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Offshore Outsourcing

Offshore Outsourcing. Pei-Fen Chan Soojin Kang Aaron Schiltz Bill Bernskoetter. What is Offshore Outsourcing?.

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Offshore Outsourcing

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  1. Offshore Outsourcing • Pei-Fen Chan • Soojin Kang • Aaron Schiltz • Bill Bernskoetter

  2. What is Offshore Outsourcing? • “The exporting of IT-related work from the United States and other developed countries to areas of the world where there is both political stability and lower labor costs or tax savings.” Source: Whatis.com

  3. What do you think of Offshore Outsourcing? • Is it good or bad for the US economy? • Who benefits the most? • Who gets hurt?

  4. Offshore Outsourcing in the News

  5. Outsourcing Debate Turns Spicy for Powell Cynthia L. Webb, Washington Post 3/17/04 Outsourcing comment stirs a firestorm even if it's good economics David Nicklaus, Post-Dispatch 2/17/04 http://www.umsl.edu/services/ur/media/umslair/040324.mov Offshore Outsourcing in the News(cont.)

  6. Offshore Outsourcing in Politics • US politician Kerry calls outsourcing firms traitors economictimes.indiatimes.com • Kerry was quoted by Contra Costa Times on as denouncing the Bush Administration for "rewarding Benedict Arnold CEOs who move "profits and jobs overseas.“ economictimes.indiatimes.com • Missouri has joined over 30 other states in drafting anti-sourcing legislation with the objective of protecting domestic jobs.www.infotech.indiatimes.com • javascript:oMvsLink('00','bd29daba-8f3f-4b4d-876f-648c03aa1848')

  7. Size of Offshore Outsourcing Industry • In 2002, $32-$35 billion outsourced • 1% of the $3 trillion that could be outsourced. • Projected to grow 30%-40% over the next 5 years • Make it an industry with well over $100 billion in annual revenue by 2008. • Www.forbes.com/home/2003/12/04/1204mckinsey.html

  8. Promised Benefits of Outsourcing • Lower inflation • Increased productivity • Lower interest rates • By 2008, GDP expected to be $124.2 billion higher • 90,000 net new jobs as of 2003, 317,00 net new jobs by 2008. Source: Global Insight, Inc. 2004

  9. Promised Benefits of Outsourcing(continued) • Increase in real wages for US workers • Increase in demand for US exports • Source: Global Insight, Inc. 2004

  10. Net Jobs created by OutsourcingGlobal Insight, Inc. 2004

  11. ExportsSource: Global Insight, Inc. 2004

  12. Top Countries for Offshore Outsourcing • India • China • Malaysia • Czech Republic • Singapore • Philippines • Brazil • Canada Source: A.T. Kearney from Forbes.com

  13. India • Population: 1 billion • Interesting Finding: IT software and services export market expected to grow from $10 billion in 2002 to $60 billion by 2008.* • Reasons Attractive: Low wages, favorable tax rates, quality of IT training and education, English language skills. • Negatives: Political and economic instability, bad infrastructure. • U.S. Cos.: Hewlett-Packard, Amazon, Sprint *Source:NASSCOM, the National Association of Software and Services Companies of India Source: Forbes.com

  14. China • Population: 1.3 billion • Interesting Fact: Population under age 18 in China is larger than the combined total populations of the U.S. and the U.K. • Reasons Attractive: Low wages, good educational system. • Negatives: Piracy, red tape, English skills • U.S. Cos.: IBM, Accenture. • Source: Forbes.com

  15. Malaysia • Population: 23 million • Interesting Finding: Less bureaucratic red tape than Canada.* • Strengths: Low costs, high level of global integration, strong government support. • Negatives: Piracy, small population. • U.S. Cos.: Motorola, IBM*Source:World Economic Forum's Global Competitiveness Report Source: Forbes.com

  16. Czech Republic • Population: 10 million • Interesting Finding: Offshore services market growing greater than 10% annually. • Strengths: competitive infrastructure costs, good education system, stable business environment. • Negatives: Higher labor costs, small population • U.S. Cos.: IBM, Sun Microsystems, Dell Source: Forbes.com

  17. Singapore • Population: 5 million • Interesting Finding: The second-highest income per capita in the world but, still attracts U.S. companies as a place for regional headquarters because of its strengths. • Strengths: education system, infrastructure, intellectual property protection, stable political environment. • Negatives: High labor costs, low population. • U.S. Cos.: HP, Eli Lilly Source: Forbes.com

