Introduction
Business Process Outsourcing (BPO) involves a firm contracting some of its operations and processes to another firm. According to Duening and Rick (2), Business process outsourcing is a movement of business process from inside the organization to an external service provider. Outsourcing enables the company to concentrate on the main objective.
Rafiq (4) describes business processing as a white collar services required to service employees to customer. The services given by BPO firms may include: auditing, tax processing, Payroll, e.t.c. India has for a long time dominated the BPO market, mainly because of availability of labor, resulting from the high population in the country. There has been tremendous growth in BPO industry in china.
The growth can be attributed to Chinese richness in experts, knowledge and skills, as well as increased proficiency in English language in the recent years, compared to the past.
China’s main barrier to becoming the top BPO provider is the English language (Shalin 1). A lot of Chinese people today are learning English and the government plans to use billions of dollars in English Education so that China can become a global leader in BPO.
Outsourcing has become popular in developed nations and across the world, with the firms being drawn to the BPO because of factors like availability of expertise, availability of improved services and cost reduction (Reid 1)
Who are the major competitors?
India hosts most of the leading BPO companies and enjoys vast market from United States, and around the world. It has firms like Genpact, Infosys BPO, IBM India and HCL which are globally competitive
IBM offers BPO services, among many other services and it’s based in the United States of America. It manufactures and sells computer software and hardware. IBM offers the following outsourcing services;
- Customer Relationship Management.
- Finance and Administration.
- Human resource.
- Procurement and supply chain management.
- Technical Help desk services.
- Industry Bank office.
CRM services involve provision of an improved customer experience and also intensive analysis of customer’s data, so that it becomes possible to come up with actionable and viable customer initiative.
Customer Relationship Management also involves reduction of bad debts, through managing of debts. IBM also offers analytic business services which are supposed to give insight to customer management, and also to help the firm make better and valid decisions.
IBM technical services helps a firm to utilize technologies in a way that they will reduce cost and ensure incidents that result to losses are reduced through proactively scanning IT environment.
IBM has a branch in India, (IBM India) which was awarded the Golden Media HR Excellent awards for the year 2011, due to its effectiveness in Human resource and customer management.
Accenture is another major competitor in the BPO market. It is an information technology outsourcing company, based on Ireland. Among the services that it offers are listed below.
- Procurement and human resource.
- Finance and procurement: these includes.
- Learning and Human resource.
- IT outsourcing in conjunction.
According to Zacks investment Research (1), Accenture secured a number of contracts, for example, a 6-year outsourcing contract to provide application management services to Germany-based Henkel’s North American operations in the year 2010. This is an indication of how globally competitive the firm is, because of its links with Europe and proficiency in English language.
Genpact also is another competitor to Chinese outsourcing companies. It offers services like,
- Sales and marketing.
- Finance and Accounting.
- Supply chain.
- Collection.
- Customer services.
- Health care and learning.
- Content Management.
Genpact went into a contract in January 2010 with US largest drugs store Walgreens, transferring at least 500 jobs to Genpact (Sachitanand 1). The main reason behind the outsourcing was to improve cost productivity and facilitate growth strategy aiming at maximizing returns.
Genpact may be a big challenge to Chinese companies because, despite it having high skilled experts in various fields of services, it has the advantage of having staffs that are proficient in English, a language widely spoken in Europe, America and around the world.
These are just but a few giants in the BPO market, that are out to compete with China in this business. Most of these firms get their employees from India due to the availability of cheap and efficient labor which makes the outsourcing firms to prosper.
Infosearch BPO is another company based on India that offers outsourcing services to their clients. According to Inforsearch BPO website, the company offers services ranging from:
- Outbound Call centre solutions.
- Telemarketing.
- Technical support.
- Chat and e-mail support.
- Lead generation.
- BPO processes.
- Web related services.
In the BPO services, they offer
Account and finance operation
Various accounting services include: Accounts payable processing, interim Audits, General ledger Maintenance, Monthly and year end closing assistance, payroll processing, sales and tax returns preparation and Accounts reconciliation.
