Publishing outsourcing-white-paper

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A White Paper on Current Challanges and Issues with Publishers and Offshore Providers

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Publishing outsourcing-white-paper

  1. 1. PUBLISHING OUTSOURCING – A White Paper on Current Challenges and Issues with Publishers and Offshore Providers The Sourcing Industry Blueprint 2.0 February 2013 | Phil Fersht,Tony Filippone http://www.hfsresearch.com/The-Sourcing-Industry-Blueprint-2-0 TM ValueNotes Data to Decisions...
  2. 2. Publishing Outsourcing Services: The Buyer Publishing Outsourcing Services: Moving up the Value Chain Publishing Outsourcing Services: The Inhibitors Publishing Outsourcing:Demand for Services: The ROI of Outsourcing 5 11 18 23 TABLE OF CONTENTS Exhibit 1: Top 15 Publisher's Revenue Exhibit 2: Perceived Challenges of Publishers Exhibit 3: Mitigating ChallengesThrough Outsourcing Exhibit 4: Current State of Outsource/Offshore Services Exhibit 5: Offshore Content Services Exhibit 6: Design Services by Segment Exhibit 7: Technology Services by Segment Exhibit 8: Areas Of Improvement For Service Providers Exhibit 9: Buyer Outsourcing Outlook Exhibit 10: Preferred Outsourcing Destinations Exhibit 11: ProclivityTo Outsource by Service Areas Exhibit 12: Cost Savings – Overall Buyer Perceptions Exhibit 13: Buyer Expectations from Service Providers TABLE OF EXHIBITS Firstsource © 2013 | Confidential www.firstsource.com 2 5 7 9 11 13 14 15 19 20 22 23 25 27 TM ValueNotes Data to Decisions...
  3. 3. OUTSOURCED PUBLISHING SERVICES: An Introduction This white paper is a four-part series about outsourced publishing services (OPS) from ValueNotes and Firstsource. The individual reports were initially released over a period of several months in 2012. All of the reports are combined here with some additional comments and insights.These papers highlight challenging and controversial issues facing outsourcing publishing services, and are based on extensive research and interviews with publishers around the world between 2010 and 2012.The study has been conducted by ValueNotes and Firstsource.These articles are intended for both buyers (publishers) and service providers, and focus predominantly on challenges and concerns for both groups that are often not seen in other professional or public forums. Please make a note that the focus in this lengthy white paper is on the factual issues in the OPS industry not often seen in public discussions, but often discussed in private conversations. This analysis is not for sale or supported with advertising by publishers or offshore providers, so there is no hidden agenda to support. We also provide key highlights in the margin about topics that are of particular importance. Also, please note that we have consistently stressed the importance of cultural issues, and although this may seem repetitive at times, the emphasis is intentional and should be taken into careful consideration. In the final analysis, outsourcing in the publishing industry, as in any industry, is as much about dealing with cultural issues as about sales and profits. An Overview of Outsourced Publishing Services The Buyer Moving Up The Value Chain The Inhibitors Demand for services and ROI Source: ValueNotes Research Firstsource © 2013 | Confidential www.firstsource.com 3 “When outsourcing publishing services, cultural issues cannot be underemphasized”. TM ValueNotes Data to Decisions...
  4. 4. The first part is primarily an overview of the global publishing market with an emphasis on cost challenges as well as growth in the outsourcing market in general.The second part focuses mainly on the publishing value chain and the different offshore services offered as well as some of the issues that publishers find to be the most challenging with offshore work. Also, we highlight some of the “taboos” of outsourced publishing along with a presentation that was showcased at the Frankfurt Bookfair in October 2011, and a questionnaire that will be used to fuel further research for an updated report in . See the link here for those interested in participating in current research in this industry. The third part focuses on some of the key challenges and inhibitors to growth in the outsourced publishing services market, the importance of service providers delivering more value, as well as the concept of a collaborative “partnership” with buyers and providers.The fourth and final part deals with the actual demand for services as well as some of the challenges associated with publishers' expectations and the importance of a differentiated branding statement with providers. 2013 Firstsource © 2013 | Confidential www.firstsource.com 4 TM ValueNotes Data to Decisions...
  5. 5. OUTSOURCED PUBLISHING SERVICES: The Buyer This part of the white paper presents an overview of the global publishing market with an emphasis on cost challenges, as well as on the growth of the outsourcing market. The publishing industry is especially top-heavy—a few media giants own publishing companies that generate a significant proportion of the English-language publishing market. Of the estimated $280 billion in revenues, the top 50 publishers generate in excess of $65 billion, close to 33% of the revenues. These companies often have multiple publishing houses that operate in numerous segments and in varying geographies, and generally represent the largest percentage of the offshore industry in annual revenue. The Top Publishers The top-ranking publishers have been affected very negatively by the severe economic crisis from 2008 through 2012 with regard to both volume and value of business.The following exhibit gives approximate revenues for theyears 2009 and 2010. Firstsource © 2013 | Confidential www.firstsource.com 5 Exhibit 1:Top 15 Publishers' Revenues for theYears 2009 and 2010 Thomson Reuters Canada Lagardère Publishing/ Hachette Livre France Bertelsmann Germany Reed Elsevier UK/NL/USA Pearson UK McGraw-Hill Education USA Cengage Learning Canada/USA Scholastic Corp. USA Wiley USA De Agostini Editore Italy Wolters Kluwer The Netherlands Holtzbrinck Germany Source:ValueNotesResearch. Figures are in USD million | 2009 2010 TM ValueNotes Data to Decisions...
  6. 6. Firstsource © 2013 | Confidential www.firstsource.com 6 Publishers based in Germany and the USA account for a majority of the top 50 publishers in the world. These publishers have a historically rich tradition of publishing content over a considerable time period, often for as long as 100 years. Although publishers are adjusting to the new economic environment, the recovery is slower than expected. The small revenue growth for most publishers is often attributed to an overexposed print sales model that was adversely impacted by the global economic crisis. It is interesting to note that a majority that have experienced marginal or even negative revenue growth are from the USA.This is due to the severity and breadth of the economic decline that has also affected the stock market and real estate industry. Furthermore, unusually high unemployment, especially underemployment, was a trend in 2011 and will probably continue, although with some improvement well into 2012–2013. Magazine publishing, especially, has seen some harsh economic realities as advertising dollars, especially for print media, have experienced some of the most severe declines. This is true with consumer magazines and even more so with regional or city newspapers. Magazine and newspaper publishers have historically had a significant reliance on print advertising, and have often been the first companies affected negatively in a prolonged economic decline. The traditional advertising model for print, especially for city newspapers, has been impacted dramatically by the meteoric growth of websites, such as Craig's List, and many others, that offer free classified advertising by city as well as sites that offer more current news on the web for free. Academic publishers, on the other hand, especially in higher education, have been suffering for some time with price points that have often become inelastic. Many students are not purchasing new textbooks these days. Also, used textbooks have had a dramatic impact on academic publishing over the last decade, where it is not uncommon to have price points in excess of $100 for a general education course at the freshman or sophomore level. Consequently, academic publishers and authors do not generate any revenue from used textbooks. Publishers have attempted to combat the used textbook market with shorter revision cycles even though such revisions often do not add much value to the content—a topic that has been widely commented on by many in the academic publishing market. Aggressive print business models have often meant overexposure to economic risks. Reader's Digest, and many others, for example, declared bankruptcy on account of significant debt as well as a change in consumer reading habits. Reader's Digest incurred significant losses (that resulted in more debt) due to a frail business model that faced significant pressure when companies and consumers cut back spending as well as advertising. On the other hand, The Christian Science Monitor, and Newsweek very recently, as well as other major magazines, have decided to produce a digital version only. In addition, many other magazines are considering such digital- only publishing models to cut costs, and potentially improve advertising. Such revenue and cost challenges are typical to the publishing industry, and have been more dramatic and prolonged because of the severity and length of the global recession. Also, an equally important challenge is the dramatic shift to digital initiatives that have often made the economic adjustment even more challenging. While there is some variance across segments, the publishing industry as a whole has experienced a prolonged negative impact due to the global economic crisis, and it is quite evident that cost pressures are often severe. In the wake of this crisis,ValueNotes conducted a survey,“The State of Outsourcing in the Publishing Industry”, in that provides more insights to challenges and issues that the publishing industry is experiencing. This survey received a significant amount of attention on social media sites, such as LinkedIn, with its emphasis on the hidden “taboos” of outsourced publishing. Topics that publishers are often reluctant to discuss in public were included. Please refer to the Bookfair 2011 presentation from Firstsource about this “taboo” topic, as well as the research questionnaire that we are developing, to garner insights into what publishers actually think of outsourcing in 2012–2013. 2009 Frankfurt Challenges and Issues Clearly, most publishers are grappling with cost and margin pressures.The economic recession, coupled with rising labor and production costs, have been detrimental to the entire industry, especially in the USA. With print revenues also on the decline, publishers have had to look for alternatives, such as increasing digital initiatives, and relying on offshore service providers, for significantly lower costs. In the publisher survey conducted by ValueNotes in 2010, more than half of the respondents indicated cost pressures as the major challenge facing the publishing industry. The exhibit below highlights the various challenges experienced by the industry. “The economic downturn has had a more negative impact on US publishers than many others”. “Publishers who have relied heavily on print advertising dollars have often struggled more than other publishers”. TM ValueNotes Data to Decisions...
