Agenda n Outsourcing clip of the week Outsourcing clip of the week n Looking at country attractiveness n Maturity models n China v. India n Break n Models.

Agenda

Outsourcing clip of the week Looking at country attractiveness Maturity models China v. India Break Models of GITS (Cognizant case) Tom Friedman video: The Other Side of Outsourcing (time

permitting)

IT Outsourcing IndustryMaturation Model

Stage 1: Initial Growth Stage 2: Shake Out Stage 3: Stabilization

Number of firms growing rapidly

Relatively small companies

Fragmentation

Number of firms drops significantly

Some consolidation

Number of firms stabilizes

Bigger players

TimeTime

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IT Outsourcing IndustryChina

Stage 1: Initial Growth

Many new entrants

Majority of companies do not focus on

offshore IT services

Concentration ratio still small

Rankings keep changing

Evaluating the Attractiveness of Offshore Destinations

Choice of an offshore

destination country

Facilitating factorsDrivingDriving forcesforces

Restraining forcesRestraining forces

Restraining forcesRestraining forces

Adapted from Lewin (1951) : A Force Field analysis

China as an Offshore IT Destination

China Facilitating factors

English; IT Skills;Western business

practices

IP protection; branding;

Large domestic market; industry fragmentation

Adapted from Lewin (1951) : A Force Field analysis

Cost; desirable footprint;

Infrastructure; government incentives; human capital

India as an Offshore IT Destination

IndiaFacilitating factors

IP protection (?); wage inflation;

turnovers

Adapted from Lewin (1951) : A Force Field analysis

Cost; desirable footprint;

brand; expertise English ; IT

Skills; Human capital; vendor

ecosystem; younger

population; innovation

Infrastructure; political stability

2015: A Final TallyFactor China India

Compensation

IT Infrastructure

Taxes and regulation

Travel

Management quality

Business Process experience

Education quality

English

Attrition rates

Western business practices

Political Stability

Intellectual Property

Vendor Quality

Determining Country Attractiveness

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Country Attractiveness

Costs Availability of desired skills Host Country Environment Infrastructure Risk Profile Market potential

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Source: Farell 2006)

Costs

Labor Infrastructure Corporate taxes Others?

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Availability of Desired Skills

Size of skill pool– Technical– Management– Language

Vendor ecosystem– Delivery competency– Transformation competency– Relational competency

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Host Country Environment

Government support Business environment Living environment Accessibility

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Infrastructure

Telecommunications Real estate Transportation Power

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Risk Profile

Security risks Disruptive events Regulatory risks Economic risks Intellectual Property risk

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Market potential

Local Market Adjacent Markets

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AT Kearney Rankings

Based on three criteria– Financial attractiveness (4.0)– Skills pool (3.0)– Business environment (3.0)

Top 5– India (7.00)– China (6.56)– Malaysia (6.12)– Thailand (6.02)– Brazil (5.89)

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1000-100-10

September 2006 in Xiamen, Fujian province Policy announcement

– 1000 mid-large offshore outsourcing enterprises of international quality

– 100 “world famous multinationals” transfer services to China

– 1010 service outsourcing base cities $1 billion in government support

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Where in China?

Back

MBA560: Global IT Sourcing

Models, Forms, and Reasons

Global IT Sourcing Models

Models of sourcing What can be outsourced? What should be outsourced? What factors should influence decision?

Forms

Domestic Outsourcing– Third party– Same country

Offshore outsourcing– Third party– Different country

Domestic insourcing– Wholly owned business unit– Same country

Captive Model– Wholly owned subsidiary unit– Different country

What should be outsourced?

Strategic value of activity Scale of outsourcing

– Cost of setup/search– Complexity and size

Type of Technology used– Rapidly changing?

Headcount fluctuations

Common mistakes (Aron and Singh, 2005)

Tend to look at countries rather than processes– Core v. critical v. commodity

Should but do not consider all the risks Not all or nothing

BPO and KPO

BPO (business process outsourcing)– Business processes including data entry, call

centers– Sometimes called ITES

IT enabled services

KPO (knowledge process outsourcing)– Requires specialized knowledge

R&D; legal services; product development

Location

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OnsiteOnsite Offsite Offsite (same country) OffshoreOffshore

Third PartyVendor

JVJV

Wholly Owned

Subsidiary

Second Generation Outsourcing Models

Global Shared Services ModelGlobal Shared Services Model

Build-Operate-Transfer ModelBuild-Operate-Transfer Model

Global Delivery ModelGlobal Delivery Model

OnsiteOnsite OffshoreOffshoreHybrid ModelHybrid Model

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