Human resource services
Human resource services include: Payroll Administration including handling of taxes issues, employee benefits, health, and Medical employees’ background verification
Data processing and Management
Data Processing and management services includes: Data maintenance, data entry, Data processing, data conversion data mining and new database creation
Chat and Email support
Chat and email support include, Customer service, Technical support, inquiry Handling order taking and Follow up services
Strength and weakness of the main competitors
Based on the above list of competitors, most companies that can give Asia a challenge in outsourcing business are in India. A company like IBM is based on United States; therefore it can enjoy better access to USA market than Asian companies due to the advanced market in the United States of America. India has been preferred to be a good source of labor force. India has low labor costs and high quality of skilled labor (Shalin 7).
Outsourcing services in India has grown among major cities with some firms avoiding the major cities of India, to operate from minor towns in the service industry with low cost. Some firms are again looking for cheaper and efficient labor in the remote cities (Kobayashi 115)
Shalin observes that the flourishing BPO industry in India is a result of a strong English speaking workforce that joins the market every year (vii). Outsourcing industry in China is faced with a Language challenge as many of the citizens cannot use the language well. To remove this barrier, the government of China is putting in place academic programmes and has also developed curriculum that will lead to more Chinese enrolling in those programmes to familiarize themselves with the English language.
Accenture on the other hand offers extensive services, ranging from application, infrastructure, to business process outsourcing. It embarks on cost reduction to its clients, at the same time offering high quality services. It surpasses china by the fact that it is based on an English speaking country, and also being strategically located in Europe. According to Zacks investment research, “It has been expanding over the years, Accenture also has extensive relationship with world’s leading companies and government, and it operates in over 120 countries” (Zacks investment research 1). This has given this company an upper hand in securing a share in the BPO market (Zacks investment research 1).
Infosearch BPO, another outsourcing company based in India, stresses the need of offering the best services to its customer. Inforsearch seeks to offer Financial and accounting services emphasizing on data security, risk management, governance and improved efficiency (Infosearch BPO services 1).
Inforsearch BPO also offers excellent data processing and management at low rates, and also performs error- data management services that will help the organization save time, and hence money. They also respond to email of clients effectively without delay, removing the offload of many mails thereby reducing email overcrowding.
Labor arbitration across Asia
Labor arbitration is an economic concept where, with the removal of trade barriers, labor moves from regions with low paying jobs to regions where jobs are paying better. Some nations have very high population, and so they educate more labor than can be absorbed in the market. This leads to low wages and salaries. Labor arbitration allows these employees to migrate to other countries and seek employment.
lupinacci (1) found out that cost of labor in Asia is 75% the cost of labor in United States. Therefore creating a need for companies to source cheap labor form Asia, just to save on cost. However, outsourcing only helps to reduce cost and is viable if you are importing labor at a lower cost. Companies in china cannot therefore source labor outside the country, if such labor is abundantly available right in the country.
Initially, outsourcing clients were expected to come from expensive economies such as Japan, USA, Singapore, simply because labor costs in these countries were high, and therefore companies operating from there would wish to import labor at lower costs.
Surprisingly, KPMG international (2) found out that 55% of surveyed companies in India and 46 percent in China say that they already outsource. 24 percent of respondents in India, and 30 percent in china plans to outsource in the next three years.
Companies in India have greater tendency of outsourcing business functions as compared to other Asian companies and this distinguishes the operations of the companies between the two territories. According to the report, 64% of respondents in India say they currently outsource, or plan to outsource accounting, debt collection and tax processing. Only 50% in the rest of Asia say the same (KPMG 2).
Language is an important and indispensable Criterion for companies when selecting and putting into place a service provider.
To majority of the respondents, language and the country’s culture strongly dictates their outsourcing requirement. Although English remains the key language of the subsidiaries of multinational companies, it is not the case with local companies. Therefore, companies looking for outsourcing markets in Asia should employ people who are fluent in Asian languages.