  7. 7. Firstsource © 2013 | Confidential www.firstsource.com 7 Exhibit 2: Perceived Challenges of Publishers Manageable challenge Not a challengeKey challenge 27% 37%36%37% 43% 20% 17% 49% 39% 13% 47%39% 19% 45% 36% 12% 54% 34% Diversifying into new areas of business Value addition within current offerings Adapting to new technology Addressing new geographies Cost / Margin pressures Lack of in-house Capabilities Source:PublishersandOutsourcing:Willoutsourcingincrease?2010|ValueNotesResearch. The publishing industry is quickly moving to greater digital initiatives, as discussed earlier. This is probably the most evolutionary change in the industry since the invention of the printing press in the 1400s. It is also proving to be the biggest challenge for many publishers. Also, consumer preferences are evolving in how they access and use content in different formats and devices. Equally important, increasing global competition is forcing most publishers to diversify revenue sources and retain consumers by adding value to current offerings. Given the growth of online and digital content, companies are attempting to implement a rapid transition from a print to a digital content business model. Most publishers believe that they have access to quality resources, and over a third (36%) of the respondents said that the lack of in-house capabilities is not a major challenge. In addition, they further stated that cost is a major concern if those resources are used onshore, especially in the USA. While cost pressures are a challenge for respondents across all geographies, this is more the case in the USA and the UK. The US market, especially, has faced severe cost pressures on account of the depth and breadth of the economic collapse. Asia is showing significant aspirations of addressing the global publishing market. Diversifying and addressing new markets are the two key challenges that publishers from Asia face. The type of challenges faced by geography is also an indication of the maturity level of the publishers. Responses from Asia indicate that they are looking to grow and expand across new markets since these publishers are often smaller and more entrepreneurial than in Europe and the USA, and their costs are often generally much lower than in other geographies. Small publishers (less than 1,000 employees) are keen to diversify and add value to what they are currently offering, but are often confused about how to best achieve this, and at the same time remain competitive. Cost and diversification are two areas of concern. Currently, technology requirements and the need to address new geographies are not necessarily on the priority list. However, going forward, implementing new technology is likely to play a major role in improving margins, and publishers will have to focus aggressively on technology initiatives within the next two years to remain competitive. The critical, strategic challenge is that in-house technology implementation is often very capital intensive. Consequently, publishers have to look at external sources, TM ValueNotes Data to Decisions...
  8. 8. usually offshore, to manage and implement the technology and related infrastructure. Medium to large publishers (employees more than 1,000) have already been investing in technology for some time. Of particular interest is software as a service (SAAS) and cloud-based solutions since these services often allow access to innovative technology at a much lower monthly cost as opposed to the purchase of the technology. For the medium to large publishers, cost and margin pressures are the biggest cause for concern.This segment has been outsourcing to offshore companies for some time, and this is illustrated with the low response rate about the lack of access to external services and resources. New geographies, technologies, and diversifying into new business markets are not pressing issues for the larger publishers, but represent some concern to larger publishers who have not been as technically innovative as others. However, adding value to print and digital content to enhance the consumer experience is a significant focus area irrespective of the publisher's size. Of particular importance, there is an increasing demand for digital content to be more than just a mirror copy of the paper product especially with EPUB 3 and other HTML 5.0-based platforms. Many respondents believe that publishing may have a fate similar to that of the music industry, which has been severely hampered by free downloads and the dramatic decrease in CD sales. The often cited irony of consumer behavior is that when content goes digital, it is expected to be either free or close to free, certainly a lot less expensive than the print counterpart. Many comment on this trend now with e-books in 2012–2013 where pricing is generally at least 50% Firstsource © 2013 | Confidential www.firstsource.com 8 less than the paper counterpart, and appears to continue to decline as noted in many studies in 2013 with the meteoric rise in self-publishing. Another by-product of the eBook market for publishers is that more and more authors are self-publishing, and selling their books from their own websites, totally bypassing the publisher as well as the traditional distribution and marketing channel, which further compounds the challenges for book retailers (e.g., Borders went out of business in 2012), and threatening big players like Barnes & Noble as well. Consequently, with value enhancements to digital publishing initiatives being a major concern for publishers, providers, irrespective of company size, need to strategically view how they can deliver added content value while maintaining profitable pricing for publishers. The strategic question for publishers and providers, then, becomes: “How can I enhance the value of my digital content and maintain competitive, profitable pricing? “Digital content needs to be more than just a mirror copy of the print version”. Offshore Services: Critical to Challenge Mitigation Large publishers have been outsourcing various services for some time, especially in the scientific, technical, and medical (STM) segment, which is quite mature with offshore services. This market segment, especially the major STM publishers, such as Wiley-Blackwell, Elsevier, and Springer-Verlag, has been outsourcing work offshore since the 1980s. During the survey, buyers indicated the challenges that can be mitigated by outsourcing. This is based on a correlation between responses to perceived challenges and whether outsourcing can mitigate such challenges. TM ValueNotes Data to Decisions...
  9. 9. Firstsource © 2013 | Confidential www.firstsource.com 9 Exhibit 3: Mitigating Challenges through Outsourcing Publishers are recognizing the benefits of outsourcing services, technology, and other aspects of their operations to address cost and resource issues. Because in-house resources are expensive, especially in the USA and Europe, outsourcing primarily offers cost and labor arbitrage benefits. Most publishers acknowledge the potency of outsourcing as a solution to in-house resource constraints, especially technology. However, the issue of value addition and innovation is still not being effectively addressed by outsourcing, which is often a serious strategic concern for many publishers and providers. While some market segments still need to mature in terms of outsourcing, the publishing industry as a whole does not consider outsourcing as an effective means to add value and innovation to their publishing program, at least at the present time. This is a critical challenge confronting the industry. Publishers, consequently, need to be very clear about their expectations with the value of outsourcing beyond pricing. And service providers need to learn to provide more value in their service offering that is above and beyond pricing. One area that publishers are looking to outsource is complex digitization. More and more consumers are moving toward digital reading devices, a trend especially prevalent from the second quarter of 2011, as indicated by the dramatic increase in sales of the Apple iPad. E-books have also seen a concomitant meteoric increase. Respondents are very much in favor of outsourcing most of the tasks related to e- publishing, especially conversion processes with back list titles for e-books and other backend services for making content compatible across different devices and formats. Manageable challengeKey challenge Diversifying into new areas of business 17% 13% Value addition within current offerings 19% 10% Adapting to new technology 19% 19% Addressing new geographies 10% 12% Cost/ Margin Pressures 26% 22% Lack of in house Capabilities 24% 13% Source: Publishers and Outsourcing: Will outsourcing increase?, 2010 | ValueNotes Research “Innovation is often not found in the publishing outsourcing relationship”. TM ValueNotes Data to Decisions...
  10. 10. Firstsource © 2013 | Confidential www.firstsource.com 10 Outsourcing Spend across Segments to Increase The overall revenues from outsourcing publishing services (prepress) to Asian countries (India, the Philippines, Vietnam, China, and Sri Lanka) was approximately $780 million in 2008. India's revenue from the OPS industry, which includes the STM, educational, legal, and other segments (corporate, magazines, etc.) stood at $660 million in 2008, clearly the lion's share of the market. ValueNotes' research on the industry estimates the revenue growth to have crossed $1 billion in 2011, and it may easily have reached $1.2+ billion in 2012. However, one of the respondents mentioned that with “new media” services, there was a potential for 50% of the services to be outsourced in the next fewyears.“New media” incorporates a diverse set of multimedia enhancements to content, especially with the EPUB 3 standard for e-books as well as animation and modeling, and 3D applications.This new e-book standard is one of the most dramatic opportunities for publishers to incorporate cutting-edge media technologies to enhance the value addition of digital content over print. Traditional publishers have always relied on outsourcing as a critical aspect of the publishing business, but not necessarily offshore. For example, most sub- segments in the industry have relied on external sources—especially freelance writers and editors, either onshore or offshore—for the creation of content. Over the last few decades, publishers have continued to increase outsourcing at double-digit levels. Typically, such publishers will outsource production, some editorial services, design, illustration, printing, and so on.The true potential of the market remains to be tapped especially as “new media” enhancements become more pivotal for all publishers in 2013. The next part of this white paper will cover specific offshore services and challenges, as well as why it is important for offshore service providers to move up the value chain and provide more sophisticated and innovative services to publishers. India is the most popular destination for outsourced publishing services" TM ValueNotes Data to Decisions...
