By Anjoo Narayan

Globalisation of economies has triggered massive changes in the way trade and businesses are carried out in the new era supported by advanced technology and innovation in the field of information exchange. Business outfits are redefining their strategies to accommodate benefits of advanced technology in search of cost advantage and efficient management of work processes.

Outsourcing has been defined as “an arrangement whereby a third party provider assumes responsibility for performing information systems functions at a pre-determined price and according to pre-determined performance criteria” (Northfield, 1992). The outsourcing trend has gained rapid momentum over the past few years. Organizations are rapidly adopting the concept of transferring work processes to external parties in pursuit of low cost of operations and efficient handling of resources. The essential advantage that this strategic concept provides is the opportunity to cut costs and boost productivity. The primary benefit of outsourcing is realized in terms of reduced cost of operations owing to comparative lower wages, increased productivity, expertise in specified work process, and improved focus on business operations.

Expanding business units and multinational companies have specialized work departments to handle each segment of work. These units ensure the flow of information establishing well-defined channels of workflow that focuses on increasing productivity and enhancing the work quality.

The channelisation of work processes ensures better quality of work and helps in minimizing errors and risks. Moreover, the staffs get attuned to specific work processes that enable them to improvise and innovate on the existing work techniques. Outsourcing IT operations to third party vendors has become a common strategy for most companies. This involves outsourcing of the company’s computer operations, network operations or any other IT function to an external service provider for a specified period of time.

These external parties perform the same function that the IT department will perform in-house. Increasing volumes of work and expanding client base is one of the primary reasons for outsourcing work processes in the IT sector.

Multinational banks like HSBC, Citibank, American Express Bank and others outsource their process like credit card billing, collection, follow-ups and client build-up through various outsourcing agencies located in developing countries like India and China.

The outsourcing debate has been centred on the fact that employment opportunities are being shifted to emerging economies that provide low wages to similarly qualified people. There are pros and cons attached to this debate since it is a reality that globalisation has extended opportunities and focus to the developing and under-developed economies. This has not only improved the lives of the people in these countries due to increased employment opportunities, better pay packages resulting in higher standards of living.

But in reality the growing outsourcing industry has made it highly competitive and companies are offering attractive salaries to retain their workforce. A high rate of attrition is a challenging issue with most companies who are forced to raise the salary levels as a result. Hence it turns out that it is no longer cheaper to outsource to some locations and outsourcers need to re-think their business strategies to maintain their profit margins.

Source: Ground Report

Salmat has launched a company-wide program aimed at bridging the gap between indigenous and non-indigenous Australians. The Reconciliation Action Plan (RAP) will see the implementation of a range of activities supporting indigenous Australians over the next 12 months and is one of the ways in which Salmat is contributing to the reconciliation process in Australia.

‘Our Vision for Reconciliation is based on compassion, respect, commitment to diversity and acknowledging the significant role of Aboriginal and Torres Strait Islander people play in Australian society. As an organization we are committed to closing the gap between indigenous and non-indigenous Australians, by breaking down barriers, establishing relationships with local Aboriginal and Torres Strait Islander communities, creating opportunities, celebrating and welcoming all Australians and most of all promoting inclusion throughout our workplace,’ said Grant Harrod, Chief Executive Officer of Salmat.

‘During the next year we will be recruiting more Aboriginal and Torres Strait Islander employees and helping indigenous business from around the country take advantage of our business experience and expertise,’ he said.

The Australian Government has thrown its support behind the initiative with the Minister for Families, Housing, Community Services and Indigenous Affairs, the Hon Jenny Macklin MP, commending Salmat for taking the initiative to prepare a Reconciliation Action Plan.

Salmat’s RAP program builds on the company’s strong commitment to local indigenous communities. Initiatives in place include supporting indigenous businesses, increasing employment of indigenous Australians and volunteer programs for staff.

Salmat hopes to employ 30 Aboriginal and Torres Strait Islander people across the business and rollout an indigenous work experience program by August 2012. Other initiatives include developing an Indigenous procurement policy to engage Aboriginal and Torres Strait Islander businesses, provide staff with secondment opportunities to work with indigenous communities and widespread cultural education programs.

By Eli Greenblat – Sydney Morning Herald

Myer chief Bernie Brookes.

Myer will nearly double its direct outsourcing of fashion, homewares and merchandise from China to $200 million.

MYER will nearly double its direct outsourcing of fashion, homewares and merchandise from China to $200 million a year by 2016 to help support its aggressive store roll-out program and profit from the growing proportion of sales generated by its Myer exclusive brands.

The MYER group already administered $70 million in outsourcing from the region with a $50 million contract with Li & Fung, the world’s biggest manufacturing-outsourcing company.

