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Outsourcing: Companies
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A new study conducted by the IDC revealed that the top 100 Western Europe outsourcing deals totaled $40.5 billion in value last year. It is driven by nine mega deals signed for a total of $20.5 billion. Five out of nine deals have been awarded by two government agencies. Outsourcing deals are getting shorter in length because customers are less willing to stick to a contract for long periods. Vendors must explore cost-savings in a much shorter time period. The study ... revealed that IBM is no longer the topnotch company in the Western European outsourcing industry.
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The use of a small local outsourcing vendor has clear benefit, though partnering with a small local operation ... has inherent risks. Since these companies operate completely outside the US, the determination of their financial stability may be difficult to determine. If not appropriately capitalized and managed, these companies may be at significant risk for failure. Contractual compliance may be similarly difficult to manage, as the recourse for non-compliance is subject to Philippine regulations. Finally, the addition of a new vendor to the mix brings with it the requirements for daily and ongoing management. Depending on the scope of the work to be allocated to a smaller vendor, the additional management overhead may not be justified.
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After India, Ireland, Malaysia and Philippines, now it is the turn of UAE to join the outsourcing brigade. The Dubai Outsource Zone (DOZ) development was first announced in 2004. The project was the brainchild of Dubai Holding. During the launch of the project, it was not expected that it would be huge success. However, it happened. Demand for space within the zone from both regional and international companies has already exceeded expectations.
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The study, entitled "Marketing -- the Next Growth Phase for Outsourcing in High-Tech Companies," analyzed the business practices of senior marketing executives from a broad spectrum of hi-tech companies, from Fortune 500 to smaller firms. Data was collected in Dec. 2005 and Jan. 2006 on companies' marketing practices for 2005 and plans for 2006.
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The growth in outsourcing in recent years is partly the result of a general shift in business philosophy. Prior to the mid-1980s, many companies sought to acquire other companies and diversify their business interests in order to reduce risk. As more companies discovered that there were limited advantages to running a large group of unrelated businesses... many began to divest subsidiaries and refocus their efforts on one or a few closely related areas of business. Companies tried to identify or develop a "core competence," a unique combination of experience and expertise that would provide a source of competitive advantage in a given industry. All aspects of the company's operations were aligned around the core competence, and any activities or functions that were not considered necessary to preserve it were then outsourced. Today, outsourcing is embraced by companies of all sizes and industry orientations.
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North American businesses are increasingly outsourcing business functions to companies outside of the United States. Often this outsourcing is seamless to the outside world. The company maintains control over the processes and results, while certain business functions are quietly conducted in another country. Companies often benefit from reduced operating costs and an eager workforce. For the employees, particularly those in struggling economies, they are afforded higher wages and an increased standard of living.
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