  11. 11. OUTSOURCED PUBLISHING SERVICES: Moving up the Value Chain This section focuses on some of the core challenges in the OPS industry. We discuss the myriad issues that offshore service providers have to contend with in moving up the value chain, and what they can develop and provide to improve their market position. We believe this value addition is a strategic part of the offshore service matrix, since many publishers often perceive most offshore services as being highly commoditized with very little differentiation other than pricing. This perception is a major challenge in the market for both buyers and providers, especially when trying to decide on a new service provider. An equally important issue is how offshore service providers try to market and brand their services amidst a plethora of competitors.One of the critical points that needs clarity is whether buyers and service providers need to move the industry away from “buying on price.” There is considerable controversy and debate on this issue that is not commented on at length in public, but needs a lot of The maturity of outsourced services varies significantly by market segment, as we stated in the first section. This variance is the result of significant levels of subjectivity and clarity. complexity in the offshore publishing process, depending on the nature of the publishing subprocesses. For example, copy editing of trade books for the consumer market is rarely outsourced offshore, and even if it is, most of it is purely mechanical or automated with software tools and is rarely performed manually. Most fiction, especially literary fiction, is notoriously difficult to edit and requires considerable attention, as well asyears of editorial experience. Many refer to this as “developmental editing”, and it requires considerable editorial skills and a keen understanding of the nuances of language, as well as subject matter expertise.The combination of these skills is not easily found offshore, except in rare, isolated cases. Furthermore, it is not easily scalable when dealing with larger volumes. Current State of Outsourcing Services The following exhibit provides more information on various publishing services and whether they are being outsourced offshore. Exhibit 4: Current State of Outsourced/Offshore Services CONTENT SERVICE SUBSERVICE OUTSOURCE OFFSHORE Authoring Selection Content Acquisition Tagging Language editing Mechanical editing Conceptual Indexing Section indexing Keyword indexing Subject indexing Author indexing Fact and data checking Content aggregation Content Creation Copyediting Indexing Developmental Editing Firstsource © 2013 | Confidential www.firstsource.com 11 “Most publishing outsourcing services are highly commoditized, so providers need to be especially conscious of providing value”. “Editing services are especially problematic when outsourced offshore”. TM ValueNotes Data to Decisions...
  12. 12. Firstsource © 2013 | Confidential www.firstsource.com 12 Specialist Editing DESIGN Graphics Editing Color editing Resizing Original Design Concept note Drawing of illustration Themed illustrations Photo Research Copyright checking Cost checking Permissions Art Research & Commissioning Copyright issues PRE-PRESS Editorial Layout Composition Template creation Generating stylesheet Proofing page Proofreading Author liasoning Project management Conversions XML first XML at end Print deliverables Ad Layout Concept note Layout and design OTHERS Project Management Distribution/Subscription Management Ad Sales & Marketing Translation Adaptation Abstracting CONTENT SERVICE SUBSERVICE OUTSOURCE OFFSHORE Plagiarism check Specialist Editing Précis writing Keyword check Source: ValueNotes Research. Many publishing services can be outsourced to offshore providers as long as the service provider understands the issues of providing value beyond the standardized services. However, buyers are often reluctant about outsourcing certain services beyond those that are highly standardized, such as composition, XML workflows, and basic design. Therefore, volumes have not picked up significantly with many higher- value services. Highly standardized services are ideal for outsourcing offshore. As noted, finer levels of editing usually associated with literary fiction or nonfiction are usually not outsourced; same is the case with the more complex, creative design and illustration services that often require a deeper understanding of culture and problem solving. Quality issues and the inability to address cultural nuances are the major hurdles with these services. The English language is notoriously subtle at higher levels of literature, as opposed to mass market fiction, and editing skill sets required by offshore service providers are often quite rare at this higher level. The following sections discuss the maturity levels across various services that are offshore. Publishers also differ on what they will or will not outsource. For instance, there are some publishers that completely rule out outsourcing any content creation services, including all facets outsourced TM ValueNotes Data to Decisions...
  13. 13. Firstsource © 2013 | Confidential www.firstsource.com 13 Content Services In content services, providers catering to the STM and academic markets are much more mature, as noted in the first section of this whitepaper. This is expected, since STM publishers used offshore services well before publishers in other consumer segments, and they have greater experience with outsourcing services. Most of the top-tier STM publishers began using offshore services in the early days of SGML, the father of XML, in the late 1970s and 1980s. Also, most STM content is not design driven, and lends itself well to standardized stylesheets, which can be highly automated with XML, a major issue with offshore work. Consequently, creative design with STM content is rarely an issue. The offshore industry is beginning to provide higher-end content services such as repurposing (customization), translation, abstracting, content development, testing, and assessment. While these services are a clear testament that the industry is moving up the value chain, service providers often struggle to localize content effectively to meet the cultural nuances of different geographies. This is often a pivotal issue with more consumer-oriented content as noted. The cultural and colloquial barriers have prevented many segments such as consumer magazines and comic books from outsourcing since this content is often very design driven and not as easily automated with XML-first workflows. The following exhibit highlights certain content creation services and the likelihood of them being offshored. SERVICES Content acquisition Copyediting Developmental editing Data mining Fact and data checking Proofreading and collation Abstracting Note creation Content repurposing Specialist editing Research and analysis News/article authoring Assessments Localization Translation E-learning content STM/ACADEMIC High High Medium Negligible High High Medium Medium Medium High Low Negligible NA Medium Low High LEGAL Medium Medium Low Low Low Medium Negligible Negligible Negligible Negligible Low Low NA NA NA Low OTHER Medium Low Medium Medium Low Low Low Low Low Low Low Low NA Low Low Low EDUCATIONAL High High Low Negligible High High Low Low Low High Low Low Low Medium Low High Exhibit 5: Content Services Provided Offshore Source: ValueNotes Research. of editing and writing, while there are others that will not outsource translation.There are certain services that are also considered as “un-outsourceable” by publishers, for instance, the finer nuances of marketing, branding, concept creation, and idea generation, as these require a very fine, sophisticated understanding of culture and language. This is often an especially challenging issue with consumer magazines and newspapers. TM ValueNotes Data to Decisions...
  14. 14. Firstsource © 2013 | Confidential www.firstsource.com 14 Currently, content services that are outsourced offshore are from segments that have higher maturity levels such as the professional, scholarly publishing, and STM segments.Again, this content is usually not design driven, is often very time- sensitive, and very standardized, unlike consumer magazines and other nonprofessional content. Other more subjective or culturally sensitive segments such as education, magazines, newspapers, and trade books are not outsourced as much, although we are seeing some increase in B-to-B magazines. This is partly due to a significant drop in advertising revenues, as mentioned in the first section, which has negatively impacted both newspapers and magazines. For instance, in 2009–2011, many magazines and city newspapers in the USA—which continue to struggle with the economic downturn due to a high dependency on advertising—moved increasingly to online and digital platforms. However, there are still many quality issues that providers are not able to address currently, especially with consumer content. Design Services Service providers' capabilities in design-related services have matured over the past few years, but lag behind the level attained in other content services. Maturity is often found in the low-level services such as modification of existing designs, graphics editing, and research with art and photography. However, there are still some services such as illustration, original design, photography, and stylistic display of media that remain underdeveloped.The exhibit below is an overview of design services that are likely to be outsourced. Exhibit 6: Design Services- by Segment Source: ValueNotes Research. SERVICES Graphics editing Photo research Art research and commissioning Stylistic display of media Photography Drawing of illustrations Original design DESCRIPTION Correction including color, cropping, resizing Researching and acquiring photographs from stock libraries Sourcing original artwork/commissioning artists to produce original work Performing functions that determine stylistic display of products in media Brief conducting of original photography e.g., for medical books or scientific journals Make design to a brief STM/ACADEMIC High Medium Medium High Low High Medium EDUCATIONAL Medium Low Low High Medium Medium Medium OTHERS Medium Low Low Low Low Low Low TM ValueNotes Data to Decisions...