Mr. Brookes said Myer would soon open an office in Shanghai and a second in Hong Kong to co-ordinate the increase in outsourcing by Australia’s biggest department store with 40 staff in each location to be led by Myer’s general manager of sourcing, John Amm, who has recently relocated to China with his family.

A labourer at a textile mill in China, where wages and conditions for factory workers are surging, putting pressure on prices.

Much of the outsourced product will find itself in Myer’s exclusive in-house brands, which last financial year contributed more than 17 per cent of sales and are earmarked to keep growing as they deliver premium margins for the business.

China has long been a prime destination for retailers seeking cheap products to fill their shelves and aisles; however, Mr. Brookes warned that inflationary pressures in the burgeoning world power due to higher wages, evolving labour conditions and rising commodity prices could soon flow through to steeper prices at the checkout.

“They [factories] are all looking for price increases later in the year, for the next summer stock, and I think depending on how much cotton goes into a garment and depending on where the factory is [in China], we are going to see some inflationary pressure out towards the end of the year out of China,” Mr. Brookes said.

“When the new stock arrives, October, November, for summer, as that arrives it will be repriced at a higher level.”

Mr. Brookes, who has been travelling to China up to three times a year for the past 25 years, said on his recent visit with other Myer directors that he noticed a shift in labour costs and general working conditions.

“The biggest change I saw now is in labour laws, and you are now seeing people work 44 hours a week as the sort of mandatory hours, seeing people earn rates that have double and triple time when they work over the 44 hours and have Sunday shifts where they get double and triple time.

“So Western world labour laws have caught up with China, and we are seeing therefore an increase in labour costs, and increases in electricity, and that is what is putting the pressure on prices.”

William Fung, co-founder and head of Li & Fung, said recently that wages and conditions for factory workers were surging and he has predicted China’s overall wages bill would lift by 80 per cent over the next five years.

Apart from supplying Myer, Li & Fung does billions of dollars a year in work directly and indirectly for other retailers including US supermarket giant Wal-Mart and, locally, Coles and Woolworths.

Mr. Brookes and his board met with 65 suppliers in Shanghai, holding a conference and dinner at the Four Seasons hotel where discussions were held on moving $50 million in outsourcing currently undertaken done by Li & Fung to direct control by Myer, then on to new suppliers.

It was only the second time Myer had held a board meeting outside Australia, with the first held last year in Hong Kong.

The initial five-year contract with Li & Fung was signed in 2006 as Myer was cut away from the Coles Myer group and restructured by its private equity owners.

In Shanghai, Mr. Brookes and his team updated the 65 suppliers about Myer’s progress, retail conditions in Australia and the details surrounding the expiry of the Li & Fung deal.

Mr. Brookes said higher input costs for outsourcing manufacturers in China was a key theme of his meetings.

“[Factories] are having to pay more for labour, with overtime rates and minimum hours and standard rates, paying healthcare, and so an average employee would pay 44 per cent on costs to the government for pensions and sick pay and illness pay; a lot of those have gone up,” he said.

“Pressure on costs and entitlements, pressure on the base wage – and rightly so – seeing an increased standard of living of the factory worker in China, which I think is not only much needed but also quite exciting.”

Mr. Brookes said some outsourcing was moving geographically within China to keep a lid on rising labour and raw material costs.

“The cycle [in China] is enormous, changes every couple of years, and the changes I have seen is a move away from the Pearl River delta area, which is the south China area, and everybody is moving north where the electricity prices are cheaper, where the cost of resources and labour is significantly cheaper and there are a number of incentives by some of the local governments to relocate factories.”

Sri Lanka’s information technology and business process outsourcing firms have started to expand out of Columbo, to lower costs and also be closer to the residents of potential workers, officials said.

Dinesh Saparamadu, head of HSenid, a software developer said his firm had set up a research and development unit and gone to Kandy in central Sri Lanka where Peradeniya, a national university was located. “We had a lot of students boarding here (in Colombo) who go home for the weekend,” Saparamadu told an economic forum organized by the Ceylon Chamber of Commerce, Sri Lanka’s largest business association.

“We need to go and set up satellite operations. ” Saparamadu who is also chairman of Sri Lanka Association of Software and Service Companies (SLASSCOM ), an industry body, said IFS, another software developer had set up offices in Kandy.

Niranjan Tavarayen, senior vice president, WNS Global Services said his firm was planning to set up an outsourcing unit about 30 kilometres away from the capital.

One of the problems of setting up offices outside Colombo was that senior officials did not want to reside in the regions due to lack of facilities and infrastructure such as schools for their children.

