Offshore Call Centre - Coursework Example

Offshore Call Centre Table of Contents Table of Contents 2 1 Aims of the Report 4 2 Scope 4 3 Problem Background 5 4 Outsourcing vs. Offshoring 5 2. Managing Risks 6 3. Issues Affecting the Choice 7 3.1 China 7 3.2 India 8 3.3 Philippines 8 3.4 Canada 9 4. Alternative US location 9 5. Conclusion and Recommendations 9 References 11 Executive Summary The report aims at evaluating four alternative outsourcing destinations namely China, India, Philippines and Canada for InterState, Inc. in order to assist the company to make most ideal decision regarding the choice of outsourcing destination. The report identifies that the offshore outsourcing offers numerous advantages despite having certain inherited risks. Besides, various factors were identified in the report that need to be considered while selecting outsourcing destination that included country risks economic environment, infrastructure, human resource and education. Based on the evaluation of the alternative destinations, Philippines have been recommended to the company due to various advantages hold by it over other competing destinations. 1. Introduction 1.1 Aims of the Report Outsourcing provides substantial benefits to client firms in terms of cost reduction, increased productivity and lower costs associated with labor among others. Accordingly, firms’ decision regarding outsourcing has a significant influence on its ability to innovate and formulate effective strategies. There are commonly three models of outsourcing that a client firm can select based on its needs and requirements. In this regard, offshore outsourcing is considered to be the most complex type of outsourcing and it is fairly a new approach of conducting business as well as the most rewarding one. Offshore outsourcing generally involves the movement of certain functions of an organization to foreign associates or an external overseas vendor. Despite the complexities associated with offshore Business Process Outsourcing (BPO), a continuous increase in this type of outsourcing has been witnessed (Halvey & Melby, 2009). From this standpoint, the report aims at evaluating the alternative outsourcing destinations for InterState, Inc. as well as making suitable recommendations about the most appropriate outsourcing destination to the company. 1.2 Scope The evaluation of the alternative outsourcing destinations would provide an in-depth understanding regarding the potential advantages and disadvantages relating to the selection of offshore outsourcing destinations. This would certainly facilitate the company to come up with most appropriate decisions regarding its choice of making appropriate outsourcing destination. 1.3 Problem Background Interstate, Inc. is a US based company, which provides domestic insurance for small corporations as well as private individuals. The company is presently involved in processing calls from insurance agents and enquiries from members within the USA. Hence, the company is looking forward to outsource all or part of its 150 call centers to an overseas location as a measure to reduce its operational costs. 1.4 Outsourcing vs. Offshoring Arguments in Favor of Offshoring. Numerous benefits have been identified to be related with firms’ decision to opt for offshore. In this regard, offshore outsourcing provides client firms with increased flexibility in alignment with the selection and switching amid the suppliers. Eventually, it adds to a firm’s capability to improve its competencies particularly related with innovation and strengthening R&D elements. It is worth mentioning that resources are more homogeneous within the domestic sphere, while these are more heterogeneous across the international business segments. Thus, firms relying on offshore outsourcing are offered with the advantage to access the knowledge existing abroad. In this context, offshore outsourcing provides greater prospect for the client firms to incorporate innovation in their respective business practices and avail increased competitive advantages. At the same time, overseas vendors are recognized as a potential source of innovation which the client firms can derive from offshore outsourcing relationship (Annique, 2010; Bertrand & Mol, n.d.). Innovation in the current business domain is ascertained to be an extremely important element for the success and growth of an organization. This creates a need for the firms to realize new capabilities that are not presently available within their internal capabilities, which can be achieved through offshore outsourcing. Knowledge sharing is also considered to have a positive impact on the performance of a business. Correspondingly, offshore outsourcing is further believed to facilitate an increased level of knowledge sharing, which in turn is expected to cultivate innovation, resulting in augmenting the efficiency of the client firms at large (García-Vega & Huergo, 2011). Arguments against Offshoring. Although offshore outsourcing is claimed to offer significant benefits to client firms, yet the establishment of offshoring business model can found to be accompanied with certain inherent risks. Notably, one of the prime risks associated with offshore outsourcing is primarily related with rigidness pertaining to alteration of the package of outsourced agreements. Another major risk associated with offshore outsourcing is related with the selection of suppliers. Besides, offshore outsourcing creates a requirement for the client firms to build financial models that addresses the issues pertaining to exchange rate fluctuations, interest rates, inflation rates as well as other treasury difficulties for eliminating any possible conflict or misunderstanding with the vendor firms. Communication can also be perceived as a major concern particularly due to the differences persisting within culture and English speaking fluency. Offshore partners may also have little understanding regarding the actual operation of a client firm and its organizational culture, which may certainly create misunderstanding between the two firms. More importantly, client firms have reduced control over vendor firms, thus quality assurance is not guaranteed. In addition, it is argued that dealing with foreign affiliates generates significant problems in terms of transferring the knowledge across the geographical boundaries (Alexandrova, n.d.). 