  15. 15. “The Philippines is often viewed as an especially attractive location for outsourcing design and creative services”. Firstsource © 2013 | Confidential www.firstsource.com 15 Increasingly, premedia design services are being handled by offshore providers in India and the Philippines.The need for aesthetics is an integral part of publishing, and is often highly dependent on a sense of culture. While low-value services are widely available, high-value services are still at a nascent stage, and service providers are trying to leverage these as competitive differentiators. It is important to note that the Philippines is especially skilled in handling outsourced design and artistic services, probably due to their closer cultural affinity to the United States, as compared to India.This is an important cultural differentiator between India and the Philippines, and is worth special attention. There is considerable upside to this type of value-added service in the Philippines in the short term, and many providers in both Manila and Cebu have seen significant growth in the last two years with these services, especially with magazines. Creative and illustration are services that are quickly gaining momentum, and several providers are adding this capability to their service portfolio. Photography and media display styling are still driven by cultural issues and are highly dependent on offshore geography. While these services require greater project management and training, they remain relatively untapped. Original architectural design and graphic capabilities with building layouts, designs, and advertising are available primarily with the larger service providers. These premedia services constitute the highest value addition, and providers are working toward acquiring these services since they often demand higher dollars per page or per project, compared to many other services. Technology Services The technology service segment is the most mature in terms of service provider capabilities. Technology has become a basic requirement for most publishers and providers of all sizes and locations invariably adopt the same (or similar) standards and with regard to software (QuarkXpress, Adobe, XML, Adobe InDesign, TeX, LaTeX, etc.) and hardware (dedicated servers, high-bandwidth Internet, FTP, etc.). It is worth highlighting that technology services are very standardized, and vary little across geographies; therefore, such services are highly suitable for offshore work.The exhibit below highlights those technical services and their chances of being offshored. Exhibit 7:Technology Services- by Segment SERVICES Tagging and metadata Classification/link management Indexing Coding Converting and formatting content Quality checks on format and functionality DESCRIPTION e.g., XML tagging Applying taxonomies/ classification to content. Validating / updating hyperlinks, other linking standards Making a detailed list, usually alphabetically Classifying, adding metadata, specifically coding legal texts/court transcripts Formatting content and converting to different platform Performing quality control on formatting and tech related functionality STM/ACADEMIC High Medium Medium NA High High EDUCATIONAL High Medium Medium NA High High OTHERS Low Low NA Low Low Low TM ValueNotes Data to Decisions...
  16. 16. Firstsource © 2013 | Confidential www.firstsource.com 16 SERVICES Investigation and problem resolution Online services E-learning tools DESCRIPTION Resolving formatting issues, template and other technology issues Making websites maintenance,, producing digital content Developing training programs, tools and resources STM/ACADEMIC Medium Medium Medium EDUCATIONAL Medium High Medium w OTHERS Low Medium Medium While most of the services covered in technology are low in value, some, such as the development of online services, investigation and problem resolution, e-learning tools, and others, are of higher value. Large offshore providers offer most of the basic technical services, if not all, and are often the hardest to differentiate in terms of quality. Consequently, they are viewed as being very price sensitive since they often appear to be commoditized from the publisher's point of view. Evolving technology capabilities, especially with“new media”, have helped service providers gain entry into newer markets. Some have even expanded into fringe IT services such as maintaining, migrating, and converting databases for publishers. Some of the larger vendors also provide IT services and technology solutions for publishers and include consulting as part of their value-added services. A few providers have also developed proprietary publishing software as a product offering while others are looking to monetize their software by spinning them off into off-the-shelf products. Technology also helps providers automate and reengineer a variety of processes, thereby reducing costs, regulating workflow, and improving process coordination. Equally important, some providers have also managed to decrease turnaround times significantly by implementing improved technology and increasing levels of software automation to manual tasks. The publishing industry has seen technology evolve from value addition to a necessity, especially in the STM market segment. The key differentiator in terms of technology will be innovation for internal workflow management and high-value, tech-enabled products and services. Furthermore, innovation is even more critical with the rise of the digital content market, especially with e-books, since many publishers are worried about differentiating the value benefit of an e-Book from its print counterpart, as noted earlier. Publishers do not want to follow the music industry with free content, so there has to be a differentiating benefit with digital formats versus print formats. Some technical services, such as conversion of legacy content, require significant technological capabilities with the provider; however, this service is often perceived as being highly commoditized and very price sensitive by publishers, so providers needs to be especially aware of differentiation to compete effectively. In our conversations with publishers, we gleaned that they prefer providers who can offer both technology and services, often referred to as “full-service”, since technology is often very capital intensive when implemented onshore. While large publishers have the resources to invest, the mid- to small-sized buyers want to avoid investment in technology if possible, especially in the USA. Nevertheless, despite the double-digit annual growth in most outsourced publishing services over the last decade, there are many inhibitors or“taboos” with outsourcing. Many of these taboos are very surprising, but simmer beneath the surface, and can cause considerable disenchantment with the outsourcing relationship. The most obvious “taboos” for many publishers are the cultural variances in offshore communication and the inherent differences between problem-solving styles in Western and Asian cultures. As noted earlier, this cannot be underemphasized, but often is. Another major issue is the lack of innovation or creativity with outsourcing. “Innovation” is, in real terms, a problem-solving and critical thinking skill that requires successful communication to be implemented effectively. Another more subtle but equally daunting issue is the generally very poor branding and marketing found with offshore service providers that, at times, is very baffling for many in the USA or Europe. Source:ValueNotesResearch. “Technical services are often the most commoditized service with little variance across most geographies”. “Innovation with outsourcing services is highly dependent on culture as well as problem solving and critical thinking skills”. TM ValueNotes Data to Decisions...
  17. 17. Firstsource © 2013 | Confidential www.firstsource.com 17 A keen understanding of what“differentiation” means seems to often escape many very technically astute offshore providers. On the other hand, and an equally troubling issue, especially in the USA, is for publishers to focus exclusively on pricing as if they are shopping at the thrift store for publishing services, and, then, expecting very high quality. Publishers will often say in public that “quality” is critical to their content development and publishing process, but when they interface independently with the service provider, the quality issue rarely seems to come up. However, pricing usually does.The disconnect between “quality” and “pricing” is a thorny issue when it comes to the subject of outsourcing in publishing. In the next section, we provide more detailed insights into these inhibitors that both publishers and providers experience in the offshore process. TM ValueNotes Data to Decisions...
  18. 18. Firstsource © 2013 | Confidential www.firstsource.com 18 OUTSOURCED PUBLISHING SERVICES: The Inhibitors This following section discusses some of the challenges associated with outsourcing publishing services. Outsourcing in the publishing industry has not come close to peaking, especially in light of the tidal wave changes with so many digital initiatives across all publishing market segments in 2012–2013. Unfortunately, the distressing facts are obvious as most publishers are simply not very satisfied with most outsourcing services: 70+% of respondents from our 2009 survey clearly indicated this, and 2–3 years later not much has changed. This was also evident from the various conversations we had with publishers after the survey. One of the interesting parallels is to review the Horses for Sources (HfS) research on the state of outsourcing 2011 across all industries, just publishing. In this study, too, the statistics are much the same. About 70% of respondents are less than satisfied with the quality of services rendered, excluding pricing. For those who are interested in the general topic of outsourcing, Horses for Sources has released a very insightful report in February 2013 from Phil Fersht, Tony Filippone, The Sourcing Industry Blueprint 2.0, which can be found in the following link. Price seems to be the real value-added benefit currently, especially since the 2008 global recession. Once pricing as an not http://www.hfsresearch.com/The-Sourcing-Industry-Blueprint-2-0. advantage is excluded, the benefits of outsourcing seem to drop off a cliff for many publishers.The pricing advantage of offshore work is clearly a major plus, but ultimately there has to be more to the outsourcing process than just pricing in order to avoid a highly commoditized marketplace. There must be a clearly defined value proposition with each service provider, and this is a clear challenge for many publishers. How can a publisher differentiate the value proposition with many thousands of providers in Asia and other geographies? There is no doubt that the satisfaction level as perceived by publishers leaves a lot to be desired. While one in five publishers (20%) indicated high satisfaction levels with outsourcing, the remaining 80% have indicated medium to low levels of satisfaction. Another issue is that as the publisher's experience with outsourcing increases, the publisher's expectations usually increase as well, and if the service providers are not able to match these expectations, the publisher's satisfaction levels often take a plunge. Consequently, expectation levels of publishers with their service providers is a critical issue that needs to be addressed, since much of the dissatisfaction with offshore providers seems to revolve around the conflict with pricing and quality, as is the case in many other outsourcing markets. To better understand the inhibitors of outsourcing, we asked publishers to identify the key areas that service providers need to improve in the exhibit below. “Most publishers are not satisfied with the quality of publishing outsourcing”. “Publishing outsourcing needs to move beyond the pricing benefit”. TM ValueNotes Data to Decisions...
