Outsourcing and offshoring: implementation and risk reduction, by Anthony Mitchell and Tara Bradford
Offshoring & Outsourcing:
Implementation and Risk Reduction
Tara Bradford and Anthony Mitchell
Retains core competencies:
Driven by capabilities and prices of
available service providers
Greater project mgt efforts needed
May require institution building
Can be commercialized
Can use SLAs, metrics and reporting systems
on par with commercial facilities
Traditional equation: after three years a
captive facility is cheaper than outsourcing
Locally owned outsourcing facilities in South
Asia are capable of running cheaper than U.S.
captive operations indefinitely
Resistance from within a parent company can
impede captive operations and market driven
Advantages of captive facilities
• Easier to monitor and control
• Investments in training and quality can achieve
• Can be easier to recruit and retain good personnel
• Easier to impart corporate culture
• Quicker and easier to change procedures
• Access to local markets
• Can be cheaper
The Govt. of India taxes IT and ITeS companies at 36%-46% if they
receive all their contracts through a single source outside of India.
The Govt. of
India (GOI) is
rate of 10% for
IT and ITeS
The GOI has
authority to tax
IT and ITeS
In India, non-payment of the final or most recent invoice is
common, even among large profitable Indian companies.
To minimize risks, Indian companies may look for
opportunities to bill for work before it is conducted.
To convert Indian Rupees into dollars and transfer them to the U.S.
requires approval of the Reserve Bank of India, which can add more
than six weeks to an initial transfer process.
Large indefinite More market
quantity contracts driven and price
management fees Can require high
to handle project levels of effort to
management manage projects
tasks on behalf of and strengthen
client staff. capabilities of
that resists efforts
to derail Lower run costs
outsourcing and higher
projects. levels of control.
results. processes used
Voice vs. non-voice
• Recruiting is
easier for non-
• Retention of
women easier for
Knowledge process outsourcing
• Small program sizes
are typical, e.g., 5
• The more complex or
projects are for
offshore staff, the
more ramp-up times
may need to be
An offshore facility can be used to support domestic operations in
the same country or region. This provides economies of scale
and encourages world-class support in overseas markets.
Broaden the labor pool:
Hire and train ‘near hires’
without the risk or costs of
attempting to upgrade near
hires to immediately begin
handling U.S. customers.
Retention of top talent:
Agents may not be willing to
stay on the night shift forever,
especially women when they
marry and start a family.
Retention can be aided by
having domestic programs
running during the day.
The best tasks to be shifted:
Easiest to perform
Open to the client to monitor quality
For market-driven outsourcing:
• Update table of organization (especially for staff levels).
• Forecast the number of positions in different skill sets
under consideration for outsourcing/offshoring.
• Forecast fully-loaded personnel costs in the different skill
areas under consideration, if operations were to remain
in-house in the U.S.
• Designate potential offshore locations to be considered
• In offshore areas under consideration, assess the cost
and availability of labor with desired skill sets.
• Subtract internal costs for project management.
1. Assess labor markets for
key skills in destinations
2. Forecast competition for 3. Determine whether
key skills in destinations there is a good match
under consideration and between skill areas
the rates at which that can be shifted
educational institutions, and an offshore labor
labor shifts from other fields market’s long term
and in-migration could ability to supply those
influence labor supplies skills at predictable
and labor costs. labor costs.
Calculate costs per action
In calculating ROI for outsourcing or
offshoring, define indicators to be
compared, preferably based in part on
the total cost of handling a particular
type of task.
This normalizes for variations in
performance between U.S. and
overseas facilities, such as number of
calls to close, length of calls, and
variations in management costs.
Biggest saving opportunities
The largest cost
reductions are achieved
in shifting high-paying
support positions that
cost $72-$84 per
production hour in the
U.S. can be run for $18 or
less per production hour
in India and Pakistan.
Telecom costs between the U.S.
and South Asia are about $1 per
hour and have a delay of 350
milliseconds or less end to end.
Satellite backup costs extra
(except in Pakistan, where it is
100% government subsidized)
and has a 450-550 millisecond
500 milliseconds is considered
the maximum tolerable delay for
How to plan for shifting work
The service provider will seek to map out everything that
needs to be accomplished in order to make a program
function. Scripts, answers to frequently asked questions
(FAQs) and decision trees are developed and made
accessible to agents.
Call Center Program Implementation
How to run an outsourcing project
A scope of work
Level of effort projections
Time frames, and
Performance indicators that will be used
to monitor the project and procedures
How to make NDAs work
Executives who sign
NDAs may not
understand them and
may not take them
Risks of NDAs being
ignored increase when
there is no onsite
presence to reinforce
NDAs written by Indian firms for each other and their employees
are largely ineffectual.
They declare anything and everything to be protected information,
which discourages NDAs from being taken seriously.
To make NDAs work, having
someone onsite representing
the client is essential. This
person needs to provide
training to support the NDA.
Whereas NDA issues can be
addressed with top managers
in a one-on-one context,
middle managers need to be
included in training.
Training needs to include an understanding of how
confidential information is defined.
Equipment and procedural protections
• The concept of segregating and protecting confidential data is not
always widely understood. However, some facilities offshore are
excellent at data protection.
• Clients or their representatives need to get inside facilities and
ensure that equipment and procedural protections are in place and
• Separate QA departments are needed, geographically and socially
isolated from the people they are monitoring.
• Indian call centers were predominantly paper-based operations from
the years 2000-2003. The shift to paperless environments helps
• U.S. pharmaceutical manufacturers have experience with loss
prevention that translates well into offshore call center
Comparing India and the Philippines
Accent Intensive training Minimal
Culture Intensive training Minimal
Infrastructure Dependent on Stable
Facilities Low to High End Moderate to
Political Usually no Usually no
impact- often tax impact
Tara Bradford Anthony Mitchell