Category Archives: Outsourcing

Look for the InSourcing Bandwagon to Start Boarding in 2012

As per this recent article over in World Trade on “The Next Generation of Outsourcing”, Michael Corbett, Chairman of the IAOP (International Association of Outsourcing Professionals) has been quoted as stating that outsourcing has reached its “threshold moment” with its ability to drive global socioeconomic and technology progress.

And we all know what happens when a business craze has been pronounced as reaching its “threshold moment” or “inflection point”. The big 5/7/8 consultancies look for the next craze that they can build excitement around to keep the consulting dollars pouring in. And since they believe that business trends, like the economy and “retro” social trends are cyclical, I can guarantee that it won’t be long before “insourcing” is announced as the next big thing.

Just like “downsizing” turned into “rightsizing” when the consultants realized that ( a) “downsizing” is a very easy thing for the media to spin negatively (because it is negative) and ( b) taking out too many people cripples the company to the point that it can’t do anything, the consultants will suddenly discover that “outsourcing”, which is ( a) also capable of being spun negatively by the media, is very similar to “downsizing” and then rediscover that ( b) taking out too many people internally is bad and some should be “brought back” to prevent the company from being crippled. As a result, prepare for the influx of “insourcing” bandwagons in 2012, which are being built as I write this (and launched as the economic debate for the 2012 Presidential Election focusses on the economy and the lack of Jobs at Home).

But just like you shouldn’t have hitched a ride on the outsourcing bandwagon, you shouldn’t hitch a ride on the insourcing bandwagon either (even if you did hitch a ride on the outsourcing bandwagon). For many companies, that have spent the time, effort, and resources to not only develop a close working relationship with the outsource provider, but to integrate their best practices and knowledge into their operations, continued outsourcing is the right way to go. Disruption, which occurs when something is pushed out or pulled in, is extremely costly. If the relationship is working well, and the provider is providing the services in a lower cost locale, pulling it back in doesn’t make sense. As with any major strategic decision, a thorough analysis has to be done to make the right decision. And that never happens if you just jump on a bandwagon.

Six Red Flags In Any Relationship, Not Just Outsourcing

A recent article over on the Outsourcing Center, an Alsbridge Company, highlighted “six red flags to help avoid a bad outsourcing relationship from ever starting” that is a good read for anyone negotiating any kind of deal with a product or service provider, including a deal for (supply management) software and associated services.

The following six soft characteristic red flags are indicative of a provider that is likely to bring with it a dysfunctional and damaging relationship.

  1. Selling, Not Solving
    Is the provider listening and offering what you need, or selling what they have, whether or not it solves your problem.
  2. Telling, Not Listening
    Does the provider assault you with the triple digit PowerPoint presentation rapid-fire, without letting you get a word in edgewise, or let you drive the conversation, breaking out slides only as needed.
  3. Homogeneous, Not Diversified
    Is the provider diverse enough to understand your cultural nuances, or only aware of his or her own company’s culture.
  4. Complicating, Not Simplified
    Is the sales process, and proposed solution, overly complex, or is it simple and straight-forward, addressing the problems you have now, not the problems you may have in five years. While it’s important that the provider can grow with you, it’s not important that they dive into details of problems you don’t have today, or sell you solutions before you need them.
  5. Far, Not Near
    Relationships and decision making should be as close to you as possible, not half a world away.
  6. Arrogant, Not Supplicant
    The provider should be confident, but not arrogant. The provider should be willing to listen and understand your problem before proclaiming that they have solved it before. That’s confidence. And that is what you want.

While the lack of these red flags will not guarantee a good relationship, as a nearby supplicant solution-driven diversified provider that listens and simplifies can still be incompetent, at least there’s a good chance that the relationship can work. And any odds of success are much better than virtually guaranteed failure.

Outsourcing is in Decline – But What’s the Real Reason?

A recent article in The Economist on the trouble with outsourcing noted that the latest TPI quarterly index of outsourcing suggested that the total value of contracts for the second quarter of 2011 fell by 18% compared with the second quarter of 2010. Dismal figures in the United States dragged down the average, and this can be, at least, partly explained by the economy, but is this the whole story?

According to the article, TPI suspects that part of this is due to the fact that much of what can sensibly outsourced has already been outsourced. While it’s a good theory, I disagree. Maybe most of the companies with a willingness to jump on the outsourcing bandwagon have already done so and outsourced everything they can, but there are still a lot of companies who haven’t jumped on the outsourcing bandwagon. But more importantly, with the recent rise in Global Services Organizations, it’s possible to outsource pretty much everything that a company does.