  19. 19. Lot of improvement Minor areas of improvement Nearing best practices Firstsource © 2013 | Confidential www.firstsource.com 19 Exhibit 8: Areas of Improvement for Service Providers Delivery Quality Project Management Content Design Pricing 48% 28% 57% 29% 55% 22% 22% 4% 43% 36% 9% 39% 29% 56% 50% 22% 28% 24% Source:PublishersandOutsourcing:Willoutsourcingincrease?2010|ValueNotes Quality of services has been cited as one of the critical areas that needs the most improvement by almost 57% of respondents. Buyers not satisfied with the quality of deliverables often need to rework the service in-house.This, in turn, increases costs, which are often not calculated in the final ROI of outsourcing seen in offshore marketing collateral.The other related issue is consistency in quality, which is a larger issue. A particularly problematic issue is that while a simple trial or sample is of high quality, the same project when scaled up, over an extended period, is often quite different. In a sense, quality with outsourcing work is much more of a marathon than a sprint. This challenge may stem from a lack of communication, feedback, misalignment of performance expectations and service provider capabilities, and so on. Clearly, many publishers struggle to understand and adapt to the rapid digital changes needed to keep up with the industry. Equally important, publishers often desperately need the offshore service provider to be extremely proactive, strategic, and not just tactical. Furthermore, the service provider should possess the ability to move up the value chain and the learning curve fast—especially with new technical services. This is often an unrealistic expectation considering the blistering pace of change with digital initiatives in all of publishing over the last 2years. As noted previously, communication skills with offshore providers can often be very difficult, especially in India. Service providers should be encouraged to insure that anyone in a customer facing conference call be trained adequately to speak clear and concise English in order to maintain good relationships with new and existing customers. Another issue related to communication skills is the often cited importance from publishers of having a strong onshore project manager that interfaces with them as well as the offshore provider. Another issue that often comes up in discussions about “quality” is the issue of provider turnover. “Quality” and turnover with an offshore provider are often more closely related than publishers realize. Most Asian countries have seen an unprecedented boom in their economies with outsourcing over the last five years. Since these economies are often growing at double digits each year, turnover is often a serious issue as employees gain skills, and move to another provider with a salary increase. Unfortunately, when well-trained employees at a provider leave for another company, there is a risk of quality and turnaround time challenges for the publisher. Consequently, publishers should always ask a provider what their current employee retention rates are, which can often be a good barometer about quality issues. Another critical challenge with publishers and offshore providers is the lack of a collaborative “partnership” where both parties work as a team. Too often, we see publishers “Publishers need to understand that a simple trial or sample may not be the best way to judge the viability of a new offshore provider”. “Publishers need to be especially cautious of the employee turnover rate with any offshore provider since this often affects quality and turnaround time”. TM ValueNotes Data to Decisions...
  20. 20. insisting on impossible deadlines, high levels of quality with huge increases in volume—very short term—and reduction in pricing, all of which can leave the provider frustrated, unmotivated, and unprofitable. Consequently, publishers and providers should establish a mutually beneficial relationship, early on, that ensures long-term benefits for both parties. The fragmentation of the offshore service provider's landscape is another factor that makes it difficult, if not impossible, for the publisher to decide on a new service provider who is the “right fit”. This is an issue that publishers and providers need to realize. There are many offshore publishing service providers now, given the very low barriers to entry into this vertical.They are located not just in India, but the Philippines, China, Vietnam, and Malaysia. Also, near- shore countries in South and Central America also boast publishing service providers. Consequently, no publisher looking to outsource can seriously review all of them, and come to a logical conclusion as to who is the“right fit”. Due to the immense commoditization of standard publishing services, for instance, composition and typesetting, deciding on the right service provider is much harder. For example, there are hundreds, if not thousands, of service providers that offer digital conversion services, with little or no compelling differentiation other than pricing. This lack of differentiation among service providers often results in publishers shopping for price only given that they struggle to discern which service provider is the “right fit” without spending months with trial and sample work, which is often very hard to compare in any case. The loss of control remains another challenge that makes outsourcing difficult for many publishers. Being geographically far away from the service provider, compounded by significant time differences, communication issues, and quality problems, often makes outsourcing extremely difficult, if not impossible, for many publishers who are already dealing with many other challenges. Again, as noted, often the biggest challenge for outsourcing is tasks and functions that require a comprehensive understanding of very subjective processes of the publisher's operation that are often culturally driven. Buyer Trends in Outsourced Publishing Services In spite of the lower satisfaction levels with outsourcing, publishers are still looking to increase the volume of outsourced work in the future. The majority of the respondents surveyed in the ValueNotes study“Publishers and Outsourcing: Will Outsourcing Increase?” in 2010 believe that outsourcing will grow. Publishers who indicated that their companies might increase outsourcing demonstrate that despite their reservations about the quality of work, they feel there are potential benefits, and that the inhibitors can be dealt with successfully. Overall, almost half of the respondents believe that outsourcing is likely to grow by at least 25% in the next few years. A slightly lower number of respondents expect outsourcing to continue at current levels. The exhibit below demonstrates such findings: conducted Exhibit 9: BuyerTrends in Outsourced Publishing Services 6% 33% 43% 10% 7% Bring work back onshore Continue at current levels Increase by 25% Increase by 25-40% Increase by more than 50% Source: Publishers and Outsourcing: Will outsourcing increase? 2010 | ValueNotes Research. Firstsource © 2013 | Confidential www.firstsource.com 20 “The low barriers to entry for offshore providers in Asia has caused a huge increase in the number of providers”. TM ValueNotes Data to Decisions...
  21. 21. Firstsource © 2013 | Confidential www.firstsource.com 21 An increase in outsourcing levels even by 15–25% expands the opportunity significantly within the aggregate market. However, this growth will come more from publishers that are moderately or highly satisfied with their service providers. These tend to be large or multinational publishers with over ten years of a working relationship with their service providers. Growth is also expected to come from smaller companies (those with less than 1,000 employees) and those that are newer to offshore work. Larger companies, representing a more mature part of the publisher community, will either continue their current volume of outsourcing or consider an increase of 25%. An issue worth noting here is that the increase in outsourcing among the larger multinational publishers is more than likely to be with their existing service providers, not necessarily new service providers. This is an important distinction, and would clearly indicate that although the aggregate market is growing at the top line in volume, the overall market is very mature and is witnessing considerable consolidation with providers. Consequently, major multinational publishers in the USA, and elsewhere, have often moved from ten to only five service providers in the past fewyears. In some cases, leading publishers such as Elsevier, Wiley-Blackwell, Cengage, Springer-Verlag, Taylor and Francis have even less providers as of 2011–2012.That is a significant increase in consolidation, which should be noted. This is an especially important issue for offshore service providers to consider when they see the market growing, and where it is growing. Just because the overall market is likely to grow by 25% does not necessarily mean that publishers are necessarily open to a new service provider. In fact, just the opposite is likely to be the case, especially in the USA. Among all geographies, publishers in the USA seem to exhibit the most extreme variations of decreasing or increasing outsourcing. Note that more than 50% are from the USA. Much of this discrepancy may be due, again, to the severity of the global economic decline in the USA compared to other countries since late 2008.This economic decline has not improved much in 2012, and is not expected to improve very much in 2013. In comparison, buyers from the UK seem more cautious with their outsourcing levels, choosing to either remain mostly at existing levels or increase outsourcing by 25%.While the USA and the UK have been the most active buyer markets with most service providers targeting them, the remaining parts of Europe andAsia represent largely new markets. Asia is fast emerging as a new market for service providers although pricing is often more of an issue there than it is in the USA and the UK. The volume of outsourced work does not exhibit tremendous variations by segment. However, the magazine and newspaper segments are still more resistant to outsourcing as a strategy. However, B2B magazines are more open to considering an offshore provider even though this group has been very slow to embrace XML workflows as noted in the annual production surveys in Folio magazine. This is likely to change considering the challenges both segments are facing with pivotal adjustments from print to digital initiatives and the continuing economic climate adversely affecting print advertising. However, with online newspapers becoming more popular as well, the propensity of this segment to outsource has certainly increased. Preferred Outsourcing Destinations India, the Philippines, and the USA remain preferred outsourcing destinations for buyers across most segments. While there are no drastic differences in where buyers outsource their work, the STM and the academic segments have a strong preference for India due to their early presence in this market since the 1980s. STM content is, as stated earlier, usually not design driven, much more likely to be standardized and automated with XML, and, consequently, moved to offshore providers at lower costs. Magazine publishers often prefer the Philippines, apart from India, because design-driven content in this geography is often highly nuanced and there is closer cultural affinity between the Philippines and the USA. However, the academic market segment has a preference for India and the USA. Near-shore outsourcing has grown significantly over the last few years, especially in Central and South American countries like Costa Rica and Columbia where the governments are relatively stable, the time zone difference is negligible, and the cultural affinity with the USA is higher. See the exhibit below for preferred outsourcing destinations. “Growth in the publishing outsourcing market is likely to come from existing providers, not necessarily from new providers”. “Publishers in the USA, especially, are not as open to using a new service provider as many would like to believe”. TM ValueNotes Data to Decisions...
