Rise in Indian and Chinese companies outsourcing

By Stan Beer
Tuesday, 05 December 2006 16:59

Strategy

Contrary to popular belief, Indian and Chinese companies are outsourcing to local providers, providing potentially significant earnings for labour-poor countries like Australia.

A KPMG report involving 305 senior executives from Asia Pacific companies including Australia, found 55% of Indian and 46% of Chinese companies are currently outsourcing parts of their operation with another third saying they plan to in the next three years.

“There is a misconception that Indian and Chinese companies do not outsource as providers are located in the same country, therefore negating the advantages of a cheaper labour market,” said KPMG’s Partner in Information Risk Management, Edge Zarrella.

However, the majority of Indian respondents see the opportunity to focus on core competencies as the key benefit to outsourcing, not achieving cost savings.

“It appears more Indian and Chinese companies are outsourcing non-customer activities, preferring to manage the customer relationship aspects in-house.

“Australian companies should learn from the Asian experience by focusing their own resources in areas that are business critical and sourcing non-core activities elsewhere,” Mr Zarrella said.

The report found 53% of Australian respondents outsourced to India and 38% to China, but a change of direction is not out of the question.

“While Indian IT service providers and call centres have the added advantage of speaking English and having a proven track record, the rise in outsourcing throughout Asia and particularly India will inevitably mean labour costs will rise.

“New outsourcing players are emerging including the Philippines, which may persuade Australian companies to rethink their outsourcing options.”

The report also found the next wave of outsourcing looks to be far bigger than it is now with some accounting, finance and human resources functions catching up with the levels of IT outsourcing.

“Outsourcing is gaining steam and companies with no plans to outsource may soon find themselves at a competitive disadvantage.”

But while outsourcing is on the rise, there were some areas respondents had no plan of outsourcing including strategic planning and sales and marketing.

A further aspect that can never be outsourced is accountability.

Mr Zarrella concluded “Outsourcing business processes doesn’t mean you can outsource risk.

In-house executives now more than ever need to take responsibility for setting policy, direction and strategy and for seeing that it is executed correctly.”