UNIT-1:COURSE CONTENTS
Current business landscape & changing
demands.
Global competitive pressures.
Survey findings on international sourcing.
Characteristics of future winners.
International economists view on importance
of sourcing.
THE NEW MARKETING REALITIES
Network
information
technology
Retail
transformation
Globalization
Consumer
resistance
Deregulation
Industry
convergence
Privatization
Heightened
competition
THE NEW MARKETING REALITIES
Network information technology:
• The industrial age was characterized by mass
production and mass consumption.
• The information age promises to lead more
accurate levels of production, more targeted
communication and more relevant pricing.
THE NEW MARKETING REALITIES
Globalization:
• Technological advances in transportation,
shipping, and communication have made it
easier to market to other countries and
source products and services from other
countries.
THE NEW MARKETING REALITIES
Deregulation:
• Most of the growth in the various sectors of
the Indian economy is due to the government
policy of deregulation and liberalization.
THE NEW MARKETING REALITIES
Privatization:
• Converting public companies to private
ownership and management to increase
efficiencies.
Example: UK
• British Airways.
• British telecom.
THE NEW MARKETING REALITIES
Heightened competition: Resulting in rising
promotion costs and shrinking profit margins.
Domestic brands.
Foreign brands.
Store brands (Private levels).
THE NEW MARKETING REALITIES
Industry convergence: New opportunities lie in
the intersection of two or more industries.
• Example: Computing and consumer electronics
industries are converging as the giants of the
computer world such as Dell, Gateway and HewlettPackard release a stream of entertainment devices –
from MP3 player to Plasma TVs and camcorders.
• The shift to digital technology is fueling this massive
convergence.
THE NEW MARKETING REALITIES
Consumer resistance: Due to bad or over
marketing.
• A 2004 Yankelovich study found record levels
of marketing resistance from consumers.
• Negative opinions about marketing and
advertizing .
THE NEW MARKETING REALITIES
Retail transformation:
• Growing power of giant retailers and
“category killers”-home shopping, ecommerce on the internet.
• Entertainment.
• Food courts.
• Demonstrations.
NEW CONSUMER CAPABILITIES
Substantial
increase in
buying power
An amplified voice to
influence peer and
public opinion
A greater variety of
goods and services
Ability to compare
notes on products and
services
A greater amount of
information
Greater ease in
order placing and
receiving
NEW CONSUMER CAPABILITIES
A substantial increase in buying power:
• Buyers are only click away from comparing
from competitors prices and product
attributes.
NEW CONSUMER CAPABILITIES
A greater varieties of available goods and
services:
• Amazon .com: world’s largest bookstore
branched into retail sales of music and movies
,clothing and accessories ,consumer
electronics, health and beauty aids and home
& garden products.
• Buyer can order goods online from anywhere
in the world.
NEW CONSUMER CAPABILITIES
• A great amount of information about
practically everything:
• Read any newspaper, in any language, from
where in the world.
NEW CONSUMER CAPABILITIES
Greater ease in interacting and placing and
receiving orders:
• Buyers can place orders from home, office or
mobile phone 24 hours a day,7 days a week
and quickly receive goods at their home or
office.
NEW CONSUMER CAPABILITIES
An ability to compare notes on products and
services:
• Social networking sites bring together buyers
with common interests.
• Compareindia.com provides competitive
information ,mostly based on consumer
reviews, price features and user’s experience
pertaining to a varieties of products.
NEW CONSUMER CAPABILITIES
An amplified voice to influence peer and public
opinion:
• The blogs.
NEW COMPANY CAPABILITIES
Internet as a powerful
information and sales
channel
Sending ads, coupons, samples
and information to customers
Researchers can collect
fuller and richer information
Target market and two way
communication through
special interest news groups.
Managers can speed
internal communication
External communication
with customers online, offline
NEW COMPANY CAPABILITIES
Mobile marketing to
reach consumers
New recruitments on
line and internet
training products
Corporate buyers can
achieve substantial
savings by using
internet
Firms can produce
individually
differentiated goods
Managers can
improve purchasing,
recruiting, training
and communication
COMPANY ORIENTATION TOWARDS THE
MARKET PLACE
The
production
concept
The holistic
marketing
concept
The marketing
concept
The product
concept
The selling
concept
THE COMPANY ORIENTATION TOWARDS THE
MARKET PLACE
• The production concept: Consumer will prefer
products that are widely available and inexpensive.
Therefore production-oriented businesses
concentrate on achieving high production
efficiencies, low costs and mass distribution.
Example: China .
• Largest PC manufacturer ,Levono and domestic
appliances giant Haier take advantage of the
country’s huge and inexpensive labor pool to
dominate the market.
THE COMPANY ORIENTATION TOWARDS THE
MARKET PLACE
• Product concept: Consumer favor products
that offer the most quality ,performance or
innovative features.
• Focus is on making superior products and
improving them overtime.
• A new or improved product will not
necessarily be successful unless it’s priced,
distributed ,advertized, and sold properly.
THE COMPANY ORIENTATION TOWARDS THE
MARKET PLACE
• The selling concept: Consumers and
businessman, if left alone, will not buy enough
of the organization’s products.
• Therefore focus on aggressive selling and
promotion efforts.(Sell what they make
,rather than make what the market want).
• It is practiced most aggressively with unsought
goods like insurance and encyclopedias. Or it
is used when the firm have overcapacity.
THE COMPANY ORIENTATION TOWARDS THE
MARKET PLACE
• The marketing concept: Emerged in 1950s.
• Focus on “Customer –centered” than “product –
centered”.(A “sense –and respond” philosophy).
• The job is not to find the right customers for your
products, but to find the right products for your
customers.
• Example: Dell computer –customized features as
desired by the customer.
THE COMPANY ORIENTATION TOWARDS
THEMARKET PLACE
• Selling focuses on the needs of the seller.
• Marketing focuses on the needs of the buyer.
THE COMPANY ORIENTATION TOWARDS THE
MARKET PLACE
• The holistic marketing concept:
• Focus on development, design and
implementation of marketing programs,
processes, and activities that recognize their
breadth and interdependencies .
• It recognizes that “Everything matters” in
marketing and that a broad, integrated
perspective is often necessary.
FOUR BRAOD COMPONENTS CHARACTERIZING
HOLISTIC MARKETING
Internal
marketing
Performa
nce
marketing
Holistic
marketing
Relationship
Marketing
Integrated
marketing
INTERNAL MARKETING
Senior
management
Marketing
department
Other
departments
Internal
marketing
INTEGRATED MARKETING
Products and
services
Communication
Channels
Integrated
Marketing
PERFORMANCE MARKETING
Community
Sales
Revenue
Brand and
customer
equity
Legal
Environment
Performance
Marketing
Ethics
RELATIONSHIP MARKETING
Channel
Customer
Partners
Relationship
marketing
THE VALUE DELIVERY PROCESS
CHOOSE THE
VALUE
• Customer segmentation.
• Market selection focus.
• Value positioning
PROVIDE THE
VALUE
•
•
•
•
•
COMMUNICATE
THE VALUE
Product development.
Service development.
Pricing.
Sourcing/making
Distributing/servicing.
• Sales force.
• Sales Promotion.
• Advertisement.
THE HOLISTIC MARKETING ORIENTATION AND
CUSTOMER VALUE
Customer
focus
Value
exploration
Value
creation
Value
delivery
Core
competencies
Collaborative
network
Cognitive space
Competency
space
Resource space
Customer
benefits
Business domain
Business
partners
Customer
relationship
management
Internal resource
management
Business
partners
management
Difficulties in reaching success in
twenty-first century
DIFFICULTIES IN REACHING SUCCESS IN
TWENTY –FIRST CENTURY
In consumer packaged goods, distribution
concentration has increased greatly:
• Much distribution is in the hands of giant
corporations and multinationals.
• Power has been transferred from
manufacturers to distributors.
• Slotting fees-exit fees, promotion fees etc.
DIFFICULTIES IN REACHING SUCCESS IN
TWENTY –FIRST CENTURY
• Hypermarket and super market chain control
(in the food sector) more than 80 percent of
final consumer purchases.