  22. 22. Firstsource © 2013 | Confidential www.firstsource.com 22 Exhibit 10: Preferred Outsourcing Destinations Australia China India Philippines Vietnam Others UK US 19% 9%10% 4% 11% 37% 8% 2% Source:PublishersandOutsourcing:Willoutsourcingincrease?2010| ValueNotesResearch. § § § While a significant proportion of US publishers prefer India, the choices are quite diverse. From engaging in onshore business activities within the country to outsourcing offshore, publishers seem to have a host of choices with regard to outsourcing destinations. For instance, newspapers are known to outsource to other newspaper publishers, since they are assured that the service provider understands the business and the daunting turnaround times. India is also a preferred destination for buyers in Europe and Asia, with the Philippines being a distant second. However, the Philippines has seen a significant percentage increase in business process outsourcing services including customer support and call centers, especially in Manila and Cebu, where this service has recently outpaced call center services in India. The preference of an outsourcing destination is highly dependent on the type of work being outsourced. For example, India often remains at the forefront of prepress activities while China is well established as a printing hub. The Philippines is known for its cultural and language affinity to the USA, and is often favored for work that requires understanding cultural nuances often found in more consumer- oriented content. Again, much of this content is more design driven, and is usually not STM content. In conclusion, there are many “inhibitors” to outsourced publishing, and it is very important for both publishers and services providers to be aware of the issues and the market dynamics in these geographies. The next section of this whitepaper clarifies the demand for outsourced publishing services, and reveals issues about the true ROI of outsourcing, as well as some additional comment about the important of branding and differentiation in marketing collateral. “The Philippines has seen a significant increase in publishing outsourcing services due to their close cultural affinity with the USA especially with creative services”. TM ValueNotes Data to Decisions...
  23. 23. Firstsource © 2013 | Confidential www.firstsource.com 23 OUTSOURCED PUBLISHING SERVICES: Demand for Services-ROI of Outsourcing This is the final section of the white paper on outsourced publishing services from Firstsource and ValueNotes based on research conducted during 2009–2012. In this section, we review the issues of demand for services, the ROI of outsourcing publishing services, and the challenges with marketing and branding with service providers. Publishers have been outsourcing production and prepress- related services for some time now, as noted in earlier sections, especially in the STM book and journal market.The responses in the exhibit below indicate which service publishers are most likely to outsource based on the 2009 research study.These figures have been validated since then. The following sections shed light on services that are being outsourced as well as those services where future demand for outsourcing is most likely to increase. Exhibit 11: Proclivity to Outsource by Service Area Content 28% Design 22% Production 29% Distribution 14% Full Service 7% Source:PublishersandOutsourcing:Willoutsourcingincrease?2010| ValueNotesResearch. As seen from the exhibit, content, design, and production services constitute 79% of outsourced services. Demand clearly lies for outsourcing production (29%), followed by content (28%) and design (22%). Production has been traditionally outsourced, since it is often very standardized across many content formats. Content creation and design, on the other hand, are two very “high-value” services that are witnessing increased demand. However, these two services require considerable subjective, creative problem solving from the service provider, as they often require the ability to discern cultural nuances, which can often be a significant challenge for the offshore provider depending on geography. One of the critical issues worth special mention is that geography and service offering are often more tightly related than many publishers understand, as we have noted previously. Considering how dynamic the publishing market is now with new digital services and initiatives, the list above seems to change monthly. Also, many new service offerings, especially the development of mobile applications as well as a more effective process to handle rights and permissions and intellectual property, are rapidly evolving. Rights and permissions is an especially critical function since publishers need to deploy digital content now across many formats and geographies.This is a service area that most publishers, unfortunately, handle very poorly in the digital world. The service is often very manual, inefficient, and fraught with daunting legal risks since publishers often have print rights and permissions, but not necessarily for digital content as the many lawsuits over the last few years indicate. Over the last year, many global publishers have faced severe legal entanglements “Cultural and geographical issues are always very important when considering the geography for offshore work, and publishers need to be very aware of these issues”. “Providers need to be especially aware of providing new service offerings to remain competitive”. TM ValueNotes Data to Decisions...
  24. 24. for selling digital content that they do not have the rights to. Another service offering that lacks significant coverage from providers is the incorporation of enhanced metadata withOnix 3.0, especially with e-books so that such digital content can be more easily found and purchased. Additionally, more publishers, especially multinationals, are also looking at what is called business process outsourcing (BPO) or back-office services to handle accounting, customer management, invoice processing, subscription management, and many other back-office functions to further reduce costs. Unfortunately, most publishing service providers do not offer these BPO services, so finding the right offshore provider can prove challenging for the publisher. Again, our advice to publishers and providers alike is that both groups need to be very strategic in terms of targeting and developing new value- added service offerings in order to remain competitive in this very dynamic industry. In terms of demand for services by company size, larger companies (employees over 10,000) have shown a marked preference for outsourcing across all functional areas. However, content and design are two areas where demand is usually high. For mid-sized companies, production is in high demand. Design, especially with new digital media such as blackboard applications for the K-12 academic market, HTML 5.0 applications, animation, modeling, e-learning applications, mobile application development, enhanced metadata for indexing, and social media, are service areas where publishers are often searching for the ”right” offshore service provider. Since design is very dependent on a creative perception, it is often a cause for complaint about “quality”. However, service providers are increasingly working to improve their understanding of the “quality” issues with publishers.There has been some measure of success, although “quality” complaints with offshore work remain very high for many publishers. Furthermore, content and creative design capabilities often require a significant effort on the part of the provider, and over longer time frames. Publishers are keen for providers to move up the value chain when it comes to these as well as other services, expecting the service provider to be proactive and anticipate the publisher's need. Providers being proactive and strategic about market trends is often seen by the publisher as a very positive value add to a collaborative sourcing relationship—a pivotal issue for most publishers grappling with the breathtaking digital changes in the industry. One suggestion frequently voiced by publishers in our research is that service providers need to send their teams to the onshore publisher's office frequently, at least once ayear, preferably twice a year, so that the learning curve is shorter and communication is improved with face-to-face meetings. Service providers, on the other hand, especially the mid to small providers, often find this travel expense to be a challenge as frequent onshore visits can have a significant impact on costs and margins if multiple people travel, which is often the expectation of the publisher, in order to increase volume. Most publishers believe that these onsite visits are very strategic in order to develop a closer working relationship, especially with services that are not standardized and require creative judgment, critical thinking, and problem solving. Firstsource © 2013 | Confidential www.firstsource.com 24 “Publishers prefer providers to make more frequent onsite meetings, although providers often find this difficult due to cost constraints”. “More publishers are looking for back office service providers offshore”. “The real ROI of publishing outsourcing is often more mysterious than publishers and providers would like to admit”. Cost Savings:What is the Real ROI? The ROI of outsourced publishing services remains somewhat of a “black hole” to many publishers and providers. ValueNotes has produced a recent research study on the ROI of outsourcing advertising production, which is worth special , and provides very detailed insight into this service offshore, and can easily be used with other services as well. A majority of publishers (45%) have indicated that 15–25% cost savings with outsourcing is realistic. Although 25–40% in cost savings is often on the higher side, it is possible that this set of responses is probably from seasoned buyers of outsourced services with ten years or more with the same provider. The “same” provider for this period of time is a fundamental indicator of ROI, and should be noted carefully with publishers interfacing with new providers. Responses that indicate cost savings greater than 40% usually represent publishers that have managed to get the maximum benefit from their providers over extended periods of ten years or even more with the same provider. The same provider, again, is key here. A publisher working with the same provider for tenyears or more is usually a key indicator of higher cost savings. This is a very important distinction worth noting especially with smaller publishers. Over this period of time the publisher and the provider have worked together to resolve challenges and problems successfully, and have often established a strong collaborative relationship on services. mention TM ValueNotes Data to Decisions...
