Industry News

Time Of Outsourcing (part 1)

Over a decade ago, Eastman Kodak has surprised the business world when announcing an amount of 250 million US Dollars that Kodak paid for the IT outsourcing service. Since then, the numbers of outsourcing transaction increased dramatically, so did the value of outsourcing contract. According to a recent research, annual cost for the world outsourcing was over a billion billions USD.

In the fierce business competitiveness nowadays, companies were facing acute stress from market. The survival and prosperous are only the ones who know business methods which more effective than competitors. They know how to reduce costs while the quality of products or services was still the same. One of the modern business method contributing to the success of numerous companies was outsourcing.

So, what is outsourcing? Outsourcing is a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.

In Vietnam, mentioning outsourcing, people would think of software or R&D outsourcing only. But indeed this term presents in many business fields such as accounting, human resources, IT, office/home cleaning and logistics, etc.

The principle of outsourcing is “I will focus on the task that I would certainly perform better than others and outsource to the third parties the tasks they perform better than me and others”.

In this article, we need to differentiate the term offshoring (in case companies outsource to other countries) from outsourcing.

Offshoring

The mistaken notion that outsourcing means IT outsourcing may be generated from the IT works developed countries outsourced to developing countries in the 90s. That was the time when a mass number of big IT companies in USA outsourced to developing countries in Asia such as India, China to utilize cheap labors and create competitive advantage.

Many giant USA corporations has built factories, R&D centers in Asia countries and got prosperous by successfully applying outsourcing. This process is called offshoring or the outsourcing term that most people mistakenly mention.

A typical example for that mass outsourcing was the opening of a high tech center at Bangalore, the capital of Karrnataka county in southeast India which was considered as “the Indian Silicon Valley”. That was an ideal outsourcing destination for Western IT companies such as IBM, Microsoft, Intel, Sun Microsystems, Dell, Cisco, Oracle, etc. Even Reuters – a branding news agency chose to outsource the tasks of collecting financial news from multinational corporations.

Outsourcing partly to India helped Reuters cut down a large amount of costs. With employment compensation by one fifths of New York reporters’ wages, Reuters could save costs without any layoff in the head office.

However as the compensation for software developers in Bangalore were increasing more and more while the poor infrastructure remained the same, Bangalore was not a favorable place as before. China, Rusia, Brazin and Vietnam were becoming more attractive outsourcing destinations by cheaper labor and better quality.

According to Global Services and Investment Consulting agency, Tholons, Hanoi and HCMC of Vietnam were rated to be one of the most attractive new outsourcing destinations. HCMC was ranked just after 4 cities of India and Cebu of Philippines. In Vietnam, most of IT companies processed outsourcing projects for other countries and got lots of successes such as Digital Glass Egg, FPT, TMA solutions, etc.

Recently, Luxsoft has opened an office at HCMC to process outsourcing projects for Boeing.

Mr. Dinh Le Dat, a software developing team leader in Vietnam said “Vietnam is an attractive destination for outsourcers. The positive increase of economic growth, political stability and cheap labor, etc are the main factors to attract outsourcers. Moreover, with the strategic position in Southeast Asia, Vietnam is an important stop for investors to enter neighbor countries’ markets”.

Beside Asian countries, some Eastern Europe countries such as Russia, Czech Republic and Latin American countries were becoming ideal outsourcing destination for manufacturers, service providers in USA.

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