• Major franchises –McDonald’s ,KFC, Subway,
Domino’s Piza-accounts for another major
shares.
• There is similar situation across all industries.
DIFFICULTIES IN REACHING SUCCESS IN
TWENTY –FIRST CENTURY
The number of competitors has been reduced,
but the number of brands has strongly
increased:
• Many producers were not able to survive the
strong pressure of the giant retailers and
either disappeared or were acquired by the
“big fishes’.
DIFFICULTIES IN REACHING SUCCESS IN
TWENTY –FIRST CENTURY
Product life cycle have been dramatically
shortened:
• New products last for a shorter time.
• For companies ,it is easier to launch new brands due
to available resources and consumer is increasingly
are ready to try the new brands that they see
advertized.
• In the hyper markets the desperate war for shelf
space intensifies.
DIFFICULTIES IN REACHING SUCCESS IN
TWENTY –FIRST CENTURY
It is cheaper to replace than to repair:
• Hard goods do not last as long as formerly.
• Example:
• Laser printer.
• Electric razor.
• Laptop.
DIFFICULTIES IN REACHING SUCCESS IN
TWENTY –FIRST CENTURY
Digital technology has provoked a revolution in
many markets:
• It has led to a whole range of products:






Computer,
interactive TVs,
Digital phones,
Smart dishwashers,
Microwaves,
Toasters.
DIFFICULTIES IN REACHING SUCCESS IN
TWENTY –FIRST CENTURY
The number of varieties of a given product has
increased radically:
• Go to a super market and write down the
names of all the yogurts you can buy, by flavor
and sizes.
• You can probably list over 50 different yogurts:
Plain, with sugar, with vanilla, with pieces of
different fruits, various flavors, low fat, or
nonfat, etc.
DIFFICULTIES IN REACHING SUCCESS IN
TWENTY –FIRST CENTURY
Markets are hyper fragmented:
• Companies ,in their search for differentiation,
have identified and created more segments
and niches, resulting in highly fragmented
markets.
• Ultimately this will lead to one-to-one
customized products and marketing.
DIFFICULTIES IN REACHING SUCCESS IN
TWENTY –FIRST CENTURY
Advertising saturation is reaching its highest
levels and fragmentation of media is
complicating the launch of new products:
 A normal citizen of a large urban area is daily exposed to an
average of 2,000 advertising or communication stimuli.
 More than 100 television stations, 200 radio stations, 1,000
magazines.
 Audiences are so diverse in their media habits that
companies have to invest in many media to reach them.
DIFFICULTIES IN REACHING SUCCESS IN
TWENTY –FIRST CENTURY
Markets are much more competitive:
• Now the challenge is to fight against
fragmentation, saturation, and the storm of
novelties that appear daily in the markets
where we compete.
GRANT THORNTON –SURVEY ON
SOURCING TRENDS
• In order to continue providing up-to-the
moment authoritative coverage of the global
supply chain, World Trade has partnered with
the well respected consulting firm Grant
Thornton to survey sourcing trends within
leading U.S. manufacturing companies.
FINDING -1
• In the following excerpt on sourcing practices
and trends, Grant Thornton reports that a
substantial number of the three-quarters of
major U.S. companies currently sourcing
internationally have made changes or are
planning to make changes to alter supply
chains to source closer to home.
CLOSER TO HOME
WHY CLOSER TO HOME ?
• These changes are being driven by
considerations other than price, such as
supply chain resiliency (flexibility) and
responsiveness, suggesting the many more—
and more complex—variables entering into
supply chain decisions.
FLEXIBILITY AND RESPONSIVENESS
FINDING -2
Most source internationally
The vast majority of survey respondents are
sourcing internationally.
• 2008: More than three in four companies (77%)
report spending at least some of their 2008
supply chain budgets on international sourcing.
• 2007: Essentially the same percentage as in 2007
(76%).
77% SUPPLY CHAIN BUDGET SPENT
ON INTERNATIONAL SOURCING
FINDING-3
Among those sourcing internationally:
• China is the most frequent supplier country
(22%),
• Other Asian countries (16%).
38%
• Western Europe (14%).
SOURCING
• Canada (12%).
IN ASIAN
COUNTRIES
• Mexico (9%).
FINDING-4
Supply chain
budget spent
internationally
Who do dot
source
internationally
% Budget spent
2008
% respondents
2007
% respondents
1 to 25%
44%
47%
26 to 49%
14%
14%
51 to 100%
19%
15%
Nil
23%
24%
77% RESPONDENTS SOURCED
INTERNATIONALLY
SUPPLY CHAIN BUDGET SPEND
ABROAD
A growing proportion of supply chain budgets
spent abroad
According to survey findings:
2008: More than four in 10 respondents (44%)
spend between 1 and 25 percent of their
supply chain budget on international sourcing,
2007: Down slightly from 47 percent in 2007.
SUPPLY CHAIN BUDGET SPEND
ABROAD
2008: Nearly two in 10 survey respondents
(19%) spend between 51 and 100 percent of
their supply chain budgets internationally.
2007: This represents an increase from 2007,
when 15 percent spent between 51 and 100
percent of their supply chain budgets
internationally.
SUPPLY CHAIN BUDGET SPEND
ABROAD
The percentage of respondents who do not
source internationally:
2008: (23%) is nearly the same as last year
2007: (24%).
FINDING-5
Off shoring: The good and bad
The vast majority of respondents (79%) report
that they benefit from lower costs, calling this
the primary benefit of international sourcing.
MAJOR PRIMARY BENEFITS OF
INTERNATIONAL SOURCING IS REPORTED
“LOWER COSTS” .79% RESPONDENTS
FINDING-5
Other reasons include:
• Increased production capacity (24%).
•
•
Improved logistics for accessing international markets (22%);
Access to technology or equipment (18%). Access to intellectual property
and ideas (11%);
• improved quality (11%).
OTHER BENEFITS:
1. INCREASED PRODUCTION CAPACITY.
2. IMPROVED LOGISTICS .
3. ACCESS TO TECHNOLOGY.
4. ACCESS TO INTELLECTUAL PROPERTY.
5. IMPROVED QUALITY.
FINDING -6 : ISSUES REPORTED
The issues respondents cite as problematic are varied.
• Although more than six in 10 respondents (61%)
indicate the prevailing problem with international
sourcing is late product delivery.
LATE PRODUCT DELIVERY- 61%
FINDING-6: ISSUES REPORTED
Other frequently cited concerns are:
• Poor quality products (43%).
• Customs delays (38%).
• Products not built to specifications (28%).
• Nearly one-quarter (24%) complain of higher
overall costs.
• More than one in 10 (11%) note problems with
the loss of intellectual property.
FINDING-7
Is it profitable? Mixed feelings
Most respondents report that the return on
investment (ROI) from offshoring has been
positive.
• More than half (54%) indicate that
international sourcing has increased their ROI.
IMPACT ON ROI - MIXED FEELING
54% POSITIVE IMPACT
FINDING-7
• At the same time, nearly four in 10 (38%) say
that there has been no impact on ROI due to
international sourcing.
• An additional 9 percent say that international
sourcing has worsened their ROI.
38% NO IMPACT
9% NEGATIVE IMPACT
FINDING-7
• Considered together, the finding is striking:
Nearly half of respondents (47%) see
offshoring as neutral or detrimental to their
ROI.
IMPACT ON ROI
47% NEUTRAL OR DETRIMENTAL
FINDING-8
PLANS FOR FUTURE SOURCING
• Plans for the future: Moving sourcing closer
to home?
While the largest percentage of survey
respondents that source internationally relies
on China (22%), this trend may be changing.
TRENDS MAY BE CHANGING AS THE
COMPANIES PREFER TO SOURCING
CLOSER TO HOME
FINDING-8:
PLANS FOR FUTURE SOURCING
• In the coming year, many respondents are
considering or actively planning to bring their
operations closer to home, relocating sourcing
to Mexico, Canada and, in some instances, the
U.S.
CLOSER TO HOME
FINDING-8:
PLANS FOR FUTURE SOURCING
• Nearly three in 10 respondents (28%) report
that they brought sourcing closer to the U.S.
during the past 12 months.