  25. 25. Publishers often enter into the outsourcing relationship with very unrealistic expectations of early success and huge cost savings. Providers also consistently indicate savings in the range of 40%, which many buyers actually disagree with, concluding it is much less if they were to take into consideration the time that is spent on corrections and onshore project management, especially in the early stages of the relationship. Thus, actual cost savings are often reduced significantly, sometimes by as much as 50%. Most of the challenges with perception in the cost savings of outsourcing between publishers and providers may simply be inaccurate marketing material from providers as well as unrealistic expectations with publishers. Often, this disconnect is simply an issue of service providers “overselling” and often “under delivering”, which we have noted in previous sections here, and an issue that publishers need to be especially cautious about. The other issue is that publishers need to do a much better job of due diligence and governance especially with a new provider, particularly in the first year of a sourcing engagement. Clearly, cost savings is an issue that is especially challenging in the first year of an outsourcing relationship especially with a new service provider.This challenge is often a very critical one that does not often show up in the provider's marketing material—unfortunately. It should not be a surprise to hear that senior publishers, who earn up to $100,000 ayear on the East Coast of the United States, may have to spend time reviewing and correcting production mistakes made by individual offshore service providers, who earn $5,000–7,000 a year. This situation is far more common than many realize, and should be noted with publishers when reviewing total cost savings. Consequently, especially with large multinational publishers, such a scenario quickly erodes cost savings since this is often not taken into account, either by the publisher or by the provider in terms of the “real ROI” of outsourcing. Special note should be made of this situation since there are often many hidden costs with offshore work that are unexpected. This situation, as one can imagine, often has a negative impact on the satisfaction levels of publishers with regard to outsourcing. In short, realistic planning and setting expectation levels of the actual ROI of outsourcing are required by both sides of the outsourcing relationship in the very early stages. An appropriate assessment of current workflow processes without outsourcing is also critical so that a valid comparison can be made with outsourcing. Our recommendation is that both publishers and providers should spend more time focusing on this issue and develop reasonable expectations about the actual cost savings and the level of service, especially in the firstyear of an outsourcing engagement. The exhibit below outlines the various responses to total costs savings from publishers. Firstsource © 2013 | Confidential www.firstsource.com 25 “Publishers need to be aware of their current workflow process before outsourcing, so that they have a very clear comparison when outsourcing”. Exhibit 12: Cost Savings- Overall Buyer Perceptions None 5% 15 - 25% 45% 25 - 40% 22% > 40% 8% 10 - 15% 25% Source: Publishers and Outsourcing: Will outsourcing increase? 2010 | ValueNotes Research. These cost savings also reflect a significant variance in the type of service outsourced—a critical issue. Complex tasks and higher-value services tend to affect cost savings the most. Most publishers have usually spent a considerable degree of time and effort to increase productivity and enhance efficiency of their outsourced services. “No cost savings” has been TM ValueNotes Data to Decisions...
  26. 26. Firstsource © 2013 | Confidential www.firstsource.com 26 § § For companies with more than 500 million dollars in revenues, usually large multinational publishers, 15–25% savings are often achieved. A significant portion of these companies also achieve 25–40%. Again, this could be due to extended interactions with the same service provider. Publishers of this size often represent the pioneers of outsourcing and include such multinationals as Pearson, Macmillan,Wiley- Blackwell, Gantt, Elsevier, Springer-Verlag, and Informa (Taylor and Francis). These companies are often actually moving up the scale of cost savings: nearly one out of five respondents has indicated savings of greater than 40%. Most of the higher cost savings is due to a maturing market, consolidation of service providers, and outsourcing higher volumes with specific service providers at a lower price. This is worth special note. Both publishers and providers need to be aware of this particular market dynamic. Just because another provider has seen a significant growth in volume does not mean that the overall market is growing. It could very well be that another provider in the same market is Publishers' Expectations from Providers Most publishers have been experimenting with outsourcing for manyyears. Currently, it is rare to find a mid-size publisher with sales of more than 10 million dollars that has not outsourced some services. For all publishers, “quality” has often been the most critical challenge, and is often very hard to define in a clear, succinct roadmap of outsourcing with providers. Many publishers talk about the lack of “quality”. However, when questioned about the specifics of this issue, they often have a difficult time defining what exactly they need to make a particular service quality acceptable. Consequently, publishers need to spend more time defining the specifics of outsourcing quality. Even service providers often state that publishers would rather agree to pay higher prices than compromise on “quality”. We see this stated clearly in research. However, publishers often get too caught up over billing rates and pricing, and need to more carefully weigh cost with “quality”, which is a delicate balance. In order to mitigate the risk of outsourcing and quality, publishers continue to work with multiple providers to ensure that they maximize their outsourcing strategy although considerably fewer than they did a fewyears ago. The exhibit below represents typical publisher expectations: experienced by some publishers, albeit a small group. Clearly, there is a great disparity in expectations and the quality of work delivered. Publishers also need to understand that in the initial phase of any outsourcing engagement, they need to spend considerable time and energy articulating their expectations and ensuring that the provider clearly understands the workflow process that they need, during and after the transition phase. Again, communication is often the key to this process, and, as noted here, communication processes are heavily influenced by many cultural issues, which are often daunting to overcome in the initial phase of outsourcing to a new service provider. Service providers also need to understand that false promises early on will only lead to severe challenges later, and higher levels of dissatisfaction. Also, providers need to understand this risk with new publishers and acknowledge it early on in the outsourcing relationship. This allows them to improve their position with publishers beyond naively acquiring a new account with large potential sales revenue. Again, these issues needs to be more strategic, rather than tactical.There is nothing worse, and more expensive, than for a publisher and a provider to spend a year or more in a sourcing relationship only to have it fail. We also notice that there is a significant disparity in the cost savings expectations indicated by publishers depending on the company size: suffering a severe decline in volume. Companies with revenues less than 100 million dollars are experiencing wider fluctuations in cost savings.While this is dependent on the value of services outsourced, smaller companies tend to make more mistakes while outsourcing, especially in the first two years of an engagement. As outsourcing matures, there will likely be less deviation in terms of cost savings. Large publishers reap significant benefits due to the concept of “scale”, much more so than smaller publishers. This is because larger volumes of outsourced services allow publishers to negotiate better pricing with providers. This pricing difference is reflected in the expected cost saving, and larger companies tend to save more since they often have significantly higher annual dollar volume of services available to outsource. Consequently, smaller publishers should be especially careful about comparing cost savings with another, much larger publisher. “Size” matters—a lot—with cost savings related to outsourcing With increasing outsourcing experience and maturity, more and more publishers will be able to strategize and negotiate increased savings on outsourced services. § “Publishers need to spend a lot more time and effort defining in detail what “quality” means”. TM ValueNotes Data to Decisions...