Most of the respondents viewed some tasks such as strategic planning, sales and marketing, risk management and research and development as very important and essential to the company, and so they should be done from inside. According to KPMG international (2), BPO business will boom in Asia, when more Asian companies agree to trust outsiders in the areas they regard as key player. For example, accounting, finance, etc.
Finally, an explosion in the market is set to happen, when the companies that are already outsources succeed over their competitors, as a result of reduced cost brought by outsourcing. The competitors will be forced to follow suit, in order to stay in the business.
Growth strategy to outsourcing company in China
Outsourcing is one of the strategies that firms in developed world are using to lower cost of production, by outsourcing labor which is cheap, lowering their labor cost. Wage rates in China and India range from 10% to 25% as compared to those for quality workers in the US and elsewhere in the developed world (Brecher et al 1).
What this means for Asia is that they stand a chance to expand their markets event wider because more and more firms in the developed countries will tend to source more labor from Asia. A good growth strategy would include:
Adoption and campaigning for policies which allow labor migration across the world. In a free market economy, labor can easily move from countries where demand is low, to countries where demand is high. If all countries adopt this policy and ceases government intervention in labor markets, then firms in a given country can easily outsource.
The government of China should ask its trade partners to adopt this policy, which is widely used by many developed countries in the world. The main drawbacks are that national labor union, as well as non-governmental organizations, which will always challenge the government if most of the countries workforce is outsourced and the unemployment levels, are high.
Mostly, trade unions in developed countries demand for higher and higher pay. With the labor unions as watchdogs, it becomes tricky and difficult for the firm to replace the costly labor with a cheap one.
Language is another factor that needs to be addressed. Language and culture of firms in outsourcing should be that which is acceptable and admirable to those who wish to get their labor. The main reason why Indian firms get a wider market in United States and Europe compared to other Asian countries is their ability to communicate in English.
Chinese government has already embarked on programmers to make its citizens more conversant with English language. However, this does not rule out other Asian languages.
The bottom line is for each BPO company to clearly make a target in the market, and ensure they are proficient in the language spoken in the spotted and targeted market. Companies like IBM India Genpact market share is largely attributed to their staffs’ proficiency in the English language. Asia, that is china and India should embrace outsourcing with both hands.
KPGM international survey report shows that most firms in China embrace outsourcing, but just not with both hands. There are areas in the firms that the management feels so precious to outsource, and therefore they would rather produce their own workforce to do these jobs.
These jobs include strategic planning, risk management, research development. If only everybody could embrace BPO, then china can enjoy the market first in the region and later in the rest of the world. However I strongly feel that in due time, the few firms that have embraced BPO in all areas will make tremendous success against their competitors.
Government Policy
The government of china should adopt policies that are likely to encourage firms to indulge in BPO, either as the supplier of services, or consumers. The policies should involve a tax holiday, for companies in BPO business. If an employee goes to work outside china and they are taxed on their income, the Chinese government should not tax the same so that they can avoid the problem of double taxation.
Recently, the government of china has been encouraging multinational companies to set up outsourcing operations in the country or event set up joint venture with Chinese outsourcing companies.
According to Ensinger, “the Chinese and the US government’s chamber of commerce and industry, Chinese branch, has worked hand in hand with the US government to Sponsor events in America, encouraging the US companies to seek for workforce overseas” (Ensinger pg. 1). The chamber has funded pro outsourcing campaigns, and has openly opposed those who are against it.
Management
This is yet another strategy individual firm should have good management skills that will enable to adopt strategies that will lead to success. Every firm should have a good IT infrastructure management that will ensure the firm advances in IT skills and should produce staffs that possess the same skills. Expertise in area of specialization is a self marketing concept in staff, and china should make their staff as experienced as possible.
Employment retention
The firms should adopt measures to ensure that hard working and focused employees are given incentives and good working conditions and the company should dedicate its resources towards their career development and experience so that they do not leave the firm.
High employee turnover
Raman classifies the reasons that lead to high employee’s turnover into “Drive attrition” reasons caused by the employer, or “drag attrition” reasons due to the employees. Drag attrition are caused by employer, who may fail to re hire employees after the contract period. The employing company’s policy may require retention of only the productive employees, with the rest being sent away (3).