Another reason could be, as the article notes, that some of the worst business disasters in recent times have been caused, or aggravated by outsourcing. This makes sense, but it’s just as easy to screw a product or service up in-house if the right processes, checks, and balances are not in place. But it is true that, when outsourcing goes wrong, it is the devil to put right.

SI agrees with the editor and believes that companies are rethinking outsourcing. Not only are they replacing huge long-term deals with smaller, less rigid ones that are more easily managed, and terminated if things go wrong, but also considering other viable options such as setting up their own Global Services centers, if they are large enough, or taking advantage of low costs at home when the backyard is empty and incentives plentiful. There are still situations where outsourcing makes sense, but not as many, and they are not as cut and dry as they used to be. Companies have to do an analysis, and to make sure they are not the next name on the disaster list, have to be careful about the decision they make. It’s a new age of outsourcing, and it should prove to be a smarter one.

Is An African Country Your Next LCCS Destination?

Now that India and China are leaving the low cost country collective, moving up on the global economic stage, chances are that you’re going to have to identify a new low cost country to start investing in to keep manufacturing and call center costs low. And unless you’re in the US or the UK, where you only have to look in your own backyard, you may have to rule out home-country sourcing as your low cost country sourcing destination. So where should you go?

Egypt and the Middle East were rising, but with the recent political unrest, it’s probably going to be a while before that’s a good choice. Poland is solid, but at only 38 Million people, only so many countries will be able to set up shop. Argentina, Columbia, and Chile are going strong, but are being greatly overshadowed by Brazil. What’s left? Africa. Even though some countries are in turmoil, and there are piracy problems off the coast, there are 1 Million people in the 54 countries that comprise the continent who are ready and willing to join the global labour force. Plus, India and China are starting to invest there heavily. With the two economies projected to be the dominant economies by the latter half of the century already pouring money and effort into making Africa the next emerging marketplace, you know it’s just a matter of time. Plus, with big multinational companies like GE also investing in the region, it’s very likely that at least a few African companies will be part of the next BRIC.

Plus, as in India and China, urbanization is off to a rapid start and, as per this article on “the hottest emerging markets” in World Trade, it is expected that over half of the population will live in cities within 20 years and that the top 18 cities will have a combined spending power of 1.3 Trillion. That alone puts Africa’s projected GDP in the top 10 within 20 years.

As in India, infrastructure and energy production is a problem, but a number of countries have a plan to improve and are working on it. Plus, the fact that these countries are resource-rich in a time of rising commodity costs means that there is money to invest in improving infrastructure and energy investments. It might take a while, but Africa is going to get there. The question is, who’s going to win when they do?

Is Your Organization Serving the Right Market?

If your Supply Management organization is part of a global multi-national, chances are that it is buying from China and selling to the U.S. And, for a few of you (in heavy machinery, luxury goods, etc.), chances are that your Supply Management organization is producing Made in the USA goods and selling these to China. But should it be?

Ignoring the fact that rising costs in transportation and production (due to raw materials and the inevitable rise in labor wages) coupled with the decline of the US dollar often make sourcing close to home (in Mexico) or at home cheaper than off-shoring, especially when quality and risk-related costs are taken into account, the organization might be missing out on a much bigger opportunity — selling in China. As per this recent article in the Harvard Business Review that chronicled “What the West Doesn’t Get About China”, China is the world’s largest consumer of automobiles, motorcycles, mobile phones, luxury goods, and shoes and the world’s second largest consumer of home appliances, consumer electronics, jewelry, and the internet. Thus, if you are in the automotive, electronic, appliance, apparel, or jewelry industries, maybe the organization should be producing in China for China.

China, which is the world’s second largest economy, has over 1.3 Billion people and an emerging middle class flocking to urban areas. The Asian Development bank classifies over 60% of China as middle class. That’s almost twice the population of North America! And half of them have internet access, with most of them having broadband access in their densely populated urban centers. In fact, China now has about 90 cities with a middle-class population of 250K or more. The US and Canada combined have less than 70 such cities. And the projections expect this number to quadruple over the next 10 years. Plus, annual growth in some markets is as high as 60%.

In other words, if the organization is producing in China, then it should probably be producing for the local market (as well).