MIT-AITI Entrepreneurship Lecture 4: Offshore Outsourcing

Lessons The new trend: Offshore Outsourcing What led to offshore outsourcing How outsourcing is affecting businesses Outsourcing in the future Case Study: A look at Wipro Systems

Outsourcing The practice of one company allowing/contracting another company to do parts of its business For example: A computer manufacturer contracts another company to handle all its repairs and customer services

Offshore outsourcing Companies in America and Europe are giving contracts to companies in developing countries to handle some aspects of their business The Western companies benefits by taking advantage of cheap labor in the developing world Offshore outsourcing has created millions of jobs for people in the developing world

The Outsourcing trend Globalization and technological advancement has given rise to a global economy that allows workers from all over the world to compete for jobs, therefore, the offshore outsourcing trend emerged. Offshore outsourcing has mainly focused on: – IT related work – mostly to India – Manufacturing operations – mostly to China

Outsourcing in India Acquired the majority of the IT outsourcing industry by early entry into the industry Has a large number of highly educated, English speaking computer programmers Has the necessary infrastructure for outsourcing on a big scale In 2003, India’s outsourcing industry was worth over $12 Billion

Indian companies Wipro systems, a billion dollar company is a leader in India’s outsourcing industry Other companies are InfoSys and Tata Computer Services (TCS) The industry is expected to continue to grow at 30% annually (Forrester)

Outsourcing in other countries Many other countries are trying to take advantage of the outsourcing trend. English speaking countries with large number of educated computer programmers and good communication infrastructure can take advantage of the outsourcing trend Eastern European countries, Israel, Ghana and South Africa are very keen on joining the industry

Rise of outsourcing Globalization means that companies have to compete globally and so do the workers Technological advancement means that it is easy for people in different parts of the world to communicate cheaply and efficiently Aging population in Europe and America means that the a new workforce is needed

Rise of Offshore outsourcing Globalization means many people are familiar with the American and European culture Higher level of education among people in the developing world. Wages in the developing world are much lower Outsourcing is beneficial to both the US companies and workers in developing countries

Outsourcing trends IT industry – low and high paying jobs Low cost manufacturing Care of the aging populations in the US and Europe - medical, vacations, care of the elderly, entertainment etc. Blue collar jobs in the US are being outsourced to immigrants from Mexico and other developing countries

Outsourcing in the future Since globalization is increasing, outsourcing is only going to increase and be more widely developed Countries that will benefit from this industry will be those who identify opportunities quickly and get involved early Companies/Countries that establish themselves as a place of excellence will get customers Offshore outsourcing is the wave of the future

Wipro Systems India’s largest technology company in terms of market capitalization In 2003 it had revenues of about $1.4 billion

Once upon a time in ’65 … Azim Premji was an undergraduate in Stanford University His father died 1 year later and he had to returnto India to handle the family business, Western India Vegetable Product. The challenge was to diversify the company.

Azim Premji in charge He diversified the company from being a cooking oil company to: Manufacturing light bulbs with General Electric Making other products such as soap In 1977, he changed the name of the company to Wipro Products Ltd and then to Wipro Technologies

Wipro Technologies begins In 1979, the Indian government kicked IBM out of India Azim Premji saw the opportunity and started an information technology division He went into computer manufacturing, software development and computer maintenance services Many people wondered what he was doing

Wipro Technologies growth Wipro made software packages and sold them to US companies Cheap operating costs in Bangalore, India gave Wipro huge profit margins

Wipro growth factors Focus on innovation and excellence Hard work works – Azim is a workaholic Management principles based on equality and human values Refusal to give bribes and intent on honesty from all his employees Azim’s frugal approach with his money

The frugal billionaire Azim Premji drives a 6 year old Ford He is a workaholic and lives near his company so he can check in anytime Always flies economy class and eats in cheap restaurants He didn’t promote his sons to be head of the company because he felt they were not qualified for the position He is a Moslem and set up the Mahatma Ghandi Foundation in India A great example to the third world

Wipro Systems - Founder Mr. Azim Premji India’s richest man with a $6 billion fortune

Assignment Write a detailed 2 page paper as part of your group (one paper per group) on how you can use the resources available to you to begin an outsourcing company. This assignment should be done by together by the whole group as a team.

Resources Visit and have a look at what the company is about. Read the complete story of Azim Premji