International Business Management

[Farnham]

BPO – BANE OR BOON? Several MNCS are increasingly unbundling or vertical disintegrating their activities. Put in simple language, they have begun outsourcing(also called business process outsourcing) activities formerly performed in-house and concentrating their energies on a few functions. Outsourcing involves withdrawing from certain stages/ activities and relaying on outside vendors to supply the needed products, support services, or functional activities.        Take infosys, its 250 engineers develop IT applications for BO/FA(Bank of America). Elsewhere, infosys staffers process home loans for green point mortgage of Novato, California. At Wipro, five radiologists interpret 30 CT scans a day for Massachusetts General Hospital.        2500 college educated men and women are buzzing at midnight at Wipro Spectra mind at Delhi. They are busy processing claims for a major US insurance company and providing help-desk support for a big US Internet service provider-all at a cost up to 60 percent lower than in the US. Seven Wipro Spectra mind staff with Ph. Ds in molecular biology sift through scientific research for western pharmaceutical companies.        Another activist in BPO is Evalueserve, headquartered in Bermuda and having main operations near Delhi. It also has a US subsidiary based in New York and a marketing office in Australia to cover the European market. As Alok Aggarwal(co-founder and chairman) says, his company supplies a range of value-added services to clients that include a dozen Fortune 500 companies and seven global consulting firms, besides market research and venture capital firms. Much of its work involves dealing capital firms. Much of its work involves dealing with CEOs, CFOs, CTOs, CIOs, and other so-called C-level executives.        Evalueserve provides services like patent writing, evaluation and assessment of their commercialization potential for law firms and entrepreneurs. Its market research services are aimed at top-rung financial service firms, to which it provides analysis of investment opportunities and business plans. Another major offering is multilingual services. Evalueserve trains and qualifies employees to communicate in Chinese, Spanish, German, Japanese and Italian, among other languages. That skill set has opened market opportunities in Europe and elsewhere, especially with global corporations.        ICICI InfoTech Services in Edison, New Jersey, is another BPO services provider that is offering marketing software products and diversifying into markets outside the US. The firm has been promoted by $2-billion ICICI Bank, a large financial institution in Mumbai that is listed on the New York Stock Exchange.        In its first year after setting up shop in March 1999, ICICI InfoTech spent $33 million acquiring two information technology services firms in New Jersy – Objects Experts and lvory Consulting – and Command Systems in Connecticut. These acquisitions were to help ICICI InfoTech hit the ground in the US with a ready book of contracts. But it soon found US companies increasingly outsourcing their requirements to offshore locations, instead of hiring foreign employees to work onsite at their offices. The company found other native modes for growth. It has started marketing its products in banking, insurance and enterprises resource planning among others. It has earmarked $10 million for its next US market offensive, which would go towards R & D and back-end infrastructure support, and creating new versions of its products to comply with US market requirements. It also has a joint venture-Semantik Solutions GmbH in Berlin, Germany with the Fraunhofer Institute for Software and Systems Engineering, which is based in Berlin and Dortmund, Germany. Fraunhofer is a leading with 200 experts in software engineering and evolutionary information.        A relatively late entrant to the US market, ICICI InfoTech started out with plain vanilla IT services, including operating call centers. As the market for traditional IT services started weakening around mid-2000, ICICI InfoTech repositioned itself as a ``Solutions’’ firm offering both products and services. Today, it offers bundled packages of products and insurance, among other areas. The new offerings include data center and disaster recovery management and value chain management services.        ICICI InfoTech’s expansion into new overseas markets ahs paid off. Its $50 million revenue for its latest financial year ending March 2003 has the US operations generating some $9 million. It now boasts more than 700 customers in 30 countries, including Dow Jones, Glaxo-Smithkline, Panasonic and American Insurance Group.        The outsourcing industry is indeed growing from strength. Though technical support and financial services have dominated India’s outsourcing industry, newer fields are emerging which are expected to boost the industry many times over.        