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OUTSOURCING 101
Before we move on, let’s talk about outsourcing basics. I thought about calling this chapter Outsourcing for Dummies, but if you’re reading this book, you’re no dummy. You’re smart enough to find the information you need to free yourself from drudgery and live the lifestyle you want. In the last chapter, we went into detail about outsourcing. You may already be familiar with outsourcing. If so, you can skip this background information and move ahead to Chapter 4, where we talk about how to put this tool to work for your business. But for those who need it, here’s a primer.
WHAT IS OUTSOURCING?
Most of us understand the “what” of outsourcing: outsourcing is a contractual relationship for the provision of business services by an external provider. In other words, a company pays another company to do some work.
Why Do Companies Outsource?
Outsourcing can reduce costs, increase service quality, and provide access to experts in specialized areas. Here are four more reasons that small businesses outsource.
Reason One: Because They Can
New information technologies make it easier than ever to hire, manage, and coordinate lower-cost, well-educated labor in the global economy, so cost-management as well as quality and time savings make outsourcing a good choice.
Reason Two: Because They Have To
As a business professional, you have to compete. If your competitors are going offshore to find technology or process support at drastically lower costs—and they are—doing the same becomes a no-brainer.
Reason Three: The Economy
Work is also being outsourced because of the recent global economic downturn. Companies are more focused than ever on improving their return on investments and managing spending. To find quality services at lower cost, companies are turning to outsourcing.
Reason Four: Freedom
Living the laptop lifestyle is all about freedom and flexibility, and so is outsourcing. Put more technically: outsourcing shifts fixed costs into variable costs. For example, it’s much easier to scale back outsourced staff than internal staff.
Who’s Doing It?
The financial industry led the way. In the 1990s, financial services firms (retail banking, investment banks, and insurance) began outsourcing. Firms like GE Capital, American Express, and Citigroup led the pack and were followed by Prudential, Merrill Lynch, J.P. Morgan Chase, Lehman Brothers, MetLife, Sallie Mae, Guardian Life, Conseco, and Bank of America.
Today, almost all major corporations outsource a portion of their marketing functions. But outsourcing is not just for the financial industry or the Fortune 500. Once thought of as an option only for large multinational corporations, outsourcing is now seen as a business solution for any organization interested in improving its market position and reducing costs. More and more, outsourcing is becoming a global business trend and one of the most powerful tools in the modernization of marketing.
The “Where” of Outsourcing
As of 2012, the five countries leading the outsourcing pack are India, the Philippines, Canada, Ireland, and Russia. Also on the “most popular” list are China, Mexico, and South Africa, followed by “the challengers”: Brazil, the Caribbean region, Eastern Europe, Malaysia, Israel, Singapore, and Vietnam. Just below these are second-tier challengers: Northern Ireland, Bangladesh, Ghana, Korea, Mauritius, Nepal, Senegal, Sri Lanka, Taiwan, and Thailand.
So how do you choose the location that best fits your needs? Each outsourcing region has its own niche specialization:
• China. Research and development services for life sciences companies.
• Sri Lanka. Accounting services.
• Singapore and Malaysia. Financial and accounting and back-office processes.
• Vietnam and Indonesia. IT service providers.
• India. IT service. In the early 1990s, American Express, British Airways, and GE Capital used India for customer support and transaction processing. Why? India’s education system generates 200,000 engineering and computer science graduates per year. Also, the Indian government gave a 10-year tax holiday for IT service companies in 2000 (which reduced the usual 36 percent tax to 15 percent).
• The Philippines. Contract support services. Recently, eTelecare and Ambergris Solutions have taken their BPO services here, and in 2012, the Tholons investment firm reported that the Philippines had surpassed India as the call center capital of the world, with an estimated 400,000 call center agents compared to India’s 350,000. Tholons also included five cities in the Philippines in its list of the top 100 outsourcing destinations: Manila, Cebu, Davao, Santa Rosa, and Iloilo.
THE PHILIPPINES SUCCESS STORY
In 2009, Businessweek.com called the Philippines “more nimble than China or India” in outsourcing growth, and Mitchel Chang, site manager of Trend Micro, which in 2009 employed one-third of its total workforce in the Philippines, has said, “Filipino software professionals have an excellent service-oriented attitude, are responsive, passionate, and have strong English skills.”
How the Philippines Learned from India
In the past decade, Filipinos made a conscious effort to emulate India’s outsourcing success. At the height of India’s success, Filipino officials visited India and studied its best practices. Based on India’s model, the Filipino government fast-tracked the approval process for companies setting up call centers, offered tax breaks, accelerated the building permit process, and offered tax exemptions for computer and telecom equipment. Most importantly, government sponsored training helped 40,000 students improve their English and communication skills.
An Americanized Lifestyle
The Filipino’s affinity for U.S. culture stems from the fact that the United States ruled the country from 1898 to 1946. In recent years, outsourcing service centers have changed both the rhythm and style of Filipino life. Young, nocturnal data center workers banter in English as easily as their native Tagalog and listen to American Top 40 and hip hop. After work they visit Americanized malls, bars, movie theaters, and cafés that have sprouted up near the centers. Thea Lu, a 30-year-old call-center team leader, says: “There used to be some doubt about letting young people work so late at night, but now this has become an industry that young people aspire to.”
Infrastructure
India’s biggest outsourcing hubs use diesel generators for electricity and struggle with attrition of up to 50 percent a year. Those problems inspired many American companies to look at the Philippines. In 2000, the California company “24/7 Customer” started outsourced operations in India but in 2005 opened an office in the Philippines. The company now has 4,000 employees in the Philippines and 3,000 in India. Its cofounder says, “It’s very sad that India could not keep up with its neighbors.”
