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10 Myths of Services Globalization
In this article, I will discuss ten of the most common myths surrounding the globalization of services. While the trend toward offshoring business processes has plenty of momentum on its own, it is nevertheless important for future growth to dispel the misperceptions that many people still hold about offshoring.
Myth 1: Offshoring is bad for the economy.
Reality: For many people, offshoring is a four-letter word. For those whose most direct experience with offshoring is at the receiving end of a pink slip, the misperception that offshoring is bad for the economy is understandable – because, for a while at least – offshoring is bad for them. But in the long run, it’s actually the opposite that’s true: Offshoring benefits our economy overall because it allows companies to be more profitable, it makes the things we buy less expensive, it fuels competition, and over time it leads to net job creation in both the buyer and the provider countries. While the myth – and the negative public perceptions that perpetuate it – leads some companies to avoid offshoring, others stand firm. British Telecom, for example, has been successful in its straightforward strategy: the company publicly announces offshoring plans and explains how the move will enable consumers to keep more money in their pockets.
Myth 2: Services globalization adds risk to your organization.
Reality: Certainly, offshoring can present a company with new risks and challenges. But done with the appropriate location, operating model and a services supplier that has HRO experience, domain knowledge, and a high-quality infrastructure, the additional risks associated with offshoring can be minimized. Offshoring may even present a company with opportunities to decrease risk – by diluting country risk as well as the risk of a shortage of talented labor at an affordable cost. Services globalization can also improve bandwidth and operations options as it gives companies access to a much larger resource pool. GE, for example, leverages over fifteen countries across the globe and has found some to be centers of excellence for specific processes.
Myth 3: The infrastructure is poor at offshore centers.
Reality: Suppliers in the most successful offshore outsourcing destinations (India, for example) have information and communications technology (ICT) infrastructure that rivals their onshore counterparts’, as offshore providers know that speed and processing capability (as well as reliability) are key to winning – and keeping – clients. Many centers have triple redundancy for power and communications. In some offshore locations, the ICT infrastructure is superior to the US’. Ranjan Sinha, Chairman of Summit HR, finds evidence of that fact in the effects of the recent storms in Mumbai, which he says caused minimal interruptions in offshore services delivery – a stark contrast to the disruption caused by Hurricane Katrina in the southern US.
Myth 4: Only large companies offshore.
Reality: In the beginning, the only companies that offshored business processes were large. But as the industry has evolved, small and mid-sized firms have jumped on the bandwagon, too. This is made possible in part by technological advances that dramatically reduce the cost of offshoring business processes. Companies like Elance, an online marketplace that matches service providers with clients, for example, use global technology networks to facilitate the offshoring of even the smallest business’ processes. Indeed, in the last two years alone the rate of growth in offshore adoption by startups and mid-market firms exceeded 50%. It is now difficult to find a startup in Silicon Valley that is not leveraging offshore resources.
Myth 5: Services globalization will always save you money.
Reality: It is probably true that you could always find someone somewhere to perform a given business process for less. The point of transferring business processes to an external supplier – whether onshore or offshore – is to have those processes performed at a higher or equal level of quality but at a lower total cost. Proctor and Gamble, for example, finds cost savings not only in the wage rate differential (wages in offshore countries like the Philippines and India are about one-fifth of US rates) but also in competition among bidding suppliers and a stronger work ethic among employees. But a lower price tag does not by itself equate to a bigger savings. To really reap the benefits of an offshore arrangement, a company has to be able to transfer its freed resources to an activity that will add even greater value to the company’s portfolio, or terminate the resource. Saving money has, in fact, proven difficult for some firms – of the firms that offshore services, about 25% are not seeing cost savings from their offshore arrangements.
Myth 6: Offshoring is a flash in the pan.
Reality: Offshoring will persist as long as there are wage and talent discrepancies around the world. That’s because offshoring opens a global market for buyers and suppliers – by transcending national borders and circumventing antiquated trade routes. If the firm that can provide a company the highest quality HR services at the lowest price happens to be in Poland, then to Poland it is. Perhaps that means that firms in Pennsylvania will have to hone their plays to stay in the game, but competition is good for the market – it allows quality to rise while prices fall. So even as wages equalize between developed, developing, and underdeveloped countries (which is only beginning to occur), offshoring will still be an attractive way for firms to concentrate on what they do best, knowing that their non-core processes are handled by the highest quality service provider at the lowest cost – wherever that provider may be.
Myth 7: You lose control when you offshore.
Reality: It’s true that when a company outsources a process it gives up a certain amount of control. That amount of relinquished control used to be much greater when outsourcing offshore than onshore. But technological advances have shrunk that difference; now outsourcing HR processes to Chennai is no more risky than outsourcing to Chicago. Many Internet-based technologies, for example, allow companies a clear view – on their computer screens – of the day’s activities at their offshore process centers. (In most cases that’s a lot more control than employers have with their own staff!) Unilever – the London-based consumer goods company – is a good example of a company that has maintained control of its operations even as it has set up wholly-owned captive centers offshore and outsourced to multiple third-party service providers in several different countries.
Myth 8: Offshoring means lower quality.
Reality: While low-cost labor is the biggest driver of offshoring movement, it’s not the only reason companies are moving their business process services offshore. Many offshore suppliers also offer a higher quality than companies could achieve at home. Summit HR Worldwide, for example, finds that its clients consistently see a 20-35% improvement in quality after moving their HR processes offshore. Many offshore suppliers obtain ISO, SEI-CMM Level 5, and six sigma process certifications to demonstrate their competency. And where tasks are performed in the US by employees with little or no tertiary education, many employees performing the same tasks at offshore locations hold bachelor’s degrees or MBAs.
Myth 9: Offshore suppliers use slave labor.
Reality: In the last decade, there have been several highly publicized cases exposing inhumane labor conditions in offshore manufacturing plants. But offshore suppliers of HR and other business processes – white collar work – are in a league far removed. Yet the myth persists: despite the fact that SPI Technologies, for example, is one of the world’s largest business process outsourcers with headquarters in the Philippines and locations throughout Asia, the US, and Europe, the company still fields questions from prospective clients about the humaneness of work conditions in SPI Tech’s offices. In reality, the conditions that SPI Technologies’ largely college-educated agents work in easily rival or exceed conditions in US and UK client offices. And while lower relative wage rates attract US companies to offshore, many BPO agents in offshore locations are earning significantly more than their compatriots in other industries – and they’re working jobs that are highly desirable, too.
Myth 10: All offshore suppliers are the same.
Reality: As in any fast-growing industry, there are those offshore suppliers that were set up solely to take advantage of the offshoring trend and there are those that are dedicated to providing quality services and nurturing long-term relationships. Fortunately, it is possible to differentiate between fly-by-night companies and those that have long been providing high-quality business process services to their clients. Hiring a third-party sourcing advisor with intimate knowledge of a company’s particular sourcing needs as well as a deep knowledge of the supplier country will help a company to make the optimal sourcing decision.
Offshoring is not going away. The trend has already demonstrated remarkable resilience to bad press from employees and communities at large. And it continues despite the presence of myths such as the ten I’ve discussed in this article. But dismissing these myths will still benefit the companies contemplating offshore initiatives and the providers of offshore services.
-- Atul Vashistha
(Atul Vashistha is CEO of neoIT. Atul co-founded neoIT in 1999 with the mission of helping clients leverage and integrate global talent into their organizations, thereby redefining the future of services and enterprises. He is a recognized industry thought leader whose opinions are regularly sought out by the media, Wall Street analysts and Global 2000 executives.) |
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