In an era of increasing competition and reduced margins, executives are looking for solutions that reduce costs while adding value at the same time. Many have turned to outsourcing as a valuable tool to accomplish their objectives. Whether they have outsourced information technology, human resources, manufacturing, distribution, customer service, payroll, accounts receivable or other functions, companies have come to rely on partnerships with firms that have valuable expertise in these areas.
| History of Outsourcing:
In fact outsourcing is said to have emerged a few thousand years ago with the production and sales of food, tools and other household appliances. As soon as small communities and societies began to form, people with specialized professions began to trade with each other for goods and services. In effect it can be said that each worker was outsourcing some activities to others. The history of outsourcing shows that even in the industrial age, a few thousand years later, very few companies outsourced any of their operations. Companies in the 1800s and 1900s were vertically integrated organizations, taking care of their own production, mining, and manufacturing from raw materials to finished goods as well as then shipping the goods to company owned retail outlets. These companies were often self-insures, handled their own taxes, employed their own lawyers, as well as designed and built their own buildings without outside assistance. This of course is not applicable to all companies during that time period, but it gives a general idea of the time.
The history of outsourcing shows that through specialization contracting began to be more popular, especially in the service industry. This in turn led to the first wave of outsourcing during the industrial revolution pushing the large-scale growth of services such as insurance services, architecture and engineering services, among many others. At this time the companies doing the outsourced work were mostly located in the same country, often in the city, just like the customers.
The history of outsourcing portrays that as onshore outsourcing continued manufacturing outsourcing of low-tech items such as toys, shoes and apparel goods began to take place. After this manufacturing higher value items like high-tech components and consumer electronics began to appear. In fact outsourcing history demonstrates that manufacturing was the first activity that began to move to offshore destinations in a quest for lower costs. Through the development of infrastructure as transportation and logistics improved, the costs decreased and offshore manufacturing increased. As the education and skills on lower wage countries developed, outsourcing manufacturers gained more value. More recently, in the US during 1970s, it was common for computer companies to export their payrolls to outside service providers for processing. This continued into the 1980s, when accounting services, payroll, billing, and word processing all became outsourced work.
Towards the end of modern day history of outsourcing, the trend has moved into the world of information technology, data transcription and call center operations. Studies on the history of outsourcing conclude that outsourcing is clearly not just about payrolls and call centers. This can be seen by simply looking into your medicine cabinet. It is very likely that the R&D of your daily medicine was outsourced to companies in India. Your insurance company which covers the costs of your medications may have their claim processing to offshore transcription providers. And your medical clinic may easily be outsourcing the administration of your confidential medical records to India, Russia or the Philippines.
| Definition of Outsourcing:
The Webster's Universal Dictionary meaning of "Outsourcing" is: "A company or person that provides information; to find a supplier or service, to identify a source". It is very important to be clear about what is meant by outsourcing. Outsourcing essentially refers to how things are done rather than what is done. It describes how for example IT services are obtained; not what the services are.
Very simply outsourcing can be defined as a process in which a company delegates some of its in-house operations/processes to a third party. Thus outsourcing is a contracting transaction through which one company purchases services from another while keeping ownership and ultimate responsibility for the underlying processes. The clients inform their provider what they want and how they want the work performed. So the client can authorize the provider to operate as well as redesign basic processes in order to ensure even greater cost and efficiency benefits.
Although the above definition of outsourcing may seem very similar to contracting, it is to be said that contracting and outsourcing are in no way related. Generally in contracting the ownership or control of the operation or process being contracted is with the parent company, whereas in outsourcing the control of the process is with the third party instead of the parent company. So in other words, outsourcing can be defined as phenomena in which a company delegates a part of its in-house operations to a third party with the third party gaining full control over that operation/process.
One way of looking at it is that outsourcing is just a name for already existing practices. Services such as, bureau services, contract programming and project management have been outsourced for a long time. In its present meaning, however, outsourcing refers to a greater level of handing over ownership and/or managerial control than has before been the case.
Companies turn to resources outside their organizational structure usually to save money and/or make use of the skilled professionals. For instance, a company might outsource its IT management because it is cheaper to contract a third-party to do so than it would be to build its own in-house IT management team. Or a company could outsource all of its data storage needs because it is easier and cheaper than buying and maintaining its own data storage devices. A business might also outsource its human resource tasks to another enterprise instead of having its own dedicated human resources staff.
| Advantages of Outsourcing:
The Outsourcing market is estimated to grow tremendously in the coming few years with an increasing number of companies planning to outsource both low end and high end jobs to offshore destinations. Also the number of companies providing outsourcing services is on the rise, thus resulting in larger variety. Due to the fact that more and more companies are outsourcing, the risks are getting smaller as businesses have more experience and clearer objectives. Besides Information that is readily available to the right people at the right time, and which enables them to act quickly and decisively, is critical to an organization's success in an increasingly competitive global marketplace.