28% ALREADY BROUGHT SOURCES
CLOSER TO US
IN THE PAST 12 MONTHS
FINDING-8:
PLANS FOR FUTURE SOURCING
• More than four in 10 (45%) say they plan to
bring sourcing closer to home during the next
12 months.
45% CLOSER TO HOME IN THE
NEXT 12 MONTHS
VIEWS OF MR.JOHN MAYNARD KEYNES
• John Maynard Keynes, the great British
economist, is suddenly back in vogue.
• During the current global economic downturn,
you hear his name invoked in discussions
regarding stimulus packages in the United
States, China, Europe, and elsewhere aimed at
preventing a 21st century Great Depression.
VIEWS OF MR.JOHN MAYNARD KEYNES
• In writing The Economic Consequences of the
Peace in 1919, he considered the state of
globalization on the eve of the First World
War.
VIEWS OF MR.JOHN MAYNARD KEYNES
So Keynes reminds us of three basic lessons.
1. Globalization is not new.
2. The fabric of globalization is woven equally
from the warp of politics within and among
countries and the weft of individual business
decisions.
3. Globalization’s progress is not inevitable..
VIEWS OF MR.JOHN MAYNARD KEYNES
• As Keynes and members of his generation who
survived the First World War knew well,
globalization can be fragile indeed
Economist’s views
• A misguided sense of security and
predictability began to permeate sourcing
decisions during the past two decades.
Economist’s views
• International trade exploded, driven in part by
the opening of previously closed markets in
both Asia and Eastern Europe.
Economist’s views
• Sourcing from so-called low-cost countries
blossomed.
• China emerged as an economic powerhouse
and supplier of choice in many sectors.
Economist’s views
• Many at the start of the 21st century
“regarded this state of affairs as normal,
certain, and permanent,” and bet their
sourcing strategies on it.
Economist’s views
The new uncertainties can bewilder.
• Then came, in short order, financial contagion,
the bust of the commodity boom,
• The collapse of international trade,
• The worst global economic downturn since
the Great Depression.
Economist’s views
• in the summer of 2008 The Wall Street
Journal and The New York Times both
suggested high transportation costs might
soon make Asian sourcing prohibitively
expensive in many industries,
Economist’s views
• In January 2009 the Journal noted without
irony that containers are moving virtually free
of charge in a sea of shipping overcapacity.
Economist’s views
• Tracking the headlines leads to confusion, not
clarity, in thinking about an enduring strategy
UNIT-II
OUTSOURCING
BASIC OBJECTIVES OF OUTSOURCING
• Outsourcing is a powerful way for companies
to:
Reduce costs.
Improve quality of service.
Time-to-market.
Extend the scope of customer services .
Be better capable to focus on the core
competencies of the organization.
BASIC OBJECTIVES OF OUTSOURCING
• For European and specially German companies
outsourcing and near/off-shoring can also create
new source of flexibility that helps them meet
fluctuations in demand ,thus bypassing the
hindering thicket of labor laws back home.
• Europe’s rapidly aging population and means
that offshore labor will be low birth rate
increasingly needed in coming years to make up
for a fast dwindling workforce.
HOW OUTSOURCING STARTED
• It used to be decision made by financially
troubled businesses that wanted to cut costs
or offload unprofitable, cost –ineffective or
money –sapping assets.
• Initially led by American and then followed by
British companies ,a new global sourcing
trend has set in.
• Now a days, virtually every industry views
outsourcing as a smart business practice, and
one that’s simply unavoidable.
• Outsourcing & off shoring have now become
mainstream.
• Outsourcing is a business practice that is now
on the boardroom agenda of most European
blue chip companies and public sector
organizations.
WHAT IS BEING OUTSOURCED &
OFFSHORED?
Companies have outsourced & off-shore significant business infrastructure
such as:
• IT.
• Telecoms.
• Business Processes.
• HR.
• Back-office.
• Marketing.
• Call centers.
• Sales.
• Accounting.
• Design.
• Development.
• Testing.
• Outsourcing:
• Global sourcing or Off shoring.(Multi-shoring
outsourcing)
• .
• Offshore vendors and service suppliers.
• Legal, recruitment.
• Off shoring/global sourcing consultancy
service companies.
• Any other service providers which support the
industry
OVERVIEW
Outsourcing involves the transfer of the
management and/or day-to-day execution of
an entire business function to an external
service provider.
OVERVIEW
• The client organization and the supplier enter
into a contractual agreement that defines the
transferred services.
OVERVIEW
• Under the agreement the supplier acquires
the means of production in the form of a
transfer of people, assets and other resources
from the client.
• The client agrees to procure the services from
the supplier for the term of the contract.
OVERVIEW
Business segments typically outsourced
include:
 Information technology.
 Human resources,
 Facilities,
 Real estate management
 Accounting.
OVERVIEW
Many companies also outsource:
• Customer support and call centre functions like telemarketing, CAD
drafting,
• Customer service,
• Market research,
• Manufacturing
• Designing,
• Web development
• Print-to mail,
• Content writing,
• Ghost writing ,
• Engineering.
FEW OTHER SIMILAR TERMS
• Offshoring is the type of outsourcing in which
the buyer organization belongs to another
country.
• Outsourcing and offshoring are used
interchangeably in public discourse despite
important technical differences.
•
OUTSOURCING AND OFFSHORING
• Outsourcing involves contracting with a
supplier, which may or may not involve some
degree of offshoring.
• Offshoring is the transfer of an organizational
function to another country, regardless of
whether the work is outsourced or stays
within the same corporation/company.
• With increasing globalization of outsourcing
companies, the distinction between
outsourcing and offshoring will become less
clear over time.
• This is evident in the increasing presence of
Indian outsourcing companies in the United
State and United Kingdom.
• The globalization of outsourcing operating
models has resulted in new terms such as
nearshoring, noshoring, and rightshoring that
reflect the changing mix of locations.
• This is seen in the opening of offices and
operations centres by Indian companies in the
U.S. and UK.
• A major job that is being outsourced is
accounting. They are able to complete tax returns
across seas for people in America.
• Multisourcing refers to large outsourcing
agreements (predominantly IT).
• Multisourcing is a framework to enable
different parts of the client business to be
sourced from different suppliers.
• This requires a governance model that
communicates strategy, clearly defines
responsibility and has end-to-end integration.
• Strategic outsourcing is the organizing
arrangement that emerges when firms rely on
intermediate markets to provide specialized
capabilities that supplement existing
capabilities deployed along a firm’s value
chain (see Holcomb & Hitt, 2007).
• Such an arrangement produces value within
firms’ supply chains beyond those benefits
achieved through cost economies.
• Intermediate markets that provide specialized
capabilities emerge as different industry
conditions intensify the partitioning of
production.
• As a result of greater information
standardization and simplified coordination,
clear administrative demarcations emerge
along a value chain.
• Partitioning of intermediate markets occurs as
the coordination of production across a value
chain is simplified and as information
becomes standardized, making it easier to
transfer activities across boundaries.
• Due to the complexity of work definition,
codifying requirements, pricing, and legal
terms and conditions, clients often utilize the
advisory services of outsourcing consultants
(see sourcing advisory) or outsourcing
intermediaries to assist in scoping, decision
making, and vendor evaluation.
UNIT-II
Reasons and benefits of outsourcing
REASONS FOR OUTSOURCING
• Reasons for outsourcing
• Organizations that outsource are seeking to
realize benefits or address the following
issues:[11][12][13]
REASONS FOR OUTSOURCING
• Cost savings. The lowering of the overall cost
of the service to the business. This will involve
reducing the scope, defining quality levels, repricing, re-negotiation, cost re-structuring.
Access to lower cost economies through
offshoring called "labor arbitrage" generated
by the wage gap between industrialized and
developing nations.[14]
REASONS FOR OUTSOURCING
• Focus on Core Business. Resources (for
example investment, people, infrastructure)
are focused on developing the core business.
For example often organizations outsource
their IT support to specilaised IT services
companies.