2. Managing Risks Hiring a legal expert for alleviating legal risks and communicating varied sourcing strategies to each concerned stakeholder regarding various risks are essential for eliminating complications related to offshore outsourcing. In addition, establishing clear contract teams related to flexibility and delivery assurance would also facilitate the client firms to overcome the challenges and risks of offshore outsourcing (A.T. Kearney, 2004; Alexandrova, n.d.). 3. Issues Affecting the Choice It is crucial for a client organization to assess the attractiveness for offshoring and offshore outsourcing. Notably, certain factors have been outlined that need to be clearly addressed before selecting any destination for outsourcing. It is imperative for client firms to assess the arrangement through which the outsourcing services would be carried out. The most serious risk associated with offshoring is the country risk. It has been critically argued that the differences in culture and lack of ability of client firms as well as offshore partners to understand the cultural differences often contribute towards the emergence of miscommunications and misperceptions. Thus, it can be affirmed that legal structure, political stability, infrastructure, education are other important factors which are required to be considered prior to the selection of offshore outsourcing partner (A.T. Kearney, 2004). 3.1 China China, in recent times, has emerged as one of the most preferred destinations for offshore outsourcing. It is worth mentioning in this regard that various factors contributed in making the nation to be an appropriate destination for the aforesaid purpose. In this regard, vast labor and low cost are recognized as its potential advantages. On the other hand, political and economic risks coupled with weak infrastructure as well as inadequate English language skills are ascertained to negatively influence the choice of China as an offshore outsourcing destination (A.T. Kearney, 2004). 3.2 India India is amongst the most preferred offshored outsourcing destination. Factors such as vast experience in business process outsourcing and large labor force, which is second to China, places the country at the top of the list in terms of most preferred outsourcing destination. In addition, English speakers with technical and quantitative skills along with familiarity of the labor force with job content are few additional factors that make the country to be one of the most preferred outsourcing destinations. Nevertheless, similar to China, infrastructure weaknesses compounded with economic instability and challenges of cultural adaptation are few unfavorable factors influencing the decision of firms to select India as an outsourcing destination (A.T. Kearney, 2004). 3.3 Philippines Akin to other Asian countries such as India and China, Philippines, in recent years, have been able to attract the foreign firms towards its rapidly growing outsourcing industry. In this regard, favorable cost structure as well as promising pool of human resource and governmental support in the form of tax benefit has tremendously contributed towards increasing its popularity globally as one of the favorite outsourcing destinations. Besides, ability of labor force to speak American English better than its competitors has provided it with superior competitive advantage over other competition nations (A.T. Kearney, 2004). One of the major drawbacks associated with Philippines as a favorite outsourcing destination is that unlike in India, the BPO industry in Philippines is relatively new, which implies that vendors offering BPO services have little experience (A.T. Kearney, 2004). 3.4 Canada As far as Canada is concerned, it can be argued that the country offers excellent business environment with the employment of high quality and skilled human resources. At the same time, increased cultural similarities with the US and robust infrastructure draws significant attention of overseas firms particularly the US firms to develop outsourcing partnership. Nevertheless, operational cost is comparatively higher than other outsourcing destinations such as China, India and Philippines, which can demotivate overseas firms to select outsourcing vendors in Canada (A.T. Kearney, 2004). 4. Alternative US location Based on the evaluation of alternative outsourcing destinations, it can be firmly stated that the BPO industry in Philippines may offer most suitable opportunities to Interstate, Inc. than any other alternative considered above. In this context, BPO industry in Philippines is although new, the infrastructure and the skills of people are comparatively higher than other competitors. Besides, the workforce in Philippines has increased ability to speak American English (A.T. Kearney, 2004). 5. Conclusion and Recommendations From the above analysis and discussion, it can be ascertained that Interstate, Inc. is planning to outsource all or part of its 150 call centers to overseas location as a measure to reduce its increased level of operational costs. Throughout the discussion, it can be revealed that offshore outsourcing offers numerous advantages such as promoting innovation and knowledge sharing while reducing operational costs. On the other hand, certain risks have also been apparently identified in the form of reduced control of the client firms, communication barriers and country risks among others. Besides, in the discussion, evaluation of alternative outsourcing destinations has also been included. Based on this evaluation, it is recommended to Interstate, Inc. to select Philippines as a selected outsourcing location, as it offers numerous benefits as compared to other alternatives. In this regard, one of the prime advantages of this destination can be ascertained as that the workforce of this location are highly skilled and have fluency in speaking American English. References A.T. Kearney. (2004). A.T. Kearney’s 2004 offshore locations attractiveness index. Making Offshore Decisions, 1-20. Alexandrova, M. (n.d.). International outsourcing: incentives, benefits and risks for the companies in see countries. University of National and World Economy, 11-16. Annique, C. (2010). Onshore and offshore outsourcing of technology development and firm performance. University of South Carolina, 1-27. Bertrand, O., & Mol, M. J. (n.d.). The antecedents and innovation effects of domestic and offshore R&D outsourcing. University of Warwick, 1-46. García-Vega, M., & Huergo, E. (2011). The role of international and domestic R&D outsourcing for firms’ innovativeness. University of Nottingham, 1-35. Halvey, J. K., & Melby, B. M. (2009). Business process outsourcing. United States: John Wiley & Sons. Read More