Main advantages from outsourcing are described as follows:
- Focus on core competencies
- Reduce and control operating costs
- Gain access to world class capabilities
- Redirect free internal resources for greater returns
- Gain access to resources that are not available internally
- Accelerate reengineering benefits
- Handle functions that are difficult to manage or are out of control
- Make capital funds available
- Share risks
- Bring in a cash infusion
- Raise productivity without unnecessary investment.
- Delegate repetitive and time-consuming tasks.
- Eliminate backlogs.
- Accelerate re-engineering of operations and administration.
- Elimination of the headache of recruiting, hiring and managing clerical staff
- Remain flexible.
| Accounting Outsourcing:
Many companies nowadays prefer to outsource their finance and accounting to offshore destinations. The basic reason for this is that, by outsourcing their accounting operations companies can receive huge cost savings and concentrate more on their core competencies. A company’s accounting and finance needs cannot be put on hold. From the beginning, errors made in this area can delay or prevent funding, damage important relationships, and even affect important decisions that are still several years ahead.
There are some noted advantages in accounting outsourcing. By accounting outsourcing companies can save a lot of money as they do not need to set up a separate accounting department. Also companies can save up on labor management costs including recruiting and training costs. Accounting outsourcing also allows companies to take advantage of ready trained professional labor. Last but not least companies have the opportunity to access up-to-date technology and improve their accounting management process.
Thus it is not surprising that many companies are outsourcing their accounting operations and especially to offshore destinations. Some studies show that the global market for outsourcing finance and accounting operations is expected to grow at a 9.6% compounded annual growth rate and exceed $47.6 billion in 2008.
The different services provided by Mistry & Shah are designed to meet the accounting, tax, financial management and consulting needs of companies. We can perform your monthly, quarterly and annual accounting and bookkeeping tasks, or can supplement a firm’s present staff to lessen the usage of administrative time. This enables a company to concentrate on its core competencies leaving the specialized support functions to professionals. The provided services include.
- Internal audits
- Financial statement preparation
- General ledger maintenance
- Monthly & year-end closing assistance
- Payroll & sales tax return preparation
- Account reconciliations
- Controller & bookkeeper staffing
- Payroll & accounts payable processing
- Accounting systems design
- Accounting staff training
- Depreciation schedulesAccounting software assistance
Today, accounting outsourcing is actually recognized as an effective management tool. Companies are now incorporating outsourcing as a strategy in their business planning.
| Why India:
Outsourcing in India is one of the most popular management decisions today. Although it is generally supported by the cost reduction factor, this is just one of the reasons companies outsource to India. Many parties who outsource are unaware that Indian BPO companies do not simply offer cost effective solutions, but also provide value addition by improving productivity and quality. Already many companies are outsourcing with quality rather than cost in mind. Several companies are motivated by the vast talent pool in India and not necessarily the cost cutting aspect.
In today’s world a company must outsource to stay competitive. Leading companies worldwide acknowledge that to stay ahead, they need to reduce costs, provide the best quality, use the latest high-tech skills, as well as be reliable and creative. There are several simple reasons why to outsource in India. India is a talent-rich country that exports software to some 95 countries around the world. India has a mature industry with world-class systems and quality. Not only does India offer technological agility, flexibility, time-to-market and a competitive advantage, it also offers world-class infrastructure and numerous incentives for foreign investments.
India is emerging as a global brand when it comes to superior quality which is not only seen in BPO but also in manufacturing which has so far been considered China's strong-point. India stands out as a leading market for call center and IT outsourcing. India has high tech facilities and the good infrastructure that is required for setting up e.g. call centers. Also the endless pool of English speaking workforce that provides good quality voice based services for extremely low costs results in huge savings for companies. This is the reason why most fortune 500 companies outsource to India.
The majority of outsourcing contracts are moving to India, even though countries like China or Russia are offering better rates in some of the services. The dollar buys a lot in India and companies in the USA are saving billions of dollars by outsourcing their non-core operations.
Cities such a Ahemedabad, Bangalore, Chennai, Calcutta, Pune and Mumbai are really jumping on the call center market boom and more and more Indian companies have started investing in the industry. Offshore outsourcing in India is developing by the minute with new companies, big and small, setting up shop at a very fast pace.
Advantages to Outsourcing to India:
- Stable, democratic, extremely fast growing economy.
- Second largest English speaking population in the world.
- Significantly lower cost of living means high-quality, low-cost labor force.
- India has an enormous talent pool of highly educated, technically-skilled English-speaking Accountants.
- Besides the huge talent pool, other advantages of outsourcing to India are the favorable government regulations, considerable savings in expenditure and strong research infrastructure.
- Outsourcing your financial and banking needs to India is a great option since most companies do not have the resources to perform these activities in-house. Indian service providers provide cost effective quality solutions.
- The Indian service sector contributes 51% to India's GDP.
- India ranks 3rd in Asia in investment potential for the period from 2000-2010, in a study conducted by the Export-Import Bank of Japan.
- Goldman Sachs predicts Indian economy to be the third largest in the world by 2050.
- In a recent poll, 82% of US companies rated India as their first choice for software outsourcing.