REASONS FOR OUTSOURCING
• Cost restructuring. Operating leverage is a
measure that compares fixed costs to variable
costs. Outsourcing changes the balance of this
ratio by offering a move from fixed to variable
cost and also by making variable costs more
predictable.
REASONS FOR OUTSOURCING
• Improve quality. Achieve a step change in
quality through contracting out the service
with a new service level agreement.
REASONS FOR OUTSOURCING
• Knowledge. Access to intellectual property
and wider experience and knowledge.[15]
REASONS FOR OUTSOURCING
• Contract. Services will be provided to a legally
binding contract with financial penalties and
legal redress. This is not the case with internal
services.[16]
REASONS FOR OUTSOURCING
• Operational expertise. Access to operational
best practice that would be too difficult or
time consuming to develop in-house.
REASONS FOR OUTSOURCING
• Access to talent. Access to a larger talent pool
and a sustainable source of skills, in particular
in science and engineering.[4][17]
REASONS FOR OUTSOURCING
• Capacity management. An improved method
of capacity management of services and
technology where the risk in providing the
excess capacity is borne by the supplier.
REASONS FOR OUTSOURCING
• Catalyst for change. An organization can use
an outsourcing agreement as a catalyst for
major step change that can not be achieved
alone. The outsourcer becomes a Change
agent in the process.
REASONS FOR OUTSOURCING
• Enhance capacity for innovation. Companies
increasingly use external knowledge service
providers to supplement limited in-house
capacity for product innovation.[18][19]
REASONS FOR OUTSOURCING
• Reduce time to market. The acceleration of
the development or production of a product
through the additional capability brought by
the supplier.
REASONS FOR OUTSOURCING
• Commodification. The trend of standardizing
business processes, IT Services and application
services enabling businesses to intelligently
buy at the right price. Allows a wide range of
businesses access to services previously only
available to large corporations.
REASONS FOR OUTSOURCING
• Risk management. An approach to risk
management for some types of risks is to
partner with an outsourcer who is better able
to provide the mitigation.[20]
REASONS FOR OUTSOURCING
• Venture Capital. Some countries match
government funds venture capital with private
venture capital for startups that start
businesses in their country.[1]
REASONS FOR OUTSOURCING
• Tax Benefit. Countries offer tax incentives to
move manufacturing operations to counter
high corporate taxes within another country.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• In order to enable your company to save
money , It is important to realize that a longterm strategy and vision are necessary, as it
may not be that you see great savings
immediately.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Dramatically reduce time to market of your
products.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Improve company focus-better focus (your
own team) upon your core vs. context.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Accessing a better and much increased talent
pool- Access skilled resources by tapping into
global talent pools with world-class
capabilities, specially if resources not available
internally or locally.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Higher flexibility in expanding/reducing your
personnel. Partners can easily resize according
to the cyclical market needs you have.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Better ability to react fast to new situation.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Improved controlling and reporting of
output-improving organizational performance.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Gaining higher predictability
(Cost/speed/quality).
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Reducing R&D spend without sacrificing
quality and productivity.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Creating and sustaining a combative
advantage.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Harness leading technology.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Expand service.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Enrich customer and supplier relations.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Reduces and control operating cost-you may
even be able to lower your costs & grow your
margins.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Focusing resources on core competencies
while obtaining resources to improve
important, on-core business processes-make
capital funds available, cash infusion, asset
transfer.
WHY DO LEADING COMPANIES
OUTSOURCE & OFFSHORE?
• Increase efficiency.
• Share risk models-get the best return on your
IT investments by sharing risks with
outsourcing vendor.
HIERARCHAIL LEVELS OF
OUTSOURCING
THE GLOBAL SOURCING ORGANIZATION
MATURITY MODEL
Generation
-1
Generation2
Manage tasks and
processes
Manage processes
and results
• Initial sourcing
model.
Span of direct control
by the organization is
very large
• Emerging Ecosystem.
The organization now gives
operational control of specific
projects to the vendor while
controlling the business
outcome.
Generatio
n-3
Manage results
• Partnership
model eco –
system.
As organization begin to realize
significant benefits from outsourcing
they shift away from project
outsourcing and begin to leverage
vendor as strategic partners in a
managed services approach.
GENERATION-1
(Sourcing organization)
• The organization typically leverages vendors in a staff
augmentation (Add to, boost, enhance) approach.
• In a staff augmentation approach the way in which
technology is delivered does not significantly change from
that of a completely in -sourced model.
Therefore ,the following remain the same:
A. Job roles/responsibilities.
B. Staff competencies/skills *.
C. The organization structure
GENERATION-1
The vendor primarily provides specific skills to
augment (add to, boost, enhance ) the organization’s
staff.
• Organization’s span of direct control (the work that is
directly managed and done by the organization’s
employee) is very large.
• The organization retains complete control of day-doday operations and business outcomes as well as
directly supervising the vendor’s work.
GENERATION-1
As an individual contributor , the vendor is focused on
specific jobs or tasks required primarily functional and
task related competencies.
• Since the vendor takes on little risks or accountability
beyond skill delivery, the organization usually does not
expect the vendor to be involved in additional roles such as:
a. Strategic or business leadership.
b. Optimization.
c. Innovation.
GENERATION-1
The vendor
primarily
provides specific
skills to augment
(add to, boost,
enhance ) the
organization’s
staff.
Therefore ,the following
remain the same:
1. Job roles/responsibilities.
2. Staff competencies/skills *.
3. The organization structure
GENERATION-2
(Sourcing organization)
Organization’s span of direct control decreases.
The organization now gives operational control of
specific projects to the vendor while retaining
control of business outcome.
• Vendors not only provide skills , but they also
manage projects and delivery processes
improvement.
GENERATION-2
These changes in the way IT and business
processes are delivered result in changing in roles
and responsibilities.
• The vendor is held accountable for
completion and success of projects usually
involving non-critical applications and/or
business processes.
GENERATION-2
The organization’s staff manages the completion of
specific projects through vendor rather than doing
the project work themselves.
• At the project level, both organization staff
and vendor usually are responsible for
optimization and innovation.
GENERATION-2
Organization staff will need to build skills in
managing work indirectly through the
vendor.
(Changes in competencies and skills)
• Vendor will be expected to be more involved
in strategic process and business leadership of
assigned project.
GENERATION-2
Changes in the way work is accomplished will
have implications for the organization, too.
• Example: Vendor may now work both on-site
and off-site. The organization’s structure may
need to be updated to reflect these changes in
reporting relationships, specially for long
term projects.
GENERATION-2
Organization’s
span of direct
control decreases.
The organization
now gives
operational control
of specific projects
to the vendor
while retaining
control of business
outcome.
Changes in roles and
responsibilities
Changes in
competencies and
skills
Implications for the
organization
GENERATION-3
As organization begin to realize significant benefits from
outsourcing they shift away from project outsourcing
and begin leverage vendors as strategic partners in a
managed service approach.
• Organization’s span of direct control
diminishes greatly.
• The organization gives the vendor a significant
portion of an IT function and/or business
process to operate as a managed service.
GENERATION-3
(Sourcing organization)
This major change in the way technology and
business process are delivered results in a further
evolution of roles and responsibilities.
• The organization now leverage their sourcing
partner to manage a significant portfolio,
often including critical applications and/or
business process.
GENERATION-3
The partner is accountable for the delivery of
day-to-day technology and business process.
• As the roles and responsibilities continue to
evolve, there are also additional changes in
needed competencies and skills.
GENERATION-3
Strategic and business leadership skills are now
required of both the organization’s staff and the
sourcing partner.
• Managing and achieving results indirectly
through the sourcing partner are essential
skills for the organization staff.
GENERATION-3
• These unique global sourcing work
requirements translate to an increasing
emphasis on:
A. Relationship management.
B. Cross culture sensitivity .
C. Communication skills.
GENERATION-3
The managed services approach to global sourcing
has significant implications for the organization
To realize the cost reduction objectives for global sourcing, the
sourcing partner will use global delivery model with a
combination of :
• On-site
• Off-site.
• Nearshore.
• Offshore locations.
GENERATION-3
The need for teamwork expands with multiple
locations, different time zones and cross –
cultural requirements.