  18. Hidden Costs of Offshore Outsourcing • Selecting a Vendor • Transition • Layoffs • Cultural • Ramping Up • Managing the Contract Source: CIO Magazine, 9101/03, Stephanie Overby

  19. Outsourcing – One Way Street? • Foreign companies employ 6.4 million Americans – Commerce Dept. • 114,000 in Missouri • 321,000 in Illinois • Foreign companies in the St. Louis area • Reuters – Britain • bioMerieux - France • Toyota - Japan David Nicklaus, St. Louis Post Dispatch, April 16, 2004

  20. WIPRO TECHNOLOGIES • Offshore Market in India • Wipro Overview • History of Wipro • CEO of Wipro • Wipro’s Quality Standards • Case Studies - Delta Airlines - Otis elevator company

  21. PROSPEROUS INDIAN OFFSHORE MARKET: Why India? • Lower Cost for highly skilled manpower. • Indian Government Initiatives • Favorable Tax incentives • The export segment in Indian IT market accounts for 60% of total revenue of its IT industry • India claims 80% share of global off-shored service • Obstacles offshore vendors face Businessweek, NASSCOM.org, www4.gartner.com

  22. WIPRO OVERVIEW • Size : $1.4 Billion in revenue, 27,000 employees from 18 nationalities, 30 global offices in India, Australia, Japan, and the U.S. • Customers: Boeing, Nationwide, Ericsson, Toshiba, Cisco, Putnam Investment, etc • Products: IT Consulting and services, Application Development and Maintenances, Product Design Services, Business Processing Outsourcing • Main competitors in India : Tata Consulting Services, Infosys Technologies, Satyam Computer Service, HCL Technologies Ltd • Headquarter : Bangalore, India Wipro.com

  23. WIPRO’S REVENUE PIE Wipro.com

  24. HISTORY OF WIPRO • Started as a cooking oil and soap manufacturing company 57 years ago, Wipro has transformed itself into a hardware manufacturer( light bulb, printers, scanner and PCs) and into a software consulting company to become today’s Wipro Technologies. • With the arrival of Vivek Paul, (Vice Chairman and CEO) in 1999, now this company enjoys $ 1.4 billion in revenue as the 3rd largest IT service company in India Fast company, Wipro.com, Economist

  25. CEO OF WIPRO:VIVEK PAUL • Graduated from BITS in India, engineering major, MBA from University of Massachusetts • Made his career in America, built his career through Bain & Co in Boston, PepsiCo, Purchase in NY and ran GE’s joint venture medical scanner business with Wipro in India • In 1999, he was hired by Wipro, since then he has turned $150 million software company into over $1 billion profit company • Rated as one of the best managers in 2003 by Business week Wipro.com, Businessweek

  26. WIPRO’S QUALITY STANDARDS • SEI CMM (Software Engineering Institute Capability Maturity Model): Highest Maturity Model level 5 • CMMI (Capabilty Maturity Model Integration):First company in India to be certified at level 5 • PCMM (People Capability Maturity Model) :World’s first company to be level 5 • ISO 9001 (International Standard Organization 9000 series): Compliant by 1995 Wipro.com, NASSCOM.ORG, sei.cmu.edu

  27. Case study 1: Delta Airlines • Delta Airlines was operating 20 call centers all over the world with 6500 center representatives employed • To focus on improving the customers’ travel expenses and reducing costs on the call centers Wipro.com

  28. Divisions Outsourced • General Sales calls • Frequent Flyer Service support and report • Reject & queue call handling • Baggage service center

  29. Solution • Transition Toolkit ™ Model that created by Wipro to deliver customer service process designed for offshore model -Analysis: Subject Matter Experts (SMEs) team to Spectramind team in Mumbai, India - Transition: “Adapted Process Quality parameter” set by Delta and achieved by Spectramind - Sustained Operation : Operation teams took over responsibility related to quality metrics, resource planning and operational issue

  30. ENHANCEMENT • Customer Satisfaction: Decreased the average call handling time • Improved Process: Outperformed “the quality of call handling” set by Delta’s SMEs • Cost Savings: Initial cost saving of $12-15 million annually projected by Delta over 2 years

