Without question, outsourcing services is an effective strategy for maintaining profitability. It is one of the few processes that allow you to streamline costs, enhance productivity, improve quality of work and reduce risk factors while introducing flexibility to your business development model. This is why global outsourcing has continued to grow over the last 15 years.
But the benefits that come with outsourcing services are not automatic. There have been outsourcing arrangements that fell short. A successful outsourcing engagement is not entirely dependent on finding the best service provider. It is also not entirely contingent on getting the best business arrangement. You should also consider the macroeconomic factors that affect outsourcing as a whole.
Over the last decade, the consensus top destinations for outsourcing have been the Philippines and India. Both countries are known for providing affordable labor which is the biggest comparative cost advantage of outsourcing. But both countries are also widely reputable for providing excellent quality of work.
The Philippines is a captive market for companies that want to outsource customer support and outbound services while India is the primary choice for IT and back office support.
But while undoubtedly rich in talent, there are major challenges to consider before outsourcing services to the Philippines, India and other ideal destinations.
Political Stability – Economic instability leads to political instability. Since 9/11, political barriers have been coming down. The change in leadership has had an effect on the growth prospects on world economies.
In the Philippines, its new President, Rodrigo Duterte has shaken up business foundations with his anti-US rhetoric and has put growth prospects of its progressive outsourcing industry into question.
The victory of Donald Trump in the recent US presidential elections has also put a curveball in outsourcing aspirations although the onus of his campaign is directed more toward offshoring.
Business Expectations – Despite its successes and consistent growth trajectory, outsourcing is not a cure- all. It is not the proverbial “lightning in a bottle” or a “miracle drug” that provides quick, instant fixes.
Outsourcing is a process which implies the necessity of respecting the value of time. As talented as the people are, you have to respect the learning curve.
Cultural and social nuances and the language barrier will contribute to the steepness of the learning curve. But given patience and respect to the intrinsic value of time, the outsourcer should be able to get your campaign running smoothly.
Value for Pricing – Outsourcing lowers the cost of business by capitalizing on cost advantages particularly labor. For example, the average wage rate for an entry level agent in the Philippines is $1.50 to $2.20 per hour.
Assuming labor is kept at 15% of gross revenues, hourly cost of outsourcing services would be estimated at $10 to $15 per hour. If you try to lower the rate to $7 to $9 per hour, that would raise the percentage of labor to 21% of revenues.
In order to remain profitable, the service provider may have to cut corners or downgrade some facilities.
Be reasonable when it comes to pricing negotiations. Trying to get pricing to the level you want without considering the needs of the outsourcer may affect your business in the long term.
Agent Health Issues – If there is a 12-hour time differential, the agents running your campaign would be working during their graveyard shift or 2am to 6am.
As anyone who has worked graveyard will tell you, this can seriously affect your health because sleeping patterns are affected. Lack of sleep can lead to irregular heartbeat and compromise cognition.
Better planning, 2-week rotating and shortened 4- hour schedules may address these issues but nonetheless these should be considered serious concerns.
Business Benchmarks – When you are dealing with the larger and more established outsourcers, you may feel more confident because they can pay for the talent to manage your campaign.
However, you should also understand that they manage based on PROTI or Potential Return on Time Invested.
Put simply, if your campaign fails to hit their established business benchmarks they can either let you go or sub- contract you to a smaller outsourcer.
Talent Dilution – The Philippines’ outsourcing sector employs more than 1 Million people. It is estimated that every year 250,000 more employers enter the outsourcing industry.
India’s outsourcing sector also employs more than 1 Million workers with 40% in IT.
Over time as more people enter the outsourcing industry, the level of talent may become diluted. As will be discussed next, attrition rate in outsourcing is very high. Many of its highly trained workers tend to move on to other careers.
Attrition Level – One reason why the Philippines has supplanted India as the premiere destination in outsourcing is the high level of attrition of the latter.
There have been reports that attrition rate in India’s outsourcing has been on the rise because of low pay, peer pressure and a general lack of career planning and succession programs.
The Philippines may find its way in the same boat if problems on regularization and increased benefits are not addressed.
Communication Avenues – You should also check the technological profile of the outsourcer. There must be enough capacity to manage calls, transmit data and maintain constant communication.
Check if their system is equipped with the latest technological innovations in communication. When you are working with a remote partner, close collaboration will be a challenge.
Components must be in place to ensure smooth communication channels. The outsourcer must be accessible by at least 5 communication avenues: phone, e-mail, online channels, regular mail and fax.
Problems in Infrastructure – Another concern is the availability and capacity of the existing infrastructure to manage operations. If there are frequent power outages, find out if there are contingencies in place such as the availability of a 24/7 generator.
You should also check the availability and capacity of the ISP in the area. There are some regions in the world where Internet speed is very slow and downtimes are frequent.
Make sure the outsourcer has at least one back up ISP.
Reputation Management – High attrition rate could have a negative effect on reputation management. You certainly should not expect disgruntled employees to say something nice about their previous employers.
Conduct due diligence on potential outsource services providers by doing a simple Google check or ask the country’s regulating agency for their recommendations.
Outsourcing will remain an important business process in the years ahead. As changes in political leadership continue to take shape, innovations in technology are introduced and new markets are uncovered, outsourcing will give businesses a powerful and reliable hedge versus uncertainty.
You just have to take a thoughtful, more strategic and purposeful approach in defining your outsourcing services strategy.