• Innovation and optimization often are enabled
through the formation of shared services and
centers of excellence (CoE) organization
structure.
GENERATION-3
As a result of these changes, the organization will need
to be re-designate to reflect the complex reporting
relationships between :
A. The retained organization.
B. Joint governance body.
C. on/off –site.
D. Offshore delivery units.
E. Other strategic shared services.
F. Center of excellence structures.
• Finally, performance of both the vendor and the
organization’s staff are measured on results achieved.(process
centric SLA to additional business centric SLA)
GENERATION-3
As organization
begin to realize
significant benefits
from outsourcing
they shift away from
project outsourcing
and begin leverage
vendors as strategic
partners in a
managed service
approach.
Further evolution of roles
and responsibilities
Additional changes in
needed competencies and
skills
Significant implications for
the organization.
POTENTIAL DRIVERS
WHAT SHOULD A GLOBAL SOURCING
STRATEGY ADDRESS?
Costs
Payment
methods
laws
Transport
ation
Language
& culture
Currency
Lead
time
COST
• Costs – A global sourcing strategy is often used to benefit
from lower labor costs abroad.
• But there are also other additional costs for a buying
organization to bear that aren’t part of domestic transactions.
They include:
Multi-modal freight charges,
Broker fees,
Bank fees,
Taxes called duties,
Insurance.
LAWS
• Laws – Global sourcing forces buyers and
suppliers to choose one of three bodies of law
to apply to their contract:
The law of the buyer’s country,
2. The law of the supplier’s country,
3. One applicable under a treaty
accepted by both countries.
1.
CURRENCY
• Currency – The buyer and the seller must agree on a
currency to use.
• While some buyers insist on their own currency for
simplicity’s sake, prudent decisions consider use of the
supplier’s currency when the buyer’s currency might
strengthen relative to the supplier’s currency between the
agreement and payment dates.
Fluctuation of currency
LEAD TIME
• Lead Time – Lead time for global purchases is
usually significantly longer than for domestic
ones. This is due to:
A. Ocean travel being slower than air travel.
B. Customs clearance adding time not
involved in domestic sourcing.
LANGUAGE & CULTURE
• Language & Culture – If you’re unfamiliar with
the supplier’s language and culture, you
increase:
A. The risk of communication
challenges,
B. Misunderstandings,
C. Offensive or uncomfortable
encounters.
TRANSPORTATION
• Transportation – While domestic sourcing usually
involves one shipping mode, global sourcing involves multimodal transportation – a strategy for combining air, water,
and ground transportation to get goods from the supplier to
the port of the supplier’s country to your country’s port to
your dock.
Global sourcing involves multi-modal
transportation – a strategy for combining air, water,
and ground transportation
PAYMENT METHODS
• Payment Methods – Global sourcing often
involves payment using a letter of credit which
requires the involvement of both the buyer’s
and supplier’s banks.
Letter of Credit (LC)
•UNIT 3
TOP 10 CITIES FOR OUTSOURCING 2008
(based on GDI weight and deal- clinching factors)
2007
2008
1.
Bangalore
Bangalore
2.
Manila
New Delhi
3.
New Delhi
Manila
4.
Mumbai
Beijing
5.
Dalian
Auckland
6.
Shanghai
7.
Beijing
8.
Sydney
9.
Brisbane
10.
Auckland
Mumbai
India still top outsourcing countries
but will loose to China by 2012
Two other Indian cities also made it to the top
10 list.
• New Delhi edged out Manila for the number
two spot.
• Mumbai dropped three places from last
year’s list to seven.
INDIA STILL TO….
• Bangalore and New Delhi were attractive due
to:
A. Existing infrastructure,
B. Large quantity of skilled workers.
C. Competitive pricing.
• However, that the appreciating rupee was
eroding the cost arbitrage.
India still top outsourcing countries
but will loose to China by 2012
• Auckland and Beijing made significant
progress over last year, moving up five and
three notches, respectively.
India still top……
• Auckland’s ranking was influenced by factors
such as:
A. Greater government support.
B. An increased emphasis toward a digital
economy.
C. Currency depreciation.
India still top outsourcing countries
but will loose to China by 2012
• The investment has sharpened Beijing’s
competitive edge:
A. Beijing’s infrastructure.
B. The environment for the Olympic Games.
India still top outsourcing countries
but will loose to China by 2012
• With prices on the rise in India, locations like
Beijing with established infrastructure and
lower costs will be in demand.
INDIA STILL TOPS …………
• IDC has developed a new Global Delivery
Index (GDI), which compares 35 cities in the
Asia/Pacific as potential offshore delivery
centers, based on a comprehensive set of
criteria such as:
A.
B.
C.
D.
Cost of labor,
Cost of rent,
Language skills.
Turnover rate.
INDIA STILL TOPS …………
• In its inaugural findings, Indian cities are
highly ranked, while Chinese cities are on the
rise and closely nipping at India’s heels.
• Examples of cities covered include Adelaide,
Bangalore, Dalian, Hanoi, and Kuala Lumpur
among many others.
INDIA STILL TOPS …………
• “There are different risk factors to consider
when evaluating outsourcing, offshoring,
onshoring, and nearshoring.
• Some factors are obviously more critical than
others and the GDI takes that into
consideration”
INDIA STILL TOPS …………
• Comments Conrad Chang, Research Manager
for IDC’s Asia/ Pacific BPO Research.
• “Often times, what differentiates leading cities
from the rest is their focus more heavily on:
A. Deal-clinching factors,
B. The GDI weights.
TOP 10 CITIES FOR OURSOURCING
1. 8.7
2. 8.2
3. 6.5
4. 6.2
5. 6.1
6. 6.0
7. 5.9
8. 5.7
9. 5.6
10. 5.4
Score by deal
clinching
factor.
DEAL CLINCHING FACTORS
• Indian cities are highly ranked, while Chinese
cities are on the rise and closely nipping at
India’s heels, according to IDC’s new Global
Delivery Index (GDI), which compares 35 cities
in Asia/Pacific as potential offshore delivery
centers.
DCF
• IDC forecasts that Chinese cities will overtake
Indian cities by 2012 due to massive
investments: Example:
Infrastructure,
B. English language,
C. Internet connections,
D. Technical skills,) which are favorable
toward offshoring.
A.
DCF
• The GDI is based on 30 criteria, such as:
A.
B.
C.
D.
Cost of labor,
Cost of rent,
Language skills
Turnover rate.
DCF
• The top 10 cities in 2007 for global delivery
focused more on deal-clinching factors, such
as:
A.
B.
C.
D.
Agent skills,
Political risk,
Cost of labor,
Language skills,
DCF
Overall weighted scores take into account 30
criteria used in the evaluation.
Deal-clinching factors focus only on
selected criteria that are deemed the
most important when evaluating a city
and also have a correspondingly higher
weighting attached to them.
DCF
• When evaluating outsourcing, offshoring,
onshoring, and nearshoring, some factors are
obviously more critical than others.
“Often times, what differentiates
leading cities from the rest is their
focus on deal-clinching factors, and
the GDI weighs that more heavily
than other factors
Clarity on terms used for
sourcing
OUTSIDE ENTITY
• Outside entity
Fully owned subsidiary of parent company: In
this case the outsourcing company owns the
outside entity.
LOCATION
Location:
Geographically located inside the client’s
home country.
Located in abroad but geographically close to
the client’s home country, often lies in the
same or nearby time zone.
Located for away from the client’s country.
SOURCING
• Sourcing
Sourcing referred as the procurement process.
• If the work is performed by the client company’s
subsidiary it is called insourcing (inside), sourcing is
happening inside.
If the work is performed by a third party vendor it is
called outsourcing, sourcing is happening outside.
The Country of Origin Effect
• Many factors influence the perception of
customers about the quality of a brand.
A. Brand image.
B. Brand personality.
C. Brand associations.
D. Communication messages.
The Country of Origin Effect
• The very reason a company indulges in
branding is to assist customers in making
purchase decisions by providing cues on:
A. Quality.
B. Credibility.
C. Value about a product.
The Country of Origin Effect
• One such factor that influences perceptions
towards brands is:
‘The place where it is made’.
