Benefits of Outsourcing of Call Center to India - Essay Example

The benefits of outsourcing your Call Center to India Table of Contents The benefits of outsourcing your Call Center to India Table of Contents 2 Introduction 3 Advantages of Outsourcing 3 Relative Advantages 5 Conclusion 9 References 10 Introduction The contemporary international trade flows have been increasingly characterized by the concept of production sharing, which refers to the cross border, multi staged production and trade, accessories and components (PCAs). The process gets greatly facilitated through major advancements in the fields of transportation, communication and information technology. The concept of production sharing has not remained limited to the trade-in goods and commodities but has increasingly fragmented and dispersed into other functions and services across the world to enjoy the advantages of the marginal differences in resources, costs and markets. This has been the principle reason behind the rapidly expanding offshore outsourcing of international trade in a number of service activities which had been considered non tradable even few years back. The popular idea which has emerged in this context is that “anything that one can send over the wire is up for grabs!” (Rajan & Srivastava, 2007, p.39). The project seeks to identify the typical reasons for outsourcing by organizations. The major emphasis would be on India which has proved to be one of the most popular destinations for outsourcing by US firms. The relative advantages of outsourcing in India, as against nations like China, Europe and Philippines would be explored in the project. Advantages of Outsourcing From the point of view of an economy, global outsourcing from the developed to the develop nations would be inevitable for creating a large number of while collar jobs in the latter. This would be the inescapable outcome of allocation of resources to their more productive uses following international trade. This has been the principle motivating reason for outsourcing. However, researchers have argued that outsourcing would lead to major while collar job cuts in the developed nations. But the ultimate lowering of costs of goods and services through outsourcing are likely to generate a surplus which would outweigh the loss of jobs in the country. Thus outsourcing would necessarily mean to bring about benefits to the society even though certain transitional costs would be associated with it (Rajan & Srivastava, 2007, p.40). There has been extensive research works that have indicated that both the developing and the industrialized nations would reap significant gains from the outsourcing of services. This would necessarily lead to efficiency gains for the industrial nations through the opportunity of developing their expertise in areas of their competencies. A per the McKinsey Global Institute (2003), for each US $1 worth of outsourcing, the nation gains $1.12 while the outsourced nation gains approximately $0.33. The above fact reveals the extent of static gains that companies can reap through outsourcing. Most of the multinational organizations have begun to outsource their service activities on a routine basis. This is because it is felt that if they don’t outsource while their competitors continue to do so aggressively, they would be losing on the local and global market to the foreign rivals. This would result in stagnating profits which would reduce the rate of creation of capital and investments in domestic technologies. The cost saving advantage from outsourcing has evolved as the most popular source of value to the US organizations in particular (Rajan & Srivastava, 2007, p.40). Global outsourcing has been significantly effective in reaping benefits for the developing nations in the world. This has been possible through the opening up of new exports, employment opportunities, growth in the numerous tradable service activities. While considering a more dynamic picture, the increase in income levels brought about by trade would also lead to the creation of favorable feedback effects for many of the other nations. This would be in terms of enhanced exports increase in tourism inflows which benefit the nation. This is accordance to the global wealth creation story which creates a win-win situation for all. The world has already been demonstrating dramatic improvements in this context. The countries worth mentioning in this context are India and China. They have been successfully attaining rapid growth through sharp increase in their imports. This has been further complimented by increasing in tourism from these countries as well. In other words, outsourcing has made the labor market adjustments and the structure of the international competition more intense and rich. However, it cannot be considered to be a new phenomenon. Rather it has been considered to be a continuation of the process of globalization which was initiated during the 1950s and 1960s and resulted in the creation and transfer of wealth across the globe (Rajan & Srivastava, 2007, p.40). Relative Advantages India is considered to be the most popular and attractive destination for outsourcing. The main reasons for the attractiveness of India comes from its large number of English speaking population along with a strong and stable economy and a democratic political set up. According to the CIA, India is the second most populated nation of the world of which 61 percent are literate. This highlights the strong and large pool of skilled labor force that makes it a popular destination for outsourcing business processes. The median age of the nation (26.2) also adds to its popularity. This combined with low wage rates (approximately one fifth of the same in US) makes it a poplar and cost effective outsourcing destination (CIA, 2011). Some of the other reasons that make India popular outsourcing destination include development in communication systems and basic infrastructure, favorable