According to Raman, “Drag attrition is due to insecurity and vulnerability associated with taking on a career with a BPO company, while others may quite as a chance to rise up the corporate ladder” (Raman 3). Nature of work in many BPO companies is psychologically stressing and may lead to illness, fatigue, ulcers, depression and other chronic illnesses.
In order to overcome workers turnover, BPO companies should give initiatives to ensure that employees remain with them and to make them feel that they gain more when they work with BPO than when they leave. Incentives may be financial; it can be a pension scheme which is enjoyable after working for years with them so whoever leaves earlier looses the benefit.
High salaries
High salaries that meet employee’s needs should be a must, alongside the assurance of a job security. The employees should feel that the BPO Company holds the future for them.
Raman suggests various ways that employees can be made to stay in a BPO company (8). One of them is changing employee’s attitude towards BPO. Employees should cease from seeing this job as a lifestyle or may be a job to cling on waiting for greener pastures ahead, to seeing it as a career.
This can be done through changing organizational structure, which will give the employee a chance to climb up the corporate ladder, may be from a subordinate staff, to junior staff and later may be a manager.
BPO companies should also present a socially presentable image to the employees and the public at large.
Raman (8) says that “BPO firms should take those physically handicapped in the community, and thereby become socially responsible” as this will present a very good image in the eyes of the employees and they will feel a part of the organization and they will be more loyal and willing to serve the company to the best of their ability.
According to Raman (9), effective communication should be used as a tool to give the employees a sense of belonging. Their views should be taken seriously and whoever has an incentive in the company should be taken seriously. Employees should be informed of what is happening and should be updated on issues of the company.
Employees should also be given a choice of reward. Every employee should be in a position to choose among the varieties of rewards that the company offers
Some people may prefer more pay, while others may prefer more time off. Personalizing rewards shows the company cares for each individual’s needs, as opposed to distributing generic rewards (Raman 10).
Customer satisfaction
This is also very important in outsourcing business; the firm should aim at achieving the needs of the company that it is supplying with technical experts. A good vendor – client relationship also is a key thing in boosting BOP business (Mayen 4).
Schwartz and Ye (1) attributes the key to business success to indulging yourself with a good outsourcing company that will ensure reduction in cost and lead to increased production capacity. The main reason why firms outsource is to attain competitive advantage, and achieve economies of scale (Kakabadse and Kakabadse 3).
According to Harley (106), both the BPO Company and the client should consider certain aspects when developing a good negotiation strategy that amount to good result
Both should understand negotiation position, and the position is largely determined by the objectives and goals of the BPO Company and the client. The clients aim at reducing cost and gaining competitive advantage.
The scope of business
The scope of business being outsourced should also be considered. This is driven by consumer’s business requirement and it will be determined by how the BPO Company deals with certain legal terms.
Relative bargain
Relative bargain positions of either party should also be put into consideration. The bargaining position is influenced by the client’s urgency to enter into a BPO contract and also the benefits that the transaction carried out offers to the vendor.
The parties should establish the objective and goals of the contract because it largely influences the substance and form of the contract entered into.
The parties should define the scope, according to the client’s requirements and the company’s resources and capabilities. The client must first define the scope of the agreement, and then the company redefines it. This process will help to come with good terms over the contract and it is a key to establishing a good and satisfying contractual relationship.
Establish the value and urgency of the contract in terms of your client. The value may range from increased profits as a result of saving on costs to creating a good image in the eyes of the public, as a multinational company that take regards need of other nations.
According to Harley (108), the value may also be psychological whereby if the contract has already been communicated to the employees and the public as a whole, failure to close the deal may be seen as a weak point in the eyes of the public and may demean the client.
Each party must define roles it intends to play in the contract. This involves the legal process of drafting the agreement, where both parties ensure that all its concerns have been put into consideration.
A good contract negotiation strategy by China BPO Company will lead to happy customers and long ties that ensure business progress in the coming years.
