Article #20 Global Market for Outsourcing IT and IT Enabled Services By: Shailendra C. Jain Palvia Presented by: Rachel Kha Article #20

Objective To explore the global market for outsourcing IT and IT enabled services To explore the global market for outsourcing IT and IT enabled services See the benefits to outsourcing See the benefits to outsourcing Understand all functions that can be outsourced Understand all functions that can be outsourced

Previous Work 1996-Lacity-1989 $4 billion business 1996-Lacity-1989 $4 billion business 2001-Casale-2000 $56 billion per year-IT Functions 2001-Casale-2000 $56 billion per year-IT Functions 2002-Vijayan-2005 made $160 billion in the US 2002-Vijayan-2005 made $160 billion in the US 2003-Hoffman-has reduced corporate IT expenses by 20% to 50% 2003-Hoffman-has reduced corporate IT expenses by 20% to 50% Global Insight-by 2008, Global Insight-by 2008, – IT off-shoring will account for roughly $125 billion in additional US GDP annually – $9 billion jump in US exports and a net increase of 317,000 jobs – amount is expected to increase to $250 billion by 2015

Previous Work Continue 2003-Gartner Dataquest-estimated the global market for Business Process Outsourcing would reach: 2003-Gartner Dataquest-estimated the global market for Business Process Outsourcing would reach: – $131 billion in 2004 – $131 billion in 2007 – Growing at a compounded annual growth rate of 9.5% 2005-Minevich-IDC estimated that the global BPO market was expected to grow to $1.2 trillion in 2006 from $300 billion in Minevich-IDC estimated that the global BPO market was expected to grow to $1.2 trillion in 2006 from $300 billion in 2004 – expect about 25% of US spending on application development, integration, and management services to go to offshore providers 2005-Gross-IT outsourcing by U.S. firms may itself create new IT related jobs here in the US 2005-Gross-IT outsourcing by U.S. firms may itself create new IT related jobs here in the US

Outsourcing Country Statistics 1.India (7.3/10)-(3.4/4 cost; 1.6/3 envn’t; 2.3/3 people) 2.Canada (6.2/10) 5.Philippines 7.Ireland 8.Australia 11.China BrazilMexicoHungary Czech Republic Russia

Breaking the Stereotype Is Outsourcing really BAD? Benefits: 1.Cost Savings of $.58 for ever dollar spent on jobs in India 2.American jobs outsourced to China have generated more demand for American products 3.Created jobs in other sectors 4.“Reverse Outsourcing”/ “Backsourcing”-foreign firms have outsource back to US 5.IT outsourcing by US firms may itself create new IT related jobs here in the US

No Independent Study Reported in this Paper Conceptual Paper – It proposes a model but no tests or theories, thus no results Functions that can be Outsourced

Areas of Work Outsourced Information Technology (IT) Accounting Human Resources Research and Development Customer Relationship Management and Call Centers Tax Preparation Radiology Analysis and Medical Tourism Film and Cartoon Production

Information Technology First to be outsourced onshore/offshore First to be outsourced onshore/offshore – IS Development, IS Maintenance, IS Operation – Entire IT function All company computers and data centers All company computers and data centers PC maintenance and support PC maintenance and support Acquisition and maintenance of the IT infrastructure-hardware Acquisition and maintenance of the IT infrastructure-hardware Systems software Systems software Telecommunications networks Telecommunications networks

Accounting Expected to grow at a 9.6% compounded annual growth rate Expected to grow at a 9.6% compounded annual growth rate Top $47.6 billion in 2008 Top $47.6 billion in 2008 Ex: US accounting firm helped an Indian start-up firm Ex: US accounting firm helped an Indian start-up firm

Human Resources Benefits: Benefits: – Saving money – Focus on strategy and core business – Improving compliance – Improving accuracy – Lack of experience in house – Taking advantage of technological advances

Human Resources Continue Other functions outsourced – 401 (k) administration – employee assistance/counseling – retirement planning help – pension administration – temporary staffing – background checks – training and management development programs – executive development and coaching – health care benefits administration – employee benefit administration – Payroll – risk management – executive staffing – employee relocation – Human Resources Information Systems selection/training/implementation – Recruitment – executive compensation and incentive plans – policy writing – administration of compensation/incentive plans – wage and salary administration