Infrastructure projects are a major factor in the Philippines’ growing popularity. Recently, a coal-fired power plant in the La Paz district stabilized its power supply and building developments in Cebu and Iloilo. The Filipino government has widened roads and linked cities to the airport. Residential and recreational areas are also being improved daily.
All of this progress has led to more efficient data centers with more floor space and technical advancements, such as cloud computing. The cloud allows facility managers to consolidate server space and consume less energy than traditional data centers.
In the Philippines, the outsourcing industry makes up about 6 percent of the gross domestic product. The Business Processing Association of the Philippines recorded $9 billion in revenues in 2010 and expects $25 billion in revenues by 2016.
WHAT’S BEING OUTSOURCED?
Outsourced work falls into three main categories: ITO, BPO, and KPO. Don’t let the acronyms scare you. This is just the stuff you do every day.
• Information technology outsourcing (ITO) is technology-specific work, like managing network infrastructures and developing software applications. ITO has been around since Ross Perot founded EDS in 1962.
• Business process outsourcing (BPO) is all about service and refers to operational and administrative functions such as outbound calls, sales, client database, and payroll. It’s typically used to execute duties: loan servicing, accounting, human resources, logistics, and procurement.
• Knowledge process outsourcing (KPO) is a subset of BPO. As its name suggests, KPO involves creativity of the mind. It typically involves research and analytics, but more recently it’s come to include social networking, content production, legal work, research and development, design, online marketing, and search engine optimization.
KPO providers usually work more independently than BPO workers, who usually require more client direction. BPO and KPO used together make a great team. With today’s constantly evolving technology, one outsourcing strategy doesn’t come without the other.
Client Outsourcing Concerns
In 2011, 352 global bio-manufacturers ranked their top three outsourcing priorities. They represent universal concerns.
1. Stick to a schedule.
2. Establish a good working relationship.
3. Comply with my company’s quality standards.
Why Should You Outsource?
Bill Gates has called outsourcing offshore “a common-sense proposition.” But you don’t have to take his word. Think about your company’s needs. Outsourced marketing can help you if:
• You want a well-optimized and well-marketed website but don’t have the time to create content on a regular schedule.
• You know that writing isn’t your strength, but you realize that well-written content will help you build links and ranking.
• You’re a good writer, but you have multiple websites or products that need content support, and you can’t possibly write content for them all.
In case you’d like a little nudge, here are a couple of testimonials from professionals who outsource their social media marketing:
• Bardi Toto, Social Marketing Strategist. “My assistant has built up my groups on Facebook and my fan pages. I now have over 2,500 people in my groups and as fans. I could not have done it without my VA.”
• Larry Goins, Real Estate Investment Trainer. “I gotta tell you, you have to get a VA. They can do everything you need: manage your social media, your social network, your Facebook, your Twitter account, post videos, submit articles, answer your e-mails. Oh my God, I used to spend half a day answering my e-mail.”
• Robert Lord, Direct Source Millionaire. “I’ve been outsourcing my social media for about nine months now, and believe it or not, my Facebook has exploded and my Twitter has exploded. I can’t believe the amount of work and time and effort these guys put into my accounts. I feel like they are my very own employees, and I absolutely love them.”
They sound happy to me. What do you think?
Outsourcing Your Admin
I’m going to be bold and say that any business—large, small, or sole proprietor—would benefit from outsourcing administrative tasks. They’re tedious, time consuming, and sometimes, they can be over your head. With new applications surfacing daily, it would be impossible for you to learn to apply them with any degree of competence and still run your business efficiently.
Outsourcing doesn’t have to cut deeply into your budget if you outsource smart. You’d benefit even by outsourcing two to three hours a week to a competent VA. Trust me, that’ll be enough to hook you. Once you see that bottom line begin to creep up, you’ll be even more motivated to invest in your business, and you’ll look for more tasks to delegate.
Think about how many hours you spend returning phone calls, responding to e-mails, organizing data, filing digital material, maintaining your database (remember, the gold mine), and maintaining customer relations. Those are all basic tasks common among most businesspeople. They can all be done by someone else.
What that means is, for every hour you delegate, you have one more hour in your week for marketing, sales, promotion, and other IGAs. Ask yourself how you think your business would be impacted by three extra hours a week for the tasks that actually make you money? There’s your answer.
If you make $50 an hour in your business, delegating three hours gives you the potential to earn an additional $150 a week, $600 a month, $7,800 a year. Have any ideas what you might do with that chunk of change? That’s the amount of revenue you’re turning away by hoarding your tasks. Ouch!
Administrative VAs are a good investment because they charge by the minute. Some use specialized software to calculate the exact number of minutes they work on your project, and that’s what you pay for. Sometimes you’ll pay a per-project rate based on an estimate of the time it’ll take to execute tasks. Either way, you’re still ahead of the game.
As with other professionals, if VAs want to stay in business, they need to provide impeccable service. They’ll want to retain you as a client, so you can be assured of excellence. Their industry requires a strong knowledge of Internet applications and new technologies, so good VAs stay up to date. Who also benefits? You do. You don’t have to learn new apps if you don’t want to, and, in some cases, you don’t even have to buy certain programs to get the benefit of their use. Your VA will often have what you need.
Okay, so that’s the why in our discussion of outsourcing administrative tasks. Here’s a little more detail about the what. Aside from the tasks mentioned in the first part of our discussion and in other areas of Outsource Smart, there are advantages to delegating these other tasks:
• Creating forms and spreadsheets
• Research (competitors, new products, new ideas)
• PowerPoint presentations
• Bill payments
• Looking for images, links, content ideas, etc.
• Dealing with personal things like birthdays, gifts, and special remembrances
• Travel arrangements
Be as detailed as possible with your VA. Clearly communicate your goals and expectations as well as any deadlines. All that’s left to decide is the when.
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