  27. 27. Firstsource © 2013 | Confidential www.firstsource.com 27 Exhibit 13: Buyer Expectations from Service Providers § On time delivery § Follow set metrics and SLAs § Effective and efficient communication § Advance warning in case of delays § Consistency in quality Must have Vendor speak: “Buyer expectations increase with number of years of experience.They start to expect 100% on time delivery” § Vendor inputs to conceptualizing § More service options § Solution providers instead of process based vendors § Ideas and suggestions § Awareness about the changes in the market Nice to have Example: Inputs from vendors on implementing anelearning model in a large public school– building prototype and advice on compatibility of device and application Source:ValueNotesResearch. As the outsourced publishing services market continues to grow and become more competitive at the same time, service providers need to expand their service offering portfolio to include design and content, though these require more creative problem-solving skills. In order to do this effectively, providers also need to become more sensitive to cultural issues, and improve their communication and problem-solving processes as noted previously. Publishers also need to be more cognizant of the delicate balance between pricing and quality, as well as some of the hidden costs of outsourcing. Branding and Marketing: Challenges in Outsourcing In the final analysis, the bottom line with a publisher looking for a new offshore service provider requires what type of review process? Unfortunately, the selection process for the publisher with a new service provider is often very ill defined. As with any buying decision, much of this process, at least in the early stages, boils down to a provider's marketing material, website, and other customer-facing documents such as testimonials, case studies, or logos from existing clients.. Effective marketing material from offshore providers is often very critical in the process of selecting a new provider. Considering the number of offshore providers in Asia, this is often a daunting challenge for publishers. While most publishers do not expect customer-facing documents and marketing collateral to set a new standard in marketing and branding, they do expect them to be well written, and, at the very least, intelligible. Unfortunately, many offshore service providers give very short shrift to marketing material in general, and branding in particular. In short, branding is a concise and clear definition of what you do that is clearly differentiated from what others do, how you stand out, what makes you special and unique. Of particular concern is that we often hear from Asian providers that to display public marketing collateral that clearly defines their differentiation strategy is confidential and proprietary, and not for the general public on websites. This appears to be more of a cultural issue than many realize since the approach is often just the opposite throughout the USA and Europe. Of particular note, one of the classic articles on this topic for outsourcing in general is Deborah Kobs “Buying Brand”, from Outsourcing Magazine and is well worth a read for those interested in some of the cultural issues surrounding branding and marketing in outsourcing. See the link here http://www.outsourcemagazine.co.uk/articles/item/3621-buying- brand In short, many publishers are often looking for reasons to say “no” to a new outsourcing provider rather than “yes”, and ineffective marketing material is often a chance for publishers to say “no” much faster. Consequently, initial customer- facing documents can often be a deal breaker for a new outsourcing provider. In a market that has clearly matured and consolidated with many commoditized service offerings, and with long- standing providers having carved out their niches, a new entrant needs to embrace the fact that customer-facing marketing material should clearly spell out a compelling differentiator. Apart from quality issues, most publishers often complain the most in private about the lack of effective marketing material from offshore providers. At the end of the day, publishers are comparing what one provider says and does in relation to many others. And many publishers have outsourcing “Providers need to spend a lot more time and effort articulating in customer facing documents what their differentiation statement is, so that it is very obvious to publishers”. TM ValueNotes Data to Decisions...
  28. 28. decision makers with degrees in English, and they often have a keen understanding of the importance of effective communications skills, which is what successful publishing is often about. In the early stages of establishing relationships with new publishers, one of the few influencing issues, outside of a long-standing personal relationship with an offshore sales person, is often compelling marketing material. Many providers have effectively tackled this issue by creating their marketing and sales collateral in the target market and geography where the customers are located, either in Europe or in the USA. These providers think that this is money well spent to have their marketing material reviewed by a competent English-language expert before going public with new clients. Offshore service providers often find it is relatively easy to sell in their own geography—India or the Philippines—but find it challenging when selling in Europe or the UK, and often baffling when selling in the USA. Understanding that branding and selling are often largely determined by geography and culture is a critical component for offshore providers to come to terms with. Our research shows that compelling customer-facing documents are often a critical component of success for all providers, and especially critical for new providers vying to open a new market in a new geography. In conclusion, this research from ValueNotes and Firstsource highlights current issues about the state of the outsourced publishing services market with a focus on challenges faced by both publishers and providers. We have summarized the marginal bullets below as a handy reminder and reference. Firstsource © 2013 | Confidential www.firstsource.com 28 § § § § § § “When outsourcing publishing services, cultural issues cannot be underemphasized”. “The economic downturn has had a more negative impact on US publishers than in any other country”. “Publishers that have relied heavily on print advertising dollars have struggled more than publishers that have not”. “Cost pressures are cited as one of the primary concerns for all types of publishers”. “Digital content needs to be more than just a mirror copy of the print version”. “STM publishers are often the most experienced with outsourcing publishing services offshore”. § § § § § § § § § § § § § § “Innovation is a key differentiator for service providers, especially with the rise of digital content services”. “India is the most popular destination for outsourcing publishing services”. “Most outsourced publishing services are highly commoditized, so providers need to be especially conscious of providing added value”. “Editing services are especially problematic when outsourced offshore”. “The Philippines is often viewed as an attractive location for outsourcing design and creative services”. “Technical services are often the most commoditized service with little variance across most geographies”. “Innovation with outsourcing services is highly dependent on culture as well as problem-solving and critical thinking skills”. “Pricing and quality are two issues that are often in conflict when outsourcing publishing services”. “A majority of publishers indicate low to medium levels of satisfaction with their outsourcing relationship”. “Outsourced publishing services need to move beyond the pricing benefit”. “Publishers need to understand that a simple trial or sample may not be the best way to judge the viability of a new offshore provider”. “Publishers need to be especially cautious of the employee turnover rate with any offshore provider since this often affects quality and turnaround time”. “The low entry barriers for offshore providers in Asia has resulted in a huge increase in the number of providers”. “Growth in the outsourced publishing services market is likely to come from existing providers, not necessarily from new providers”. “Over the last severalyears, US publishers have opted to consolidate their service provider base, and have also opted for maturity as a key criterion when culling providers”. § TM ValueNotes Data to Decisions...
  29. 29. Firstsource © 2013 | Confidential www.firstsource.com 29 § § § § § § § § “Publishers in the USA, especially, are not as open to using a new service provider as many offshore providers would like to believe”. “The magazine market, especially the B2B magazine market, is beginning to outsource more and more services offshore”. “The Philippines has seen a significant increase in the outsourced publishing services market due to their close cultural affinity with the USA, especially with creative services”. “Cultural and geographical issues are always very important when considering the location for offshore work, and publishers need to be very aware of these issues”. “Providers need to be especially aware of providing new service offerings that add value to remain competitive”. “More publishers are looking for back-office and BPO service providers offshore”. “Publishers prefer providers to make more frequent onsite meetings, although providers often find this difficult due to cost constraints”. “The real ROI of outsourced publishing services is often more mysterious than publishers and providers would like to admit”. § § § § § § § “Publishers and providers need to be especially cautious of 'over-promising' and then 'under-delivering'. “Publishers need to be acutely aware of their current workflow process before outsourcing, so that they have a very clear comparison when outsourcing”. “Publishers need to be very cautious when comparing cost savings with another publisher since costs savings are heavily influenced by scale and volume”. “Publishers need to spend a lot more time and effort defining in detail what 'quality' means in the early stages of an outsourcing engagement”. “Providers need to spend a lot more time and effort articulating in customer-facing documents what their differentiation statement is, so that it is very obvious to publishers”. “ManyAsian providers often think that a public display of their brand and differentiation message is confidential and proprietary, and not for the general public”. “Sales and marketing are often heavily influenced by geography and culture: selling in India, selling in Europe, and selling in the USA probably require a different strategy based on different geographies”. TM ValueNotes Data to Decisions...
  30. 30. For those interested in additional information about either Firstsource orValueNotes, please contact us below. Firstsource © 2013 | Confidential www.firstsource.com 30 Firstsource (NSE: FSL, BSE: 532809, Reuters: FISO.BO, Bloomberg: FSOL@IN) is a global provider of BPO (business process outsourcing) services headquartered in India. We provide customized business process management to global leaders in the Banking & Financial Services, Telecom & Media, and Healthcare sectors. Our clients include Fortune 500 Financial Services, Telecommunications and Healthcare companies. Firstsource has a global delivery model with operations in India, the USA, the UK, Sri Lanka, and the Philippines. ABOUT FIRSTSOURCE ABOUT ValueNotes ValueNotes is a full-service market and business research firm. Since 2000, we have helped a few hundred customers make better business decisions by giving them actionable intelligence. Our varied, yet focused research offerings help serve specific business needs—market entry strategy, choice of location, partner selection, competitive intelligence, investment appraisal, due diligence, marketing communication, customer need analysis, and knowledge management. ValueNotes' ability to develop research methodologies that can be adapted to varied industries or sectors is one of our core strengths. Nandita Harendra Corporate Communications Tel: +91 20 6623 1700 Email: research@valuenotes.co.in TM ValueNotes Data to Decisions... James Hill Firstsource Solutions Tel: 972-548-7209 | Mobile: 214-684-9356 Email james.hill@na.firstsource.com Special thanks to Namami Ghosh for the editorial work on this white paper. Namami Ghosh is an editorial freelancer with about 15+ years of experience in the publishing industry. She has handled both STM and non-STM work for major international publishers and earned rave reviews in the process. Some of the prestigious accounts that she has won include Elsevier, Springer,Taylor and Francis – Informa , IBTauris, GmB Publishing, and Intellect Journals. She started her career withTnQ books and Journals in Chennai, India, and then moved on to SPi Publisher Services, and later at Integra Software Services Pvt Ltd and is currently a full-time freelance editor in Pondicherry, India.. A rare breed of copyeditor who is equally adept in both science and humanities, she is well known for her flair for the English language, an eye for detail, and an untiring zest for copyediting. Her contact information is ghoshnamami@gmail.com.
  31. 31. THANK YOU!

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