Tavarayen says international clients want to locate their outsourcing centres in cities that look modern and have up to date facilities. But there were clients who were willing to outsource work to ‘tier two’ cities, he said.

Rohan Samarajiva, head of Lirne Asia, a regional policy research unit says the government in particular has an opportunity to locate call centres outside the capital.

Reshan Dewapura, head of Sri Lanka’s ICT Agency says the government’s ’1919′ call centre could move parts out when it expand. The government was also planning to set up an IT park outside the capital.

Source: Lanka Business Online

Stellar Global will open a new site at Eastwood City in Libis, with at least 1,200 seats. This under pins growing interest by Australian companies in the Philippines. Stellar has been operating a 1,500-seat contact center in Cubao for over three years.

Stellar’s Philippine operations support clients in Australia, the United Kingdom, the United States, and Canada. Stellar Global has operations in all four countries.

Telstra, Australia’s largest telecommunications company, also “confirmed it will continue to grow its outsourcing business in the Philippines.”

Telstra Group Managing Director Robert Nason also expressed interest in, “helping support the development of the industry through training and education initiatives.”

BPO operations in the Philippines have grown to 600,000 seats this year from just 5,000 a decade ago, and it is expected that there will be an additional 80,000 to 100,000 seats this year according to figures from BPAP.

Based on estimates by the Business Processing Association of the Philippines, the share of the Australian market in the total revenue generated by the industry has grown to 6% in 2010 from 1.5% in 2008. The US remains the top market with 70% share, followed by the UK and Japan.

The Philippines has moved ahead of the more traditional offshore-outsourced destination of India, with at least 18% of functionality across Customer Interaction, Back Office Processing, IT and Finance being based in the Philippines.

THE Australian government has committed to further strengthen its business linkages with the Philippines, especially by way of projects included in the public-private partnership program list and those in the mining and business process outsourcing sectors.

China’s position in market is similar to where India was 10 years ago

By Patrick Thibodeau

The top 10 Chinese outsourcing providers employ a total of 85,000 people. That may sound like a lot, but it’s a small number in the world of global outsourcing.

India has a number of outsourcing companies far larger than the combined total of China’s 10 leading outsourcing firms. India’s Tata Consultancy Services, for instance, employs 187,000 people alone.

But China’s IT outsourcing firms are in a good position to grow, according to outsourcing consultancy TPI.

“What’s interesting, and perhaps coincidental, is that the size of the leading Chinese providers today by employee and revenue [counts] is roughly equivalent to the size of the leading providers in India a decade ago,” said Michael Rehkopf, a partner and director at TPI during a conference call about the outsourcing market.

A decade ago, Indian providers accounted for less than 1% of the outsourcing market; today they have about 20% of the market by contract value. Contracts were $1.5 billion 10 years ago and about $18 billion today, which represents a 32% annual growth rate, said Rehkopf.

Many of the major Indian providers count on business from U.S. customers for more than 50% of their revenue, a path that China-based firms may not need to follow.

John Keppel, TPI president, believes the Chinese firms won’t need to rely as much on the U.S. for work. They have a substantial domestic market to tap, and the large economies of nearby countries, Japan and Korea, to do business in as well.

But what could hurt China’s outsourcing growth is increasing competition from other nations and intellectual property protection issues, said Rehkopf.

Caveats aside, Rehkopf said he won’t be surprised to see “Chinese service providers take off quickly and dramatically in the decade ahead.”

China’s outsourcing firms have been turning to Wall Street to raise cash.

For instance, ISoftStone Holdings, a company with about 10,000 employees, held an initial public offering (IPO) in December. Last year, two other Chinese firms went public as well. They are HiSoft Technology International and Camelot Information Systems. All three are on TPI’s list of top 10 outsourcers.

The Chinese employment market is influenced by the country’s vast number of engineering graduates, more than 300,000 annually. One company, Bleum Inc., seeks to hire new Chinese graduates who score an IQ of 140 on the company’s test.

Patrick Thibodeau covers outsourcing issues for Computerworld.

Sweden’s Medius has established operations in Australia, completing a period of rapid international growth for the paperless workflow specialist.

The new Australian subsidiary is headed up by former ReadSoft employee Robert Bruhn, who is looking to hire technical and sales staff to tackle the local Purchase to pay (P2P) and invoice automation software market.

Bruhn points out that Medius MediusFlow offers more than just P2P automation as it offers a broad platform for workflow design, “MediusFlow is able to be configured as an on-premise, outsourced or SaaS solution, or any combination of the above, with scanning outsourced to a BPO if required,” said Bruhn.

“My target for Australia is to grow with the same rate or better than Medius AB. This requires hiring both technical and sales staff rapidly. The required staff must have first-hand knowledge of or certification in PMBOK/BABOK.”