Research and Development Survey 2003 Survey 2003 – 50% of R&D groups in the auto, high-tech, aerospace and defense industries had no interest in outsourcing IT support – 12% were outsourcing IT projects related to R&D – 4% said they do any outsourcing of this function Benefits Benefits – Reduced costs – Minimize business risks – Hasten market entry of products Example from Author-India vendor Example from Author-India vendor

Customer Relationship Management and Call Centers Benefits: Benefits: – Client companies do not have to invest customer relationship management services and infrastructures with expensive in- house IT and service departments – Lower costs Companies aren’t too certain about intrusting their customers to a third party Companies aren’t too certain about intrusting their customers to a third party Good companies Good companies – Customer and client relationship should be seamless – Vendor should not offer a one-size-fits-all packages It should reflect the profile of the customer, not the reverse It should reflect the profile of the customer, not the reverse

Tax Preparation Spending on tax should increase by 9.3% per year over the next 5 years Spending on tax should increase by 9.3% per year over the next 5 years Benefits: Benefits: – Cost reduction – Improved turnaround time – Increased productivity (returned in less than 48 hrs.) – Allows more time for CPA firms to offer more value-added services – Tax outsourcing can serve as a catalyst for business transformation (enabling a firm to outsource other accounting functions, such as bookkeeping) Ethical concerns in regard to off shoring tax document Ethical concerns in regard to off shoring tax document – Follow four rules in AICPA Code of Professional Conduct

Radiology Analysis and Medical Tourism Benefits Benefits -Ease the shortage of radiologists and increasing work loads Technology now allows the internet transmission of crystal-clear radiological scans Technology now allows the internet transmission of crystal-clear radiological scans Now contracting nighthawks-radiologists from Israel, Australia or Switzerland where it is daytime Now contracting nighthawks-radiologists from Israel, Australia or Switzerland where it is daytime Issues with credentialing, licensing, accuracy of the readings, liability, and public perception Issues with credentialing, licensing, accuracy of the readings, liability, and public perception Strict requirements that all teleradiologist be US trained, licensed, and board certified Strict requirements that all teleradiologist be US trained, licensed, and board certified

Radiology Analysis and Medical Tourism Continue Issues: USA has no jurisdiction outside its borders Issues: USA has no jurisdiction outside its borders – The hospital would be liable but the radiologist is under no obligation to come to US for trial Tourism increasing due to “medical tourists”- traveling to India, Thailand for affordable First World health care. Tourism increasing due to “medical tourists”- traveling to India, Thailand for affordable First World health care. – McKinsey & Co. estimated that India’s medical tourist industry could yield up to $2.2 billion in annual revenues by 2012 Hospitals in India and Thailand are just as good if not better-ISO 9001 certified Hospitals in India and Thailand are just as good if not better-ISO 9001 certified

Film and Cartoon Production Jaddoworks.com Jaddoworks.com – Indian outsourcing hub for animation cartoons Indian animation industry is a $550 million industry Indian animation industry is a $550 million industry – expected to grow at 30% annually – reach $15 billion by 2010 Ex: Sindbad: Beyond the Veils of the Mists Ex: Sindbad: Beyond the Veils of the Mists – first full-length Indian animated 3D film using “motion capture” – Film was finished in 18 months instead of the usual 2 years of more – Only cost $14 million instead of $40 million

Conclusion Functions that are easy to outsource: Information Technology (IT) Accounting (expanding)—India Human Resources Tax Preparation—still ethical concerns Radiology Analysis and Medical Tourism—still liability issues—India and Thailand Film and Cartoon Production—India Hard to Outsource: Research and Development—dealing with extremely sensitive data-- India Customer Relationship Management and Call Centers

Implications for Service Managers Many functions can be outsourced Choose based on type of job Choose based on type of job Ensure that all is considered before deciding to outsource Ensure that all is considered before deciding to outsource Customer Service Customer Service Standards Standards Accents Accents Quality Quality Accuracy Accuracy Legality, Jurisdiction Legality, Jurisdiction Culture Culture