Willcocks and Cullen (46) talk of a contract management that will ensure that firms operate at lower costs and in the spirit of profit maximization and relative competitive advantage.
With these factors taken into consideration, Chinese BPO companies can at a significant amount overcome the challenge of employee turnouts and they would be at a path to become world leaders in this business.
Why china has a great potential for BPO
China’s BPO potential has been on the rise over the years, attracting more and more international companies. This strength can be attributed to:
Strong domestic market
China is a country with very high population. This population offers a market for business growth. Many Chinese firms have also started outsourcing some services. The BPO industries therefore enjoy both the domestic market and the international market, leading to a tremendous growth.
A survey conducted by Sanchez (20) shows that many companies in Asia and Canada do not outsource the areas they consider strategic, such as finance, but 90% comfortably outsource it. Companies should however embrace outsourcing in all sectors, to increase the domestic market
Improving education infrastructure
According to Gallagher et al (5), on a higher education report in china by (OECD), enrollment in higher education in China has risen from 5 million in 1990, to 23 million in 2009. This tremendous investment in education means improved and quality workforce for china. The workforce has hence led to high growth in BPO industries.
Skilled labor at low prices
China enjoys a vast population of skilled labor. Going with the law of demand and supply, higher supply will reduce the cost of labor, making manufactures enjoy low labor at very low costs. It has the largest population with 1.3 to 1.4 billion people (Eltscjomger, 34)
Brecher et al (1) argues that wage rates in China and India rang form 10% to 25% of those for comparable quality workers in US and elsewhere in the developed world. Due to this, firms in developed countries are moving to china to source for cheap labor boosting the BOP industry.
Comprehensive IT infrastructure
The government of China has embarked on a massive investment on the IT sector. China’s National Development and Reform Commission (NDRC) declared that the government has spent RMB 367.6 billion on infrastructure. This infrastructure is therefore boosting businesses, especially IT outsourcing.
KPGM international survey report shows that most firms in China embrace outsourcing but just not with both hands (4). There are areas in the firms that the management feels so precious to outsource, and therefore they would rather produce their own workforce to do these jobs. These jobs include strategic planning, risk management, research
Government policies
The Chinese government has embarked on policies that are at largely aimed at boosting BPO businesses. The policies are together with increased English education to make China population to be fluent with the English language and make China globally competitive. The policies also involve giving tax rebates, incentives and subsidies to BPO Companies (Rightsite Team 1)
Exchange Nexus is a Chinese based company that provides insight to other companies on how to outsource. According to Exchange Nexus (1), the company works with top Chinese outsourcing companies trying to outsource and provide them with training resources and this firm is just another reason why China is climbing heights in outsourcing.
Conclusion
The BOP industry is one of the largest growing industries in the world as a result of benefits that accrue to those who use it. The cost of initial investment can be tremendously high, because of capital assets as well as experts in various fields. In fact, the time that a firm may take to develop human resource that it requires and train them to high standard may be too much, considering how important time resource can be to an organization.
BPO makes it possible for you to acquire these services without necessarily training the workforce yourself. BPO can also offer flexible labor because you can have a short term outsourcing contract for a service that you do not need for long. It can also be a good method of acquiring employees, because you can consume them in your program after the contract is over.
Some firms even have policies to retain productive employees after the contract. In the long run, it means such a firm will employ a very productive workforce even in other parts of the world, a supermarket that want to develop sales software, probably do not have a programmer at hand. However, they can indulge an IT company to make this software for them without necessarily employing a programmer.
The outsourcing business also helps in cost reduction because the firms can import cheap labor from developing countries to cut down on production cost. Outsourcing is therefore becoming a very common way of acquiring what firms do not have and the demand for the BPO services is increasing. India and China have got a large pool of skilled employees (Infosearch BPO Services Pvt Ltd 1).
Over the years, India has dominated the market due to proficiency in English language of its citizens. Key leaders in the BOP business include IBM and Infosearch. These companies have branches in India. They are attracted by the large percentage of skilled workforce. Both India and China enjoys high population, resulting to surplus labor which should to be exported to other countries.
