• Technology
  • CFO Europe Magazine

Spreading Its Wings

From East Asia to eastern Europe, offshore outsourcing is taking off.

Offshoring is even discussed at strategy meetings. “More and more companies are sitting down and planning offshoring as part of their annual budgeting process, as opposed to just doing it on an ad hoc basis,” explains Rohit Kapoor, president and COO of EXL Service, an outsourcing service provider.

Executives are also thinking beyond cost savings as they weigh up offshoring. Lisa Donahue, interim CFO at California-based Calpine, an electric power company, had previously worked at a car-parts manufacturer that decided to set up a call centre outside Paris — a city not known for its low costs. “Although intuitively we might have gone to eastern Europe for cheaper labour, we needed stronger language skills because we wanted to provide a certain level of service to both internal and external customers,” she says.

As executives become more comfortable with their offshore partners, they have begun to experiment with offshoring a wider range of functions. “We are seeing companies outsourcing complete end-to-end processes rather than transactions,” says EXL’s Kapoor. One client in the utilities industry now uses EXL to handle customer services ranging from registering new customers to billing and collections, instead of offshoring only the billing part of the process.

And it’s not just routine transactions that are going out the door, says Vinay Couto, who leads the outsourcing practice at Booz Allen, a business consultancy. In health care, for example, the entire claims-management process — including legal research, insurance-claims processing and routine medical tasks such as the reading of test results — is frequently offshored.

Companies, meanwhile, have learned that governance is a critical component of offshore projects. “Executives are far more sophisticated in setting goals and objectives in their service agreements,” says Deborah Kops, chief marketing officer at WNS Global Services, an outsourcing service provider based in Mumbai.

Rather than signing fixed, ten-year service contracts, they are creating more flexible arrangements and measuring the qualitative aspects of performance as well as cost. “Contracts used to be set up around productivity and efficiency metrics, like the number of calls handled in a certain time frame,” says Kapoor. “Now, companies are establishing metrics for things like customer satisfaction.”

Some organisations are designating internal teams to manage the offshored function or provider relationship. Booz Allen’s Couto says he advises clients to reinvest 3% to 5% of the value of a deal in managing the vendor.

Tom Byrne, CFO of BrassCraft Manufacturing, a $350m US maker of plumbing supplies, says the key to a successful offshoring arrangement lies almost entirely in the communication process. When customers began complaining about cutting their fingers on a sink part, Byrne realised that BrassCraft had failed to specify that the Chinese manufacturer should round the edge, resulting in its rim being “razor sharp.” Now, says Byrne, “we reconfirm many times what we have communicated. Many people working with offshore partners assume that they can’t hear us or understand us, but the truth is, very often we’re not telling them.”

Around the Globe

Vendors, too, have learned a lot. The large Indian outsourcing providers, such as Tata Consulting Group, Wipro Technologies and Infosys, are expanding their services and improving their grasp of western business practices.

But as offshoring has matured, India’s success in developing the industry has both created challenges for Indian firms and drawn competition from other regions hoping to get a piece of the action. Eastern Europe has emerged as a destination of choice, particularly for European companies in need of extensive language skills. The Philippines, and to a lesser extent Malaysia, Thailand, Indonesia and Vietnam, are providing other options in Asia, while there are a number of emerging locations in various stages of readiness in Latin America, Africa and the Middle East.

Still, with its educated, English-speaking, business-savvy workforce, India maintains its reputation for providing the highest-quality offshore service available. “Clients complain that they don’t want to go to India, because of the wage inflation; then we take them to other places and they get a little spooked,” says Couto. “The cost escalations in India have been matched by an improvement in the quality of the labour supply.”

This sort of problem-solving may ease the concerns of CFOs such as Agfa’s Coakley, who fear that by outsourcing offshore, they could just be trading an internal headache for an external one. Can they be persuaded otherwise? Given the steadily increasing sophistication of offshore outsourcers — who are now delivering better governance, more flexible contracts and a wider range of services — that may be just a matter of time.

Discuss

Your email address will not be published. Required fields are marked *