• Such effect is referred to as country of origin
effects.
The country of origin effect
• Research in international marketing has
proven that country associations do lead to
customer bias.
• Such bias is based on the image of the
country in customer’s minds.
The country of origin effect
• This leads to the next obvious question:
What constitutes an image of a country?.
A. What makes French the best country for
wines.
B. What makes Germany the best in
engineering.
C. What makes Switzerland the best to produce
watches?
The country of origin effect
• Many factors have been suggested as
contributing to the country image.
• Many factors cumulatively impact the
country’s image
The country of origin effect
Economy
Business
history
Technology
Government
Wealth
Index
Regulatory
mechanism
The Country of Origin Effect
Economy:
• One of the main factors that influence customers’
perceptions towards a country is the level of the
country’s economy.
• Level of economic growth acts as a main proxy for
the country’s other activities.
• Most of the countries with a positive COO are highly
industrialized, developed countries.
The country of origin effect
Technology:
• Given the extent to which technology and
technological innovations impact consumers’
lives in today’s world, it is not surprising that
the extent of technological advancement of a
country bears heavily on consumers’
perception of the country.
The country of origin effect
• This factor is usually related to the level of
economic development of the country.
• Higher the technological capability of a
country, more positive is the COO effect.
The country of origin effect
• Wealth index – This refers to the perceived/actual
overall wealth of a country as measured through:
A.
B.
C.
D.
E.
F.
Levels of consumption,
Number of millionaires,
Number of billionaires,
The size of the luxury goods industry,
The sophistication of leisure industry,
The proportion of individual income spent of
leisure.
G. Self enhancing activities and so on.
The country of origin effect
• Wealth index offers customers a cue to infer
the:
A. Level of product quality,
B. Variety,
C. Perceived credibility of the
products/brands.
The country of origin effect
Regulatory mechanisms:
• With heightened globalization, the existence
and effectiveness of regulatory mechanisms
have become a major factor in creating
country images.
The country of origin effect
• Regulatory mechanisms create a sense of
perceived security in the minds of businesses
and customers about a specific country.
A. Intellectual Property Rights law (IPR),
B. Online piracy laws,
C. Anti-fraud regulations .
MARKETING RESEARCH
PROCESS
FIVE PHASES TO DEVELOPING GLOBAL SOURCING
METHODOLOGY
Feasibility
Operations
Transition
Vendor
selection
Planning
FIVE PHASES TO DEVELOPING GLOBAL SOURCING
METHODOLOGY
• Five Phases
• Although there are a variety of sensible approaches to
developing a global sourcing methodology, the following five
phases must be addressed at some point in the process:
A. Feasibility.(Readiness & evaluating
business & technical processes)
B. Vendor Selection.
C. Planning.
D. Transition.
E. Operations.
.
FEASIBILITY
• During the feasibility phase, a project team should assess the
organization’s “readiness” for global sourcing.
• In this phase, a wide spectrum of business and technical
processes are evaluated with the intent of determining
candidates for off-shore sourcing.
A. Assess the organization’s “readiness” .
B. Evaluate business and technical processes.
C. Determine candidates for offshore sourcing.
FEASIBILITY
• The feasibility phase is often conducted with
strategic vendors who can lend their expertise
in assessing global sourcing readiness.
Feasibility should be analyzed on both an
annual and as-needed basis.
A. Feasibility phase is often conducted
with strategic vendors.
B. Analyses both short & long term
needs.
FEASIBILITY
• A sound approach is to develop a scorecard where the
processes, resources and applications can be rated across
important criteria such as technical complexity, business risk,
financial impact and strategic importance of the potential
engagement.
Processes, resources and applications are rated
across important criteria:
A. Technical complexity,
B. Business risk,
C. Financial impact.
D. Strategic importance of the potential
engagement
FEASIBILITY
• The global sourcing PMO should develop tools
and templates to analyze these factors and
execute decisions on which activities are
suitable for global sourcing and the
timeframes for migration.
Prioritize activities that are suitable for
global sourcing.
VENDOR SELECTION
• Vendor Selection
• Once it has been determined that a specific
business or technical process is suitable for
the offshore model, the next step is to select a
vendor.
VENDOR SELECTION
• The global sourcing PMO and the project team
should work together to find a vendor that
has strengths in the particular process or
processes that are candidates for outsourcing.
Joint responsibility of Global sourcing
PMO and the project team to find a
vendor.
VENDOR SELECTION
• Both a single vendor bidding process and a competitive
bidding process should be in place.
• The global sourcing PMO should develop the necessary tools
to enable the project team to determine whether a single or
multi-vendor bid is appropriate.
Decide what is more appropriate- single
vendor or multi-vendor
VENDOR SELECTION
• The PMO also should provide the tools for
soliciting bids, and an approach to making
final vendor decisions.
PLANNING
• Planning
• The planning phase lays the ground work for a
successful transition from the onshore to the
offshore model, or operating environment.
PLANNING
• During planning the organization and the
vendor team collaborate to ensure that the
many facets of the transition to operations are
well prepared for and executed.
Organization and the vendor team
collaborate to ensure transition to
operations are well prepared for
execution of project.
PLANNING
• This is a key area that is often overlooked by
companies that rush into an outsourcing
engagement.
• Failure to clearly define the scope, roles,
responsibilities and timeframes of the
transition inevitably leads to friction.
Clearly define the scope, roles,
responsibilities and timeframes of the
transition
PLANNING
• The PMO should manage the planning phase
with significant contributions from the vendor
and internal resources.
PLANNING
• For particularly complex or mission critical engagements, you
may want to consider engaging a third-party consulting group
with experience in global sourcing readiness.
• These organizations can support by offering sample project
plans and checklists based on their experience.
For complex engagements ,engage third
party consulting group with competencies in
global sourcing
A. Preparation of Project plans.
B. Preparation of Check list
TRANSITION
• Transition
• The transition phase executes much of what was defined in
the planning phase.
• The organization and the vendor should prepare for the
offshore transition and make adjustments to processes and
procedures to enable optimal performance in the new
environment.
The Global sourcing PMO and the vendor
prepare for offshore transition .
TRANSITION
• The global sourcing PMO should oversee these activities to
ensure best practices are being adhered to. Concurrently,
onshore and offshore team members must work together to
execute the plan established in the prior phase.
A. Best practices are being adhered to.
B. Project team –onshore and offshore team
members work together to execute the
plan.
TRANSITION
• The success of this phase is heavily dependent
on tools and templates that ensure the project
management structure is sound enough to
enable clear monitoring of progress as well as
issue identification and resolution.
Project management structure is sound enough to:
A. Enable clear monitoring of progress.
B. Issue identification and resolution.
OPERATIONS
• Operations
• Assuming a smooth transition, the operations phase
should simply be “business as usual.” A core team from
the organization should still play a role in the day-to-day
operations of the outsourced operations.
• But, this team should give the outsourcer enough space
to do its job, and should primarily be playing a
management role.
Core team from organization to play a
role in day-to-day operations and
management role.
OPERATIONS
• Operation processes defined during the
planning phase should inform each party of
status and problem resolution issues.
They should jointly know the Status
and resolve problem/ issues.
OPERATIONS
• Specifically, project status indicators such as service
level agreements (SLAs) should be monitored on a
month-to-month basis.
• The satisfaction of the organization’s affected
business units should also be carefully gauged during
this phase.
Project status (SLAs) should be monitored
on a month-to month basis.
OPERATIONS
• Ultimately, the success of the operations
phase is dependent on the communications
structure and management framework that
was established in the previous phases.
The success of the operations phase is
dependent on the communications
structure and management framework that
was established in the previous phases.
• The five-pronged approach for global sourcing
engagements is the result of the Wipro
Product Strategy and Architecture (PSA)
practice’s experience in supporting clients who
are exploring potential global sourcing
engagements.
Challenges & issues involved in
outsourcing
OUTSOURCING OFFSHORE
ISSUES & CONCERNS
Losing multiple vendor accountability.
Loosing control over budget, resources,
vendor selection, and technology utilization.