China recently has enjoyed tremendous growth in the BOP sector (Weinberg pg 1). The government of China has been encouraging other countries to import labor from china, by diplomatic relations. We have already seen that the United States chamber of commerce and industry (China branch) is very active in campaign to encourage the US companies to outsource cheap labor from china.
Initiatives are also underway to make most of the population to be fluent in English so that they can comfortably engage in business transaction Europe and America. The government has also made allies with other governments, in a view to expand international markets in the spirit of globalization of the labor force (Bpovia.com 1).
Individual firms are also encouraged to undertake strategic measures that will ensure they live long in the business. They should build a good business name by providing high quality services to their customers and establishing good customer relations. Public image presented by a BPO company may either attract customers or chase them away.
If the current trend continues, China will be the leading BPO services provider in the world due to the abundance of professionals with high expertise at a very low price as well an increased IT revolution in Asia, and particularly in china.
Works Cited
Bpovia. China Government favorable policies outsourcing China Business news, 2008. Web.
Brecher, Jeremy., Costello, Tim and Smith, Brendan. From Campgains to movements: Global labor strategies, 2006. Web.
Duening, Thomas, and Click, Rick. Essentials of Business process outsourcing. Canada: John winkly and sons, 2005. Web.
Eltscjomger, Cyrillm. Source code china: a new global hub in IT outsourcing. New Jersey: John winkly and sons, 2007.
Ensinger, Dustin. Report: chamber of commerce held seminar promote outsourcing: America’s Economic report, 2010. Web.
Exchange Nexus. Connecting outsourcing opportunities in china, 2010. Web.
Gallagher, Michael., Abrar, Hasan., Canning, Mary., Newby, Howard., Saner, Lichia – Yiu and Whitman, Ian. OECD Reviews of Tertiary Education, 2009. Web.
Harley, John. Business process outsourcing: Process, strategies, and contract, 2nd ed, 2007. New Jersey: John winkly and sons, 2007. Web.
Infosearch BPO Services Pvt Ltd. BPO Company India: Outsourcing BPO Services & Call Center Solutions in Chennai, India, 2009. Web.
Kakabadse, Andrew and Nada, Kakabadse. Outsourcing: Current and future trends. London: Wiley periodicals, 2005. Web.
Kobayashi, Mark. Outsourcing to India: The offshore advantage, 2nd ed. Berlin: Springer verlag gerlin Heidelberb, 2005. Web.
KPMG International. International and Economic intelligence unit: Asian outsourcing, 2006. Web.
lupinacci, Geno. Out sourcing in Asia, 2011. Web.
Mayen, Cunden. The impact of the it outsourcing relationship on the success of the Venture: A research agenda Warwick Business School. UK: University of Warwick, 2005.
Rafiq, Dossani. Issues in software and Business Process offshoring: Doing Business In India, 2003. Web.
Raman, Rajeev. Strategies to Retain Human Capital in Business Process Outsourcing (BPO) Industry. India: Kohinoor Business School, 2006.
Reid, Warren. Outsourcing: 20 steps to success, 2003. Web.
Rightsite Team. 5 Reasons why China Will Dominate Business process outsourcing, 2010. Web.
Sachitanand, Rahul. Genpact ink 10-year outsourcing deal: Economic Times, 2005. Web.
Sanchez, Carlos. The Benefit and risk of knowledge process Outsorcing: Ivey Bussiness Journal, 2010. Web.
Schwartz, Alan and Ye, George. Outsourcing – Control is the key to success, 2002. Web.
Shalin, Verma. Soft Skills and BPO Sector. India: Dorkling Kinderslery publishers, 2009. Web.
Weinberg, Joshua. Offshoring IT and BPO services to China, 2010. Web.
Willcocks, Lesliem and Cullen, Sara. The Outsourcing Enterprise: From Cost Management to Collaborative Innovation. Newyork: Palgrave macmillian, 2011.
Zacks investment Research. Accenture wins outsourcing contract, 2010. Web.