Outsourcing of human resource services or HR BPO is emerging as big opportunity for Indian BPOs with global market in this segment estimated at $40-60 billion per annum. HR BPO comes to about 33 percent of the outsourcing revenue and India has immense potential as more than 80 percent of Fortune 1000 companies discuss offshore BPO as a way to cut costs and increase productivity.        Another potential area is ITES/BPO industry. According to a NASSCOM survey, the global ITES/BPO industry was valued at around $773 billion during 2002 and it is expected to grow at a compounded annual growth rate of nine percent during the period 2002-06. NASSCOM lists the major indicators of the high growth potential of ITES/BPO industry in India as the following:      During 2003-04, The ITES/BPO segment is estimated to have achieved a 54 percent growth in revenues as compared to the previous year. ITES exports accounted for $3.6 billion in revenues, up from $2.5 billion in 2002-03. The ITES-BPO segment also proved to be a major opportunity for job seekers, creating employment for around 74,400 additional personnel in India during 2003-04. The number of Indians working for this sector jumped to 245,500 by March 2004. By the year 2008, the segment is expected to employ over 1.1 million Indians, according to studies conducted by NASSCOM and McKinsey & Co. Market research shows that in terms of job creation, the ITES-BPO industry is growing at over 50 per cent.  Legal outsourcing sector is another area India can look for. Legal transcription involves conversion of interviews with clients or witnesses by lawyers into documents which can be presented in courts. It is no different from any other transcription work carried out in India. The bottom-line here is again cheap service. There is a strong reason why India can prove to be a big legal outsourcing industry.      India, like the US, is a common-law jurisdiction rooted in the British legal tradition. Indian legal training is conducted solely in English. Appellate and Supreme Court proceedings in India take place exclusively in English. Indian legal opinions are written exclusively in English. Due to the time-zone differences, night time in the US is daytime in India which means that clients get 24 hour attention, and some projects can be completed overnight. Small and mid-sized business offices can solve staff problems as the outsourced lawyers from India take on the time-consuming labour intensive legal research and writing projects. Large law firms also can solve problems of overstaffing by using the on-call lawyers.        Research firms such as Forrester Research, predict that by 2015, more than 469,000 US lawyer jobs, nearly eight percent of the field, will shift abroad.        Many more new avenues are opening up for BPO services provides. Patent writing and evaluation services are markets set to boom. Some 200,000 patent applications are written in the western world annually, making for a market size of between $ 5 billion and $ 7 billion. Outsourcing patent writing service could significantly lower the cost of each patent application, now anywhere between $12,000 and $15,000 apiece- which would help expand the market.        Off shoring of equity research is another major growth area. Translation services are also becoming a big Indian plus. India produces some 3,000 graduates in German each year, which is more that than is Switzerland.        Though going is good, the Indian BPO services providers cannot afford to be complacent. Philippines, Mexico and Hungary are emerging as potential offshore locations. Likely competitor is Russia, although the absence of English speaking people there holds the country back. But the dark horse could be South Africa and even China.        BPO is based on sound economic reasons. Outsourcing helps gain cost advantage. If an activity can be performed better or more cheaply by an outside supplier, why not outsource it? Many PC makers, for example, have shifted from in-house assembly to utilizing contract assembly of its routers and witching equipment to contract manufactures that operate 37 factories, all linked via the internet.      Secondly, the activity(outsourced) is not crucial to the firm’s ability to gain sustainable competitive advantage and wont’ hollow out its core competence, capabilities, or technical know-how. Outsourcing of maintenance services, data processing, accounting, and other administrative support activities to companies specializing in these services has become common place. Thirdly, outsourcing reduces the company’s risk exposure to changing technology and / or changing buyer preferences.        Fourthly, BPO streamlines company operations in ways that improve organizational flexibility, out cycle time, speedup decision making and reduce coordination costs. Finally, outsourcing allows a company to concentrate on its core business and do what it does best. Are Indian companies listening? If they listen, BPO is a boon to them and not a bane.  