governmental policies and an attractive time zone. A research conducted by a leading research firm puts India on the top as an attractive offshore destination with an attractive index of 7.12 and placing China in a second spot with a far distant index value of 5.61 (Value Labs, 2008, p.4-6). Figure 1: Attractive Index for Outsourcing (Source: Value Labs, 2008, p.6) The core benefits of India as an outsourcing destination comes largely from the large scale cost savings of business organizations (about 45-55%) that emerges from its large pool of talented resources. Along with this the proactive government policies that allows subsidies and tax benefits also help in drawing a large number of business establishments to outsource their business processes in the nation (Value Labs, 2008, p.8). However strategic advantages of India as an outsourcing destination has been challenged by some of the nations like Philippines, China or some of the nations in Eastern Europe. A research study conducted by Kotlarsky & Oshri (2008) shows that irrespective of certain issues like poor infrastructure, cultural differences, bureaucratic red tapism the nation would continue to sustain these advantages and is likely to remain the favourite destination for outsourcing in the future years. States like Israel have lost their competitiveness as it does not provide the cost benefits to the organizations (Kotlarsky & Oshri, 2008, p.227-230). Figure 2: Attractiveness of different Nations (Source: Value Labs, 2008, p.5) The figure above shows a matrix comparing different nations on the basis of attractiveness of location as well as individuals. It is very clear from the matrix that India scores higher than it most important competitors like Philippines and China both of which have a lower attractiveness on both the aspects of people as well as location. Nations which score better than India are too expensive for business organizations and it is this point that makes India the most favorable destination for business organizations to outsource their business processes (Value Labs, 2008, p.5). China that is considered to be the manufacturing hub of the world scores poorly in contrast to its neighbor with regards to the number of skilled English speaking population. Moreover being present in a democratic political environment India appears to have taken greater strides that China in this regard (Mangellan Alliance, 2004, p.1-2). India also appears to have a favorable position with regards to cost savings, According to a research report the cost of employing a labor is about one fifth of the same cost required to employ an individual in USA. The nation also scores better than UK in this regards with cost of operating a call centre in India being only 10-12 percent of the same cost required to set up and maintain a facility in UK. Another significant aspect that provides an edge to the nation as compared to its counterparts comes from the presence of a well defined and a strong domestic IT industry. Big brands like TCS, Infosys and Wipro are largely based out of India. The presence of a strong domestic industry also helps in generating a good labor pool to be used in outsourcing services. This also leads to demand for services within the nation that adds to the strategic advantage of India over its closest competitors like China and Philippines that do not have a developed domestic demand and industry in IT and ITES segment. Another factor that has of late become a boon for the nation includes the aspect of the development of KPO (Knowledge Process Outsourcing) in the nation. Analyzing the nature of skilled and cheap workforce western multinationals have begun to expand the portfolio of outsourced business processes to more knowledge intensive processes like financial research, claims and business research (Chanda, 2008, p.10-12). Conclusion The outsourcing industry in the previous decade has largely been dominated by India that is the most attractive destination for outsourcing business processes. Some of the aspects that have contributed to its success story include a large pool of English speaking population apart from favorable government polices and location based advantages. The nation clearly scores above its most important competitors like China and Philippines over its dynamic economic growth and well developed domestic industry. The nation however is being challenged by China that has adopted a massive change in its education policy that seeks to end its limitations of lack of knowledge of English language. In addition to China Philippines also poses considerable threats to India as it offers a cost effective and large pool of English speaking labor. However these nations are still to go about a long way to challenge the superiority of India as an offshore destination and are likely to remain the favourite nations among the corporate in the near future. References Chanda, R. (2008). INDIA AND SERVICES OUTSOURCING IN ASIA. Retrieved May 30, 2011 from http://static.globaltrade.net/files/pdf/20100316134721.pdf. CIA. (2011). The World Factbook. Retrieved May 30, 2011 from https://www.cia.gov/library/publications/the-world-factbook/geos/in.html. Kotlarsky, J., & Oshri, I. (2008). Country attractiveness for offshoring and offshore outsourcing: additional considerations. Retrieved May 30, 2011 from http://www.juliakotlarsky.com/JIT%20Country%20Attractiveness%20Kotlarsky%20and%20Oshri%202008.pdf. Journal of Information Technology (2008) 23, 228–231. Mangellan Alliance. (2004). IN OUR OUTSOURCING IMAGE: THE PHILIPPINES. Retrieved May 30, 2011 from http://www.magellanalliance.com/Managing%20Offshore.pdf. Rajan, R. S. & Srivastava, S. (2007). Global Outsourcing of Services: Issues and Implications. Retrieved on May 30, 2011 from http://www.hcs.harvard.edu/~hapr/winter07_gov/rajan.pdf. Value Labs. (2008). India: The preferred Outsourcing Destination. Retrieved May 30, 2011 from http://www.valuelabs.com/docs/WhyIndia_WhyHyd.pdf. Read More