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Outsourcing as a Business Strategy
Market pressures are looming at every corner of the globe and corporate executives are doing whatever they can to bring down cost in order to be more competitive. Before the economic slowdown, companies used to send non-core work to low-cost countries. But as the state of economies worsen, firms started to see offshore outsourcing in a different perspective.
A growing number of companies are sending core business operations overseas. In the auto industry, General Motors (NYSE: GM) plans to build 23% of the cars it sells in the U.S. to low-cost countries over the next five years, up from current statistics of 15%. According to numerous reports in the first quarter of this year, technology firm International Business Machines Corporation (NYSE: IBM) also plans to boost its offshoring activities. The following month, IBM issued a press release announcing it had renewed and extended its EUR 3.2 million outsourcing contract with Amway GmbH for three additional years.
Firms have started to incorporate outsourcing in their business strategies. Publicly traded companies experienced a surge in key financial indicators whenever they publicize plans of outsourcing business operations or functions. In fact, the Wall Street Journal reported that Sprint Nextel Corporation (NYSE:S) is in final discussion to outsource management of its cellular network to Telefon AB LM, a move that would transfer 5,000 to 7,000 U.S. jobs to the equipment vendor. A day later, investors responded by sending shares of Sprint up sharply.
Intel Corporation (NASDAQ: INTC) will be closing some assembly and testing plants that are not cost-efficient and will outsource its Southbridge chips to Taiwan-based Advanced Semi-conductor Engineering Inc. (NYSE: ASX). Intel predicts the deal will increase its operating revenue by 40% in the second quarter of 2009 compared to its previous quarter.
As more and more companies move work overseas, offshore service providers are rushing to get a chunk from the incoming opportunities. Dallas-based Affiliated Computer Services (NYSE: ACS) wants one-half of its workforce in offshore locations in an effort to keep up with rivals such as Wipro Ltd. (NSE: WIPRO), TCS, and Infosys (NASDAQ: INFY). In the last quarter of 2008, ACS announced its plan to move higher-level IT jobs offshore. Back then, ACS has an estimated 63,000 workforce where 20,000 or about 32% are in offshore locations. Today, the company still has about the same percentage of workforce in offshore centers in China, Malaysia, India, and the Philippines but in greater numbers.
A 50-50 split in local and offshore operations is an aggressive strategy by ACS as U.S. President Obama announced just last week that he plans to end tax breaks to firms shifting jobs overseas. Such political pressure led student loan company Sallie Mae (NYSE: SLM) to move 2,000 offshore jobs back to the U.S. during the next 17 months.
Author: Kim G.
Source: Outsourcing Insider in association with BPOVoice.com
A growing number of companies are sending core business operations overseas. In the auto industry, General Motors (NYSE: GM) plans to build 23% of the cars it sells in the U.S. to low-cost countries over the next five years, up from current statistics of 15%. According to numerous reports in the first quarter of this year, technology firm International Business Machines Corporation (NYSE: IBM) also plans to boost its offshoring activities. The following month, IBM issued a press release announcing it had renewed and extended its EUR 3.2 million outsourcing contract with Amway GmbH for three additional years.
Firms have started to incorporate outsourcing in their business strategies. Publicly traded companies experienced a surge in key financial indicators whenever they publicize plans of outsourcing business operations or functions. In fact, the Wall Street Journal reported that Sprint Nextel Corporation (NYSE:S) is in final discussion to outsource management of its cellular network to Telefon AB LM, a move that would transfer 5,000 to 7,000 U.S. jobs to the equipment vendor. A day later, investors responded by sending shares of Sprint up sharply.
Intel Corporation (NASDAQ: INTC) will be closing some assembly and testing plants that are not cost-efficient and will outsource its Southbridge chips to Taiwan-based Advanced Semi-conductor Engineering Inc. (NYSE: ASX). Intel predicts the deal will increase its operating revenue by 40% in the second quarter of 2009 compared to its previous quarter.
As more and more companies move work overseas, offshore service providers are rushing to get a chunk from the incoming opportunities. Dallas-based Affiliated Computer Services (NYSE: ACS) wants one-half of its workforce in offshore locations in an effort to keep up with rivals such as Wipro Ltd. (NSE: WIPRO), TCS, and Infosys (NASDAQ: INFY). In the last quarter of 2008, ACS announced its plan to move higher-level IT jobs offshore. Back then, ACS has an estimated 63,000 workforce where 20,000 or about 32% are in offshore locations. Today, the company still has about the same percentage of workforce in offshore centers in China, Malaysia, India, and the Philippines but in greater numbers.
A 50-50 split in local and offshore operations is an aggressive strategy by ACS as U.S. President Obama announced just last week that he plans to end tax breaks to firms shifting jobs overseas. Such political pressure led student loan company Sallie Mae (NYSE: SLM) to move 2,000 offshore jobs back to the U.S. during the next 17 months.
Author: Kim G.
Source: Outsourcing Insider in association with BPOVoice.com
Comment
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Comment by Vivek Gupta on June 1, 2009 at 12:33pm -
I think outsourcing is a movement that would not change. This is an outcome of the fundamental principal of global economics. Outsourcing should be viewed as a normal trading. While US is one of the largest countrues with a huge landmass, it is well equiped to cultivate the food for all its citizens, and need not import food or pultry or milk products. But they still do the same from Africa and Asia?
Shouldn't we call this as outsourcing..... sourcing food materials from outside?
So in my opinion countries do some kind of tricks to prevent the local industry, like farm subsidies in EU and US. So not giving tax cut to companies outsourcing jobs to other countries, are actually levied higher tax, which means a higher tax on imported services.
Why is President Obama asking the people of US to go back to farms and cultivate wheat and rice for the country? This will create much more jobs in US than IT.
Give a thought???
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Comment by Vikram Prasad on May 22, 2009 at 4:39pm -
Counter this -Outsourcing offers less economic value:
The report says "At a time when the Obama administration is coming down heavily on companies shipping jobs overseas, a survey shows that one-third of the CEOs worldwide believe outsourcing offers less economic value than five years ago.
Moreover, the chiefs at American firms find outsourcing less attractive than their counterparts in non-US-based entities.
"One-third of CEOs believe outsourcing offers less economic value than five years ago," the survey conducted by leading bourse NYSE Euronext." (ET).. I guess the debate would never end ?
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