s:

1. Which of the theories of international trade can help Indian services providers gains competitive edge over their competitors? 2. Pick up some Indian services providers. With the help of Michael Porter’s diamond, analyses their strengths and weaknesses as active players in BPO.  

3. Compare this case with the case given at the beginning of this chapter. What similarities and dissimilarities do you notice? Your analysis should be based on the theories explained in this chapter.

[osmont]

SADHANA,

HERE  IS  SOME  USEFUL  MATERIAL.

REGARDS

LEO LINGHAM

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1. Which of the theories of international trade can help Indian services providers gains competitive edge over their competitors? 1.ONE  SUGGESTED  THEORY   to gain dynamism and competitiveness IN  OPERATION .

A.Developing executive leadership at three levels that is

-top team,

-the personal development of individual executives as leaders and

-the Chief Executive Officer(CEO)

B.Getting strategy to work

C.Achieve learning through knowledge management

D.Achieve supply chain excellence

E.Develop branding strategy

===========================

2. Productivity for   INTERNATION  TRADE  Competitiveness

The rapid changes in the context of the process of economic reform, globalization and

liberalization have created greater compulsions for India to be productive and competitive than

ever before. With rapid advancement in technology as well as Management Theory and Practice,

the concept & techniques of productivity have undergone a change over time, thereby creating a

need for devising fresh approaches, coining new message and adopting a new idiom to spread the

message to the stakeholders.

There is an urgent need to redefine and re-structure the Productivity Movement in such a

way that it becomes a self perpetuating process, more so, because the general environment earlier

was not very congenial for the desired productivity growth as lots of non-productive barriers &

protective walls surrounded our economic system for a very long time. All these protective walls

have come crashing down and now competition is the name of the game. Keeping in view the stage at which it stands on the

road to economic progress, promotion of productivity, its awareness creation and benefitable

implementation should be the corner stone of productivity movement. Productivity in its new

manifestation, as a culture of accepting and bringing about continuous change through teamwork

having continued focus on the customer-need is an inescapable imperative. These concepts have

come to acquire greater significance in the current context of changed economic environment.

===========================================

3.BUILDING  Brand India's Need Perspectives  STRATEGY

• Need to move up the value chain- better R&D

• Need to project greater ROI on investment – better profitability

• Need to remove revenue dependence on any single resource such as human capital

• Need to carve a niche – IPR and Licensing

• Need for technological prowess and market knowledge – focused domain expertise

• Need to brand products and services – better marketing

Every organization has its own distinctive approach towards development. Connecting these

initiatives, there should be a commitment to enlarge the scope of innovation and to create

environment conducive to Productivity. Productivity may be the outcome of techno-managerial

practices, but eventually is the result of a mindset. Basic to this approach is the conviction that

there is no limit to improvement. Even the best can be improved. The crucial ingredient is the

preparedness of the human mind to change. Therefore, workers, managers, policy makers and

others should be ready to continuously and collectively work for productivity improvement, not

only in every economic activity, but also in every human endeavour for the development of the

society as well as the country. Needless to mention, as we graduate further into knowledge era,

traditional methods and principles will become increasingly ineffective and we will have to

innovatively augment productivity both at micro as well as macro level to realize a global

competitive edge.

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2. Pick up some Indian services providers. With the help of Michael Porter’s diamond, analyses their strengths and weaknesses as active players in BPO. The Diamond Model of Michael Porter for the competitive advantage of Nations offers a model that can help understand the comparative position of a nation in global competition. The model can also be used for major geographic regions.

Traditional country advantages

Traditionally, economic theory mentions the following factors for comparative advantage for regions or countries:   1. Land   2. Location   3. Natural resources(minerals, energy)   4. Labor, and   5. Local population size. Because these 5 factors can hardly be influenced, this fits in a rather passive(inherited) view regarding national economic opportunity.

Porter says that sustained industrial growth has hardly ever been built on above mentioned basic inherited factors. Abundance of such factors may actually undermine competitive advantage! He introduces a concept called "clusters" or groups of interconnected firms, suppliers, related industries, and institutions, that arise in certain locations.