Business and IT needs are constantly changing
–what should I outsource?
Adding one more vendor to the mix-won’t it
just be an additional strain on IT budget?
Will off shoring work for the company and
reduce cost?
OUTSOURCING & OFFSHORING MAJOR CHALLENGES
AND ROAD BLOCKS
• The uncertainty and fear of turning over
operations to an outside provider.
OUTSOURCING & OFFSHORING MAJOR CHALLENGES
AND ROAD BLOCKS
The mega-deals are usually very vendor-complex,
often requiring a collaborative multi-sourcing
solution where either one or both of the parties
can end up wanting out of the engagement.
I. Obtaining deep cross-culture understanding.
II. Maintaining close communication ,even when
time-difference makes this bothersome.
III. Frequent travel for you and your employees in
order to optimize communication with your
outsourcing partners on all levels.
OUTSOURCING & OFFSHORING MAJOR CHALLENGES
AND ROAD BLOCKS
• The sales process is still very long and involves
high level decision makers from across the
client’s business.
OUTSOURCING & OFFSHORING MAJOR CHALLENGES
AND ROAD BLOCKS
• Managing the impact of outsourcing /off
shoring on your current employees.
OUTSOURCING & OFFSHORING MAJOR CHALLENGES
AND ROAD BLOCKS
• Lack of time for all this change-process.
OUTSOURCING & OFFSHORING MAJOR CHALLENGES
AND ROAD BLOCKS
• Budget restrains-and what’s real cost or gain
of outsourcing?.
OUTSOURCING & OFFSHORING MAJOR CHALLENGES
AND ROAD BLOCKS
• Access to service providers-limited or too
confusing.
UNIT4
WHAT IS GLOBAL COMPACT?
• The Global Compact is a voluntary
international corporate citizenship
network initiated to support the participation
of both the private sector and other social
actors to advance responsible corporate
citizenship and universal social and
environmental principles to meet the
challenges of globalization.
10 principles under 4 headings
Human right
Labor
Environment
Anti-Corruption
GLOBAL COMPACT -10 PRINCIPLES
Human rights
• 1: Businesses should support and respect the
protection of internationally proclaimed
human rights;
• 2: and make sure that they are not complicit in
human rights abuses.
GLOBAL COMPACT -10 PRINCIPLES
Labour
• 3: Businesses should uphold the freedom of
association and the effective recognition of
the right to collective bargaining;
• 4: the elimination of all forms of forced and
compulsory labour;
• 5: the effective abolition of child labour;
• 6: and the elimination of discrimination in
respect of employment and occupation.
GLOBAL COMPACT -10 PRINCIPLES
Environment
• 7: Businesses are asked to support a
precautionary approach to environmental
challenges;
• 8: undertake initiatives to promote greater
environmental responsibility;
• 9: and encourage the development and
diffusion of environmentally friendly
technologies.
GLOBAL COMPACT -10 PRINCIPLES
Anti-corrupt ion
• 10: Businesses should work against corruption
in all its forms, including extortion and bribery.
Wrong & right ways-terms to be covered in
the negotiation to avoid pitfall.
TERMS
• A well-drafted outsourcing contract can create a strong and
lasting relationship with the supplier.
• However, a weak outsourcing contract can cause a
project's failure.
• The contract terms and conditions should always be clearly
understood by both parties, before the agreement is
signed.
TERMS
• The typical outsourcing engagement lasts for
several years, which makes it crucial that both
the buyer and supplier recognize the terms
and conditions in which they are agreeing to
abide..
TERMS
• Suppliers will work hard to ensure that their
interests are being protected and they will
draft an agreement that reflects this
protection.
TERMS
• A buyer can also make sure that they are
protected by taking the time to review the
terms and conditions to determine the
relative position of the contract, meaning
whether the contract favors one party
over another.
TERMS
• The buyer should know what key elements
should be included in an outsourcing contract
when reviewing the terms and conditions.
Terms summary
Scope of work,
Responsibilities,
Performance
expectations,
Termination
conditions.
Governance,
Pricing
Rights of
recourse and
pricing
Security
procedures,
PERFORMANCE
Reward and
penalty clauses
Terms summary
Remedies for dispute
resolution and the
jurisdiction
TERMS
• Most outsourcing agreements will address such
issues as:
 Performance expectations,
 Responsibilities,
 Scope of work,
 Security procedures,
 Pricing.
 Termination conditions.
TERMS
• Other areas that often are included in the
contract terms and conditions include:
 Governance,
 Rights of recourse and pricing.
TERMS
• Reward and penalty clauses are often
incorporated into outsourcing contracts, such
as incentives for reaching certain targets and
expectations, as well as penalties for nonperformance and failure due to gross
negligence.
TERMS
• The termination provision is also an
important component to the contract so that
reasons for terminating the agreement are
clearly identified.
• A termination clause may include
termination for convenience, change
of control termination for cause and
flexibility of termination.
TERMS
• Another important factor in a global sourcing
contract involves remedies for dispute
resolution and the jurisdiction in which
the resolution should take place.
TERMS
• This jurisdiction should be fair to the buyer
and supplier.
• The jurisdiction chosen should allow either
party to obtain a prompt, neutral and
cost effective resolution to the dispute.
TERMS
• Before signing the outsourcing contract, the
buyer should thoroughly review the terms and
conditions to identify any issues that may
need to be negotiated.
TERMS
•
A lawyer or industry expert can help
determine the level of protection for the
buyer by closely analyzing the outsourcing
agreement.
• Understanding the terms and conditions of
the global sourcing contract can help the
buyer find success with the outsourcing
arrangement.
terms
• Remember, a global sourcing relationship can
last for years to come and in order to receive
the most benefits from the arrangement, the
terms and conditions must be fair.
• Taking the time to put together the
outsourcing contract is well worth the effort.
Procurement and Sourcing 15 Negotiation Pitfalls
– and How to Avoid Them
• Below is a list of 15 common negotiating
pitfalls – and some tips on how to avoid them.
1
• Failure to be assertive due to fear of conflict,
shyness, or lack of confidence:
• Commitment to the process is a necessary
requirement. Failure to assert your position
forces the other negotiator to contend until
resistance is met, often making the situation
worse.
2
• Contentiously defending particular solutions,
rather than basic interests:
• Apply a strict policy of firmly defending your
basic interests (the ends), but remain flexible
about the solutions to achieve these interests
(the means).
3
• Mixing contentious behavior with problem
solving:
• This will kill the problem-solving effort and
erode trust. Separate necessary contentious
exchanges by assigning them to one person
(“bad cop”), while a “good cop” works on
problem solving, or schedule separate
meetings for the contentious issues if you are
negotiating alone.
4
• Using threats:
• If threats are necessary to curtail the
opponent’s contentious behavior, use
deterrent threats (“I cannot agree to…”) to
clearly state your position and interests.
5
• Believing negotiation power comes solely
from superior force or resources:
• Negotiation power actually comes from skills,
knowledge, strong relationships, developing
good alternatives, an ability to build elegant
solutions, legitimacy (having “right” on your
side, or being able to frame it that way), and
commitment to interests and the negotiating
process.
6
• Announcing “negative” commitments:
• In order to be credible, each commitment
must be executed. It is illogical to harm one’s
own interests simply to hurt the other party.
These types of statements are often made
under stress and are caused by negative
emotions. Learn to sense your own emotions,
and stop, look and listen, alter, or avoid is the
advice.
7
• Viewing negotiations as psychological
warfare:
• While negotiation has a strong psychological
component, viewing it as a war is detrimental
to achieving the integrative potential in most
negotiation situations. The advice:
communicate clearly, develop listening skills,
and keep your own words and actions telling a
clear and consistent message.
8
• Burrowing into details without an
overarching agreement:
• Without a foundation and a plan on how to
address the various issues, a negotiation can
quickly bog down if details are not
immediately addressed.
9
• Being unwilling to set or adhere to the preestablished limit:
• Generally this problem arises from inadequate
preparation (failure to establish this limit in
advance) or misreading how much an issue or
item really is worth in sacrifice.
