still a lot to mention, still, those are enough to provide hints as to why it will always be an advantage to work with Filipino service providers. Filipinos had been globally known in quite innumerable fields like sports, arts, entrepreneurship, engineering, designing, among others. And, it seems like adding outsourcing in the list would be a greater pride not just to the country itself but primarily to the work force who persistently sustains it.