Senior staff will be brought in from Sweden to install and configure MediusFlow’s first customers in Australia.

Medius Australia is also looking for OCR and ERP partners. Readsoft and Microsoft are existing global partners.

MediusFlow offers a web-based procure-to-pay workflow that can be integrated with any OCR system, purchasing system, and ERP platform. The platform is sold on a per transaction basis, rather than per user, and the only desktop software required is an Outlook plug-in that allows for invoice authorisation from within the email client.
An iPhone app has been launched and other smartphones are soon to follow, providing the ability to manage workflow on the go.

Medius has out-of-the-box integration with 40 ERP systems and 20 purchasing systems and it is currently in use at over 500 customers globally. Norwegian supermarket giant NorgesGruppen processes more than 4.5 million invoices annually with MediusFlow.

We wrote recently about the current value of the Australian Dollar and how that’s been a thorn in the side of Australian retailers.

Shoppers are leveraging off the strength of the Australia dollar and availing themselves of tax-free bargains on overseas websites. All of the usual items, i.e. fashion, clothes, electronics, books, music, and toys are being scooped up. The Aussie dollar is trading around a 28-year high of 101.1 US cents. This is driving a frenzy of online buying activity.
Online shopping has been around for a while and goods can be obtained from anywhere in the world and delivered in a very reasonable time frame. However, the strength of the Australian dollar is like pouring fuel on a very hot fire.

One of the major benefactors has been eBay. Since eBay’s founding in 1995, it has become the world’s largest place to buy and sell, a community of hundreds of millions of regular people, small businesses, and even big businesses from all of the seven continents. Millions of items of every kind imaginable, in every condition imaginable, change hands every day on eBay.

By and large eBay has had the online space in Australia to itself however that is about to change.

Last year, Amazon Web Services (AWS) launched its Cloud Computing platform for the Asia Pacific region. Before AWS launched in 2006, businesses would take on the massive capital investment of building their own infrastructure or contract with a vendor for a fixed amount of datacenter capacity that they might or might not use. They are about to launch their online trading platform in a head to head with eBay.

Amazon.com is a Fortune 500 e-commerce company based in Seattle, Washington. Amazon was one of the first big companies to sell goods over the Internet. The company was founded by Jeff Bezos in 1994, and launched in 1995. They started out as an online bookstore and then quickly diversified by adding other items, such as VHS tapes and DVDs, music CDs, software, video games, electronics, MP3s, clothing, furniture, toys and even food items.

In an analysis done by Piper Jaffray of Gene Munster, it’s estimated that in t­he last 12 months eBay sold 3rd party goods by a market value of roughly $62 billion, while Amazon sold just $6 billion.

According to Jaffray eBay sales have grown less than the industry average, in­creases in listing fees have outraged groups of important power sellers and as a result of this, t­he stock has underperformed S&P, 500 and Nasdaq Index in the last year.

Amazon’s third party sales have been growing steadily at the same pace as total revenues (30-35% a year). Amazon has outpaced Industry growth by a huge margin.

Another important r­eason for the difference in the amount of US$ worth of goods sold is just one of geographical re­ach. While eBay is present in 32 countries, Amazon has presence in only 7 so any volume co­­mparison would have to be adjusted accordingly.

Jaffray’s research claims that eBay sales are stagnating while more and more vendors are opting for Amazo­n as their marketplace platform.

Generally online shopping is between 10 and 50 per cent less expensive, depending on the item than local retail prices. So consumers figure, why wait? The Australian Retail A conducted a survey that found that 60 per cent of 18 – 24 year olds had bought goods from a non-Australian website in the last three months, with most saying that the strong Australian dollar was the reason.

Research firm Frost & Sullivan estimates than Australians will spend A$12 Billion online this year. The downside risk is that there are real complaints which include hidden delivery costs, poor quality of goods and electrical items than do not work in Australia.

Senior Amazon executives have been actively running recruitment adverts off their LinkedIn profiles looking for a variety of people based in Sydney, Melbourne and Singapore.

The competition between them show be interesting to watch as eBay seems to be moving away from its auction / flea market roots which is much more appe­aling to high price / low rotation items, and moving to being an online shopping mall. Amazon has never been an auction site so they will both be competing on a level field. Amazon.com has a format that is quite different from most auction sites and is very different from selling on EBay. EBay auctions are run more like the old-fashioned style of auction. Amazon lists several different prices from different sellers and the buyer chooses the one to purchase.

This means that service items like customer service and customer support will be important considerations. It’s not clear at this stage how customer support will manifest itself; there are marketplace rumours that both players will go forward with a combination of captive and BPO offerings. Watch this space.