10
• Failing to commit to agreement when
conditions are met:
• If you are prone to feel that things could
“always be a little better,” or that you’ve “left
something on the table,” trust your plan. If
not, then something else may be wrong, so
think about it and decide tomorrow.
•
11
• Taking an over-aggressive stance early in a
negotiation:
• This turns-off the opposing negotiator, so, if
you are prone to this, let others open
negotiations or practice “toning down” your
opening positions and statements.
12
• Getting distracted by the opposing
negotiator’s personality and behavior:
• Stay focused on the opponent’s interests. If
the opponent’s behavior becomes so
distracting that negotiations are disrupted,
however, ask for a break, then take him or her
aside and address the behavior clearly and
firmly.
13
• Closing yourself off to any attempt to be
persuaded by the other side:
• Refusing to be affected by statements from
the opposing side is a classic “rookie” error. If
the argument is valid, it should be addressed;
if not, it can be rebutted.
14
• Failing to seek information about the other
side’s needs and wants:
• Even experienced negotiators often fail to
really understand the other side’s interests.
You should ask questions and keep
communicating, even if you’re not agreeing.
15
• Bluffing or lying without the strategic
advantage to carry through:
• If a negotiator is caught actively lying, trust is
immediately lost and negotiations can grind to
a halt. Due to the risks, as well as the ethical
issues, lying should be eliminated from
negotiating strategies.
• Negotiating skills are inherently intertwined
with personality and emotions.
• The majority of these pitfalls involve
situations where the negotiator lets emotional
factors get in the way of working a deal that is
best for the company.
Unit 5
9 KEY SUCCESS FACTORS
Cultural
awareness
Quality
Adherence:
Expectation
Management:
Strong
Management
& Sponsorship:
Experience:
Contract:
Governance
Framework:
Offshoring
Readiness:
OnshoreOffshore Ratio:
MANAGING GLOBAL RELATIONSHIPS
• In discussions about outsourcing, most of the
attention has been paid to the performance of
the offshore supplier rather than on managing
the outsourcing relationship once the contract
is signed.
Performance
Relationship
MANAGEMENT OF ACTIVITIES IS
DIFFICULT
Several time
zones away
Has a
different
culture.
Other party
is many
thousands of
miles away
Managem
ent of
activities
is difficult
because.
They are not
under one
roof
Not under
single
management
control.
MANAGEMENT OF ACTIVITIES IS
DIFFICULT
• Management of outsourced activities is
difficult because they are not under one roof
and under single management control.
• It is an even bigger problem when the other
party is many thousands of miles and several
time zones away and has a different culture.
PUT PRINCIPLES,PEOPLE, & PROCESSES
ON PLACE
With clear
accountabilities.
People
Have
unambiguous
processes to
deliver the
promised benefits.
Establish
effective
cooperation
with their
outsourcer.
processes
Well-defined
management
principles.
COMMON MISTAKE-AND STRATEGIES
For BPO- Focuses
on managing
established
business
outcomes
For ITO-focuses
on monitoring
and managing
service levels.
Common
mistakedesigning an
effective
management
model.
COMMON MISTAKE-AND STRATEGIES
• Answer
Aligning the management processes with the
established outcomes of the outsourcing
relationship (clearly outlined in the contract)
is the first step in designing an effective
management model.
COMMON MISTAKE-AND STRATEGIES
• The management process for standardized
transaction-based offerings such as
infrastructure technology outsourcing (ITO)
focuses on monitoring and managing service
levels.
ITO-focuses on monitoring and managing service levels.
BPO- Focuses on managing established business outcomes
.
COMMON MISTAKE-AND STRATEGIES
• For more complex and custom goal-based
services such as business process outsourcing
(BPO) managing established business
outcomes is the focus.
TOOLS TO REDUCE RISK?
• Question
Because the risks of BPO are much higher than
the risks of less complex ITO, what specific
tools help end users to mitigate this risk?
TOOLS TO REDUCE RISK?
Taking an
investment stake
in your
outsourcing
provider is
another option.
Fee-based
outsourcing is
designed to
reduce risks
Tools to
reduce
risk?
TOOLS TO REDUCE RISK?
• Answer
In comparison to the traditional approach
(i.e., take the whole enchilada and make it
better), fee-based outsourcing is designed to
reduce risks by enabling users to do two
important things:
A. Narrow the scope of outsourcing.
B. Retain their infrastructure and systems.
TOOLS TO REDUCE RISK?
• Although the development of utility
computing may one day erase the need for
enterprises to own, operate, and maintain
their own infrastructure, the fee-based
approach is the most widely used and
effective tactic for reducing risks associated
with traditional outsourcing.
TOOLS TO REDUCE RISK?
• Strategic contracting tactics such as taking an
investment stake in your outsourcing provider
is another option that some, albeit large,
enterprises are using to reduce risks by getting
closer to their outsourcing provider.
Taking an investment stake in your outsourcing
provider is another option
TOOLS TO REDUCE RISK?
• For example, when BP Amoco (Exult’s first
client) signed a $600 million human resourceoutsourcing contract with Exult in 1999, BP
International (a division of BPO Amoco) also
made a 10 percent investment in Exult.
UNIT 6
Factors fanning the potentials of IT
outsourcing in India.
India's human
resources
Skills availability
Cost efficiency of IT
outsourcing in India
People cost
Standard quality that
firms doing IT outsourcing
in India guaranteeI
ISO & SEI-CMM standards
Galloping growth in
Indian economy
The service sector in
India contributes 51%
of the GDP.
Technologically advanced
outsourcing firms in India
The applications include Ecommerce, Business Process reengineering, System Migration,
Maintaining Legacy system, System
integration etc.
The reliable
communication
facilities
Excellent telecom, ISP,
and cellular networks
Stable government
facilitating IT
growth
Indian
government
policies
Well
structured Tax
system
factors fanning the potentials of IT
outsourcing in India.
• 1. India's human resources
• Being the world's second highly populated
country, human resources are a boon by itself.
factors fanning the potentials of IT
outsourcing in India.
• The Gulf: is renowned for its natural resource
of crude oil, and
• South Africa: for its diamonds.
• India: is proud of the abundance and easy
availability of its highly qualified and
technically skilled English speaking computer
professionals; who are key to success in the
field of IT outsourcing to India.
factors fanning the potentials of IT
outsourcing in India.
• 2. Cost efficiency of IT outsourcing in India
• Significant cost saving can be achieved by IT
outsourcing to India, owing to the wide gap
between the personal costs in India and that
of the developed countries.
•
factors fanning the potentials of IT
outsourcing in India.
• Offshore outsourcing to India offers
considerable economical benefits for those
who are prepared to exploit the advantages of
outsourcing.
factors fanning the potentials of IT
outsourcing in India.
• 3. Standard quality that firms doing IT
outsourcing in India guarantee
• The Indian companies involved in IT
outsourcing in India provide high quality work,
meeting international standards and
complying with the ISO & SEI-CMM standards.
factors fanning the potentials of IT
outsourcing in India.
• Three out of every four SEI-CMM 5
companies worldwide is located in India.
• Thus India promises quality - IT outsourcing in
India as it has the potential to furnish these
services perfectly.
factors fanning the potentials of IT
outsourcing in India.
• 4. The reliable communication facilities
• Excellent telecom, ISP, and cellular networks
are available in all cities & towns in the
country.
• India prides in the reliable satellite and
submarine communication links that facilitate
good band connectivity with the rest of the
world.
factors fanning the potentials of IT
outsourcing in India.
• Thus companies engaged in IT outsourcing to
India, can be in touch with the vendors
without any connection hurdles.
• This plays a significant role in determining the
success of offshore IT outsourcing to India.
factors fanning the potentials of IT
outsourcing in India.
5. Technologically advanced outsourcing firms
in India
• India's technologies offer excellent software
solutions.
• The applications include E-commerce,
Business Process re-engineering, System
Migration, Maintaining Legacy system, System
integration etc.
TERMS OF ENGAGEMENT
with business partners
Ethical
Standards
Child Labor
Prison
Labor/Forced
Labor
Legal
Requirements
Employment
Standards
Disciplinary
Practices
Environmental
Requirements
Community
Involvement
Working Hours