Outsourcing: Seeking growth through the Indian model ? The ...

Minister of Trade and Investment, Mr. Olusegun Aganga
| credits: crudeoildaily.com

Outsourcing is the contracting out of a business process, which an organisation may have previously performed internally or has a new need for, to an independent organisation from which the process is purchased back as a service. The meaning of outsourcing includes both foreign and domestic contracting, which may include off-shoring, described as ?a company taking a function out of their business and relocating it to another country?. An outsourcing deal may also involve transfer of the employees and assets involved to the outsourcing business partner.

On a global scale, it is the practice of hiring an external organisation to perform some business functions in a country other than the one where the products or services are actually developed or manufactured.

Though the practice of purchasing a business function?instead of providing it internally?is a common feature of any modern economy, the term outsourcing became popular in America near the turn of the 21st century when it entered into business lexicon. Outsourcing only became a force in the global economy in the 1990s with advent of internet. Internet combining of regional computer networks into a worldwide Internet allowed people from all reaches of the globe to be connected to one another. Increased computing power, data storage, and software capabilities made it possible to manage their labour. By 1998, outsourcing alone was responsible for $100 000,000,000 of the global revenues of American companies and in 2003 it had increased to $298,500,000,000.

Outsourcing is a major catalyst in the economy of the emerging economies such as Brazil, India and China.

The basic elements in the current outsourcing story include a large pool of talented and skilled providers; an equally large market of buyers looking for global talent and skill; a mutually agreed compensation package and; the existence of the Internet as the medium of communication and workspace.

The tasks that are commonly outsourced include human capital management, consisting of recruitment, training and talent management; software development programmers, as individuals or as a team can work on their homes apart from each other and still deliver the needed software; research and content development, researchers and writers can develop different types of content for anyone needing an article on a one-time or ongoing basis; back office tasks as such tasks as document filing and integration, customer support and client contact building are being done routinely through the web and design work given that architectural or graphic design is also routinely outsourced through the web.

Others include cash management, IT Infrastructure, security, human resources, payroll, insurance claims, etc.

Over all, companies outsource to avoid certain types of costs. Among the reasons companies elect to outsource include avoidance of burdensome regulations; high taxes; high energy costs; and; headcount management.

All these may be associated with defined benefits in labour union contracts and taxes for government mandated benefits. Perceived or actual gross margin in the short run incentivises a company to outsource. With reduced short run costs, executive management sees the opportunity for short run profits while the income growth of the consumer?s base is strained. This motivates companies to outsource for lower labour costs.

Moreover, companies may seek internal savings to focus financial resources towards their core business. A company may outsource its landscaping functions irrelevant to the core business. Companies and public entities may outsource certain specialised functions, such as payroll or benefits, to Automatic Data Processing.

India is blossoming from Outsourcing despite weak economies in key markets in the United States and Europe. According to a report by India?s National Association of Software and Services Companies: ?Revenues for outsourcing industries are expected to cross $100,000,000,000 this financial year, a 14.8 per cent increase from last year and double 2007. The group, which has over 1,200 corporate members, predicts that revenues will reach $225 000,000,000 by 2020.?

It is worthwhile to note that outsourcing income is equivalent to 25 per cent of India?s export volume in dollars. India controls 58 per cent of worldwide income in business processing and other forms of non-manufacturing-based outsourcing. With growth of 14 per cent on last year?s income, the industry keeps thriving.

Against this backdrop, the opportunity vested in outsourcing needs to be taken a lot more by the federal and state governments as well as the commanding heights of the private sector. Obviously, Nigeria has the following factors to its favour: Skilled and unskilled manpower; land mass; geographical location; English as official language

Today, as it stands, what outsourcing contributes to Nigeria?s GDP is less than two per cent, which is very small when compared to India?s 5.9 per cent. Indeed, outsourcing in the country is dominated by entities from India, China, South Africa and Lebanon. We can infer that if we embrace the Indian model on outsourcing, Nigeria should make the following:

If outsourcing could generate 67 per cent of Nigeria?s current FDI of $8.9bn, we should be looking at $6.23bn income. If it provides 25 per cent of our export revenue, we should be expecting close to $9bn income.

It can add more than 630,000 jobs yearly in the following sectors: telecommunications, information technology, electronics, manufacturing, transport and agriculture. With a huge pool of unemployed graduates of tertiary institutions, it is clear that outsourcing could be a way out to solve a critical problem, all things being equal.

Though the prospects are good, the odds are enormous. For a start, the business environment remains rather unfriendly. Confusing and multiple regulations stifle innovation and impede growth. The dominance of the foreign-based entities can be more of a threat than an opportunity. The oil and gas sector already has a well documented and enforceable guideline for encouraging homegrown involvement. The Nigerian Communications Commission and the National Information Technology Development Agency should jointly and in cooperation with relevant trade and interest groups address the numerous shortcomings which have enabled the commanding heights of the telecommunications sector to be overrun by non-Nigerian organisations. Our nation should not be content with feasting on leftovers. My advocacy should not be misconstrued as handing over business to unprepared local hands or as supporting dumbing down of standards or quality. I am certain that there remains more than adequate entrepreneurial flair within the nation for global best practice in outsourcing. Practitioners from various sectors have to work in unison to ensure that the noble intentions are not frustrated by the inelegantly named ?Nigerian factor?.

For Nigeria to reach its projected growth by 2020, we have to take advantage of the opportunity vested in outsourcing. It is my contention that outsourcing will boost our homegrown business, increase gainful employment, and fast-forward our economy generally.

?This is an excerpt of a paper presented by Baiye at a meeting of the Association of Outsourcing Practitioners of Nigeria in Lagos

Source: http://www.punchng.com/opinion/outsourcing-seeking-growth-through-the-indian-model/

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