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Transcript of Agenda n Outsourcing clip of the week Outsourcing clip of the week n Looking at country...
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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