  31. Quality of call handling operation at Spectamind

  32. Reduction in Call Handling Time(In seconds)

  33. Case Study 2 : Otis Elevator Company Outsourcing Decision • Otis is the largest manufacturer of elevators, escalators in the world. It was becoming very complex to handle after-sales support services requested by thousands of customers from over 50 countries. • It was time for Otis to search for an integrated system to handle these after-sale service and revenue functions Wipro.com, Otis.com

  34. Solution • Analysis: Wipro team needed to understand its client’s business • E*Service : - An integrated application that was created by Wipro - System that can be presented to individual customer in country-specific format through a single window. • This service portal was implemented to Otis.com (Otis’ global website) and to Otis’ internal system

  35. Enhancement:With e*service, customer has… • 24 x 365 x 7 access • Fast and easy service and tracking of the service progress • Access to individual company’s financial transaction

  36. Enhancement:With e*service Otis realized… • Cost Savings: Application Development cost 40% -50% savings • Efficiency: Otis sales representatives save 20 minutes with customer contact and save around 2 hours for email report to customers • International recognition: e*service was awarded for “Grand Prix de I' Innovation” at the French condominium exhibition

  37. “We appreciate the hard work and nice features WIPRO has built into the application. It is great to get Positive feed back from customers and see the pull for the application.” - Sarma Pullela, Otis E*service program manger

  38. BEST PRACTICES FOR SELECTING POTENTIAL OUTSOURCING VENDOR • Reputation of the vendor and it’s employees • Financial strength of the vendor • Experience of the vendor • Client base of the vendor in outsourcing

  39. Case Study: PRT Group, Inc. An unsuccessful offshore outsourcing agreement

  40. Best Practices Source: Anthony J.Delmonte, Richard V.McCarthy, "Offshore Software Development: Is the benefit worth the risk?"

  41. 4 Categories of Offshore Software Development The first category: involves the sponsoring of foreign individuals on employment visa. The second: involves the engagement of a domestic or offshore consulting firm that could provide the needed skills and manage them overseas for the sponsoring company The third: for the offshore company to recruit the workers and send them to the company’s domestic location The fourth: involves the establishment of a physical presence of the business overseas, by the sponsor company. Source: Anthony J.Delmonte, Richard V.McCarthy, " Offshore Software Development: Is the benefit worth the risk?"

  42. Platform Reengineering Technologies (PRT) GROUP Inc.

  43. General Information of PRT CEO/Chairman: Doug Mellinger People called: The next Bill Gates Year Founded: 1989 Capital: $12,000 Headquarter: New York, NY source: http://www.forbes.com/specialsections/barbados/006.htm

  44. General Information of PRT Industry: Software Development Sector: Global IT Consulting Firm Source: Jack Soat, " IT Confidential", www.informationweek.com

  45. Major Service of PRT Strategic Technology Consulting On-site, Off-site, Offshore Projects Year 2000 solutions Tactical/Functional Outsourcing and Staff Augmentation. Source: www.careerbuzz.com/success/register/ employers.asp

  46. General Characteristics of PRT’s Customers Fortune 500 companies Ex: J.P. Morgan, Prudential,Travelers Insurance… Large government agencies source: http://www.forbes.com/specialsections/barbados/006.htm

  47. Transformation of PRT 1989~1991: Business growth limited by lack of skilled IT workforce 1991~1994: Tried to outsource to India 1995~1997: Settled on Barbados as a location to outsource 1997~1998: Initial Public Offering at $13, $21 at the highest 1998~2000: Stock price under water and company was closed in 2000 Source: Micheal S.Hopkins, "Paradise Lost", Inc, Nov 1999, www.inc.com

  48. Size of PRT Source: Micheal S. Hopkins, The Antihero's Guide to the New Economy, www.inc.com

  49. Why PRT went offshore? Critical problem: The desperate shortage of software engineers Legal restriction for foreign programmers Skyrocketing salaries Unmanageable turnover among engineers Source: Micheal S.Hopkins, "Paradise Lost", Inc, Nov 1999, www.inc.com

  50. Locations PRT Considered The 1st choice: India Why not? (1) Bureaucracy (2) The country’s remoteness Results: Kept clients away Source: Micheal S.Hopkins, "Paradise Lost", Inc, Nov 1999, www.inc.com

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