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Ready for a challenge in a high-cost destination? – Why not?
Myth 1.: Outsourcing is just about savings in expenses. Myth 2.: Shared services are just about labour and rental costs. In fact, much more is at stake in the global insourcing and outsourcing game – let’s discover it together …
India, China and Malaysia being on the top… India and Philippines controlling about 50 per cent of the global outsourcing market… India as a top BPO destination for overseas companies… – These are the statements we have been used to for many years. What about the other half of the globe? – It has been showing a huge dynamics over time and covers many (unexpected) issues.
Have you ever expected that a country with relative high labour costs can be one of the most attractive outsourcing destinations in the world? Probably not. But that really happens – France, Germany, Great Britain and the USA are listed in 2009 A.T. Kearney Global Services Location Index™ (GSLI), which shows 50 most attractive global outsourcing destinations. Some high-cost countries rank even better than these perceived as low-cost ones.
How can that be explained? Labour costs are only one dimension a potential investor takes into consideration while looking for a destination they outsource (or insource) their operations to. Therefore they also consider such factors as people skills, their availability, and business environment. The expensive countries compensate the cost aspect by quality of workforce, good infrastructure and political stability.
Let’s show it using Germany as the example. As one of the latest studies “Reinventing European Growth” (2009) undertaken by Ernst & Young, shows, Germany receives high marks in terms of infrastructure (both telecommunications and logistics), social climate, qualifications of the workforce, and quality of life. And the relative high labour costs can be reduced even by 40 percent thanks to special collective agreements signed with the trade unions. Except of that the level of wages and salaries remains stable in Germany comparing with other countries. As Germany Trade & Invest reports, the annual growth in the BPO sector amounts to 9 per cent. The value of BPO market volume in Germany is estimated at EUR 16 billion by 2012. According to the statistics provided by Ernst & Young, 11,397 jobs could be created in Germany in 2008 thanks to FDIs while in 2007 there were “just” 5,972 jobs created.
These figures show that while for many years a significant number of German companies have been doing business abroad, now foreign companies are following their example and invest in Germany. The process in which the outsourcer of today becomes the “outsourcee” of tomorrow is also called “reverse outsourcing”. Val Stella, professor from Kansas University describes the phenomenon of reverse outsourcing as follows: “The world is ‘flat’ in all directions. The water doesn’t only flow to India and China. There is flow back to this country: They need the things that we do well, and we can use the things that they do well.” And more: “We tend to think of it only as a one-way street, but it isn’t that way.”
Germany is a popular country where big multinational corporations establish their shared service centers (for example: BASF, Bayer, GMAC, Merck, Parexel and many more). About 75 percent of the top German companies have already implemented the shared services concept. About 25 percent of them are going to outsource their shared service center to a third party. 70 percent of German companies want to establish further shared service centers, located in Germany. Key drivers of this decision are: the availability of qualified personnel, labour costs and the increased significance of labour turnover rates.
Shared service centers (as insourcing) and outsourcing solution – if properly implemented – bring the following advantages to corporations using them:
• Improvement in customer service
• Sharing best practices
• Utilizing technology
• Processes simplification
• Increase in efficiency.
Conclusions? Well, we have started with the cost aspect, therefore: Conclusion 1: Shared services and outsourcing are not just about costs. And following the best in class: Conclusion 2: BASF, Bayer, GMAC, Merck, Parexel have already decided – how about you?
Magdalena Szarafin
http://www.szarafin.info
India, China and Malaysia being on the top… India and Philippines controlling about 50 per cent of the global outsourcing market… India as a top BPO destination for overseas companies… – These are the statements we have been used to for many years. What about the other half of the globe? – It has been showing a huge dynamics over time and covers many (unexpected) issues.
Have you ever expected that a country with relative high labour costs can be one of the most attractive outsourcing destinations in the world? Probably not. But that really happens – France, Germany, Great Britain and the USA are listed in 2009 A.T. Kearney Global Services Location Index™ (GSLI), which shows 50 most attractive global outsourcing destinations. Some high-cost countries rank even better than these perceived as low-cost ones.
How can that be explained? Labour costs are only one dimension a potential investor takes into consideration while looking for a destination they outsource (or insource) their operations to. Therefore they also consider such factors as people skills, their availability, and business environment. The expensive countries compensate the cost aspect by quality of workforce, good infrastructure and political stability.
Let’s show it using Germany as the example. As one of the latest studies “Reinventing European Growth” (2009) undertaken by Ernst & Young, shows, Germany receives high marks in terms of infrastructure (both telecommunications and logistics), social climate, qualifications of the workforce, and quality of life. And the relative high labour costs can be reduced even by 40 percent thanks to special collective agreements signed with the trade unions. Except of that the level of wages and salaries remains stable in Germany comparing with other countries. As Germany Trade & Invest reports, the annual growth in the BPO sector amounts to 9 per cent. The value of BPO market volume in Germany is estimated at EUR 16 billion by 2012. According to the statistics provided by Ernst & Young, 11,397 jobs could be created in Germany in 2008 thanks to FDIs while in 2007 there were “just” 5,972 jobs created.
These figures show that while for many years a significant number of German companies have been doing business abroad, now foreign companies are following their example and invest in Germany. The process in which the outsourcer of today becomes the “outsourcee” of tomorrow is also called “reverse outsourcing”. Val Stella, professor from Kansas University describes the phenomenon of reverse outsourcing as follows: “The world is ‘flat’ in all directions. The water doesn’t only flow to India and China. There is flow back to this country: They need the things that we do well, and we can use the things that they do well.” And more: “We tend to think of it only as a one-way street, but it isn’t that way.”
Germany is a popular country where big multinational corporations establish their shared service centers (for example: BASF, Bayer, GMAC, Merck, Parexel and many more). About 75 percent of the top German companies have already implemented the shared services concept. About 25 percent of them are going to outsource their shared service center to a third party. 70 percent of German companies want to establish further shared service centers, located in Germany. Key drivers of this decision are: the availability of qualified personnel, labour costs and the increased significance of labour turnover rates.
Shared service centers (as insourcing) and outsourcing solution – if properly implemented – bring the following advantages to corporations using them:
• Improvement in customer service
• Sharing best practices
• Utilizing technology
• Processes simplification
• Increase in efficiency.
Conclusions? Well, we have started with the cost aspect, therefore: Conclusion 1: Shared services and outsourcing are not just about costs. And following the best in class: Conclusion 2: BASF, Bayer, GMAC, Merck, Parexel have already decided – how about you?
Magdalena Szarafin
http://www.szarafin.info
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Tags: BASF, Bayer, GMAC, Germany, Magdalena Szarafin, Merck, Parexel, insourcing, outsourcing, shared services
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