Porter Diamond Nations

According to Porter, as a rule competitive advantage of nations is the outcome of 4 interlinked advanced factors and activities in and between companies in these clusters. These can be influenced in a pro-active way by government.

PORTER   argued  that  a  nation  can create new  advanced  factor

endowments  such  as  skilled  labor, a  strong technology  and knowledge base, government  support, and  culture. PORTER

used  a  diamond  shaped  diagram  as a  basis  of   a  framework

to  illustrate  the  determinants   of  national  advantage. The diamond  represents   the   national  playing   field  that  the countries  establish  for  their  industries.

The points  of  the diamond  are  described as  follows

1.FACTOR   CONDITIONS

-a  country  creates  its  own important  factors such as  skilled

resources  and  technological base.

-these  factors  are  upgraded / deployed  over time  to  meet

the  demand.

-local  disadvantges  force  innovations. new  methods  and hence  comparative  advantage.

2.DEMAND  CONDITIONS

-a  more  demanding  local  market leads to  national  advantage.

-a  strong trend  setting local  market  helps local firms  anticipate

global trends.

3.RELATED   AND  SUPPORTING  INDUSTRIES.

-local  competition  creates  innovations  and  cost  effectiveness.

-this  also  puts  pressure on  local  suppliers  to lift their  game.

4.FIRM  STRATEGY , STRUCTURE  AND  RIVALRY.

-local  conditions  affect firm  strategy.

-local  rivalry  forces  firm to move beyond  basic  advantages.

THE  DIAMOND  AS  A  SYSTEM

-the effect of  one  point  depends on the  others.

-it is  a  self-reinforcing  system.

THE  ROLE  OF  THE  GOVERNMENT  IN THIS  MODEL

-to encourage

-to stimulate -to help to  create

growth  in  industries.

=============================================

In  terms  of  application,  

LET  US  TAKE   THE  ORGANIZATION  ''TCS''

1. BPO/ KPO   BUSINESS.

BPO  IS  ESTABLISHED  AND  IS  ON  THE  DEVELOPMENT  STAGE.

KPO  IS  ON  THE  THRESHOLD  OF  GROWTH.

THE  PASSIVE   ANALYSIS  OF THE  ACTIVE  / PROACTIVE   ANALYSIS  OF  

1.FACTOR   CONDITIONS

- TCS    has  created   its  own important  factors such as  skilled

resources  and  technological base  for  expanding  BPOs / KPOs

-TCS  is   upgrading  / deploying resources   over time  to  meet

the  demand.

-new   innovations. new  methods   has given  the  local  industry  the   comparative  advantage.

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2.DEMAND  CONDITIONS

-a  more  demanding  local/ global   market   has  given  'TCS'  the   international / national  advantage.

-a  strong trend  setting local  market  has helped  local firms  anticipate

global trends.

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3.RELATED   AND  SUPPORTING  INDUSTRIES.

-local  competition  has  created  innovations  and  cost  effectiveness.

for  the  TCS .

-this  has  also  put the    pressure on  local  suppliers  to lift their  game.

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4.FIRM  STRATEGY , STRUCTURE  AND  RIVALRY.

-local  conditions  have  affected   TCS  various  strategy.

-local  rivalry  have  forced  TCS to move beyond  basic  advantages.

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5. THE  ROLE  OF  THE  INDIAN GOVERNMENT  IN THIS  MODEL

-INDIAN  GOVERNMENT   is  encouraging  more  TCS .

-INDIAN  GOVERNMENT   IS  stimulating  with  paperwork  reforms. -INDIAN  GOVERNMENT   is   helping   to  create  more  skilled  labors.

-INDIAN  GOVERNMENT  is  providing  infrastructures  to  attract

more  industries.

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3. Compare this case with the case given at the beginning of this chapter. What similarities and dissimilarities do you notice? Your analysis should be based on the theories explained in this chapter.

SORRY, I  had  no  opportunity  to   read  the case  given